Tapping into China's Wind Turbine Market
Incentives create opportunities for new energy companies
The financial crisis last year has seen many multinational companies slow down or even halt new investment around the world, however, the vast opportunities in the renewable energy sector both in China and worldwide have continued to drive investment in the production of wind power equipment.
This week, RightSite takes a closer look at the landscape of China's wind equipment manufacturing sector and highlights potentially lucrative areas for investment. The rise of oil prices over the last two years has driven increased investment in new energy sources worldwide. In China, this movement toward renewable energy has meant rapid movement toward achieving and even exceeding its wind power goals. In 2007, China set targets of installing 5 gigawatts of wind power capacity by 2010 and 30 gigawatts by 2020. Given the current pace of development, however, China's is on track to reach its 2020 goal of 30 gigawatts by the end of 2010 – a full decade ahead of schedule. Establishing this capacity would give China the second largest installed wind power capacity in the world.
In monetary terms, the wind power sector attracted over RMB 340 billion in foreign investment to China during 2008, accounting for over 20% of global investment in the wind power sector.
Halved VAT for Electricity Generated by Wind
Beyond the global demand for increased windpower capacity, incentives put in place by the Chinese government have helped to increase the demand for wind power equipment locally. Chief among these incentives has been a 50% decrease in the VAT rate for electricity generated by wind put in place in 2001 to encourage the growth renewable energy. In a September 2001 circular jointly issued by China's Ministry of Finance (MOF) and the State Tax Administration (STA) new VAT rates for energy were put in place that lowered the rate for wind power to 8.5%.
Policy Changes Fuel Wind Power Equipment Production
Besides the tax rate cuts that have helped to make wind power economically practical in China, some recent changes in the import duties on imported wind power components have made it easier and more affordable to produce wind turbines in China.
In April 2008, China has issued a document on “Adjustment of Tax Incentives Policies for Imported Large Power Wind Turbine System, Key Components and Materials.” Under the terms of these new policies, companies producing large wind power turbine systems are eligible for the return of VAT and import duties levied on imported key turbine components and raw materials. At the same time, tax breaks on importing smaller, fully built systems were removed when the government ended the import tax exemption import on wind generation systems of less than 2.5MW for domestic and joint-ventures companies in November 1, 2008.
These tax policies aim to encourage technological innovation and improve the production ability of domestic wind equipment enterprises. They have also provided significant advantages in terms of market access for foreign companies who relocate production to China.
Export Powered by Raising Global Demand
In addition to the changes in domestic demand, exports have risen in response to increased global demand for wind power equipment. Many developed countries have rolled out stimulus packages to encourage the growth of renewable energy production and this has made European countries such as Italy, the Netherlands, the United Kingdon and Spain into major importers of wind power equipment from China. According to the latest statistics from the customs bureau, Tianjin Port alone has exported a total of 166 wind turbine units from January to September of this year – a 120% increase compared to last year. And according to a report published by the energy division of China Investment Consulting , China exported 10,398 wind turbine units in 2008 generating revenues of USD 211 million in the process.
Increasing Investment in Wind Turbine Manufacturing
Currently, there are over 70 major wind turbine manufacturers in China, around 50% of which have the capacity for immediate production. Of these manufacturers, foreign invested firms owned a combined market share of nearly 38.84% in 2008 with the remainder of the market shared primarily amongst China's biggest three manufacturers, Goldwind, Huyue and DongQi.
Despite facing fierce competition from fast growing domestic competitors, most foreign investors remain confident enough to invest in the sector for the long term. The Danish wind power giant Vestas has reportedly invested a total of over RMB 3 billion in China to date, and Lars Anderson, the president of Vestas' China operation recently declared that “We are very aggressive in our expansion in China."
Demand for Imported Technology
Despite the rapid growth of China's wind turbine manufacturing sector, domestic production is often limited by a lack of critical technology. While many companies have rushed to produce the carbon fibre blades used in wind turbines, as of yet no domestic companies are producing their own electronic control systems, and they are forced to rely on on imports for these critical components.
Many small manufacturers rely on technology permits purchased from foreign companies to support their production and most of the products they provide are low-end turbines below 1.5 MW, or turbine components such as blades, which has created saturation in some market segments. This over-supply of low end products seems set for a market restructuring and consolidation in the near future, and already the market for low and mid-range turbine blades is reported to be flooded.
A Snapshot of China's Wind Turbine Market in 2009
Over 70 wind turbine manufacturers (including 8 joint ventures and 9 foreign-owned companies)
Over 50 companies in turbine blade manufacturing and over 100 wind-power tower manufacturers.
38.2% of the sales of wind turbines achieved by foreign manufacturers (10% by Vestas, 12.8% by Gamesa )
A yearly 108% market growth rate from 2007-2008
Total market value expected to reach RMB 800 billion by 2020
Total installed capacity expected to reach by 2010-2500 MW
Major Wind Turbine Manufacturers in China
Xinjiang Goldwin Science & Technology is China's leading wind turbine manufacturer, with 18% of the market. The company runs several projects in China's largest wind farm, Xinjiang Dabancheng Wind Power Base, including a 50,000 KW pilot program. The company acquired Germany's Vensys Energy in 2008 which helped it to add 2.5 MW turbines to its existing product line (600 KW; 750 KW and 1.5 MW).
As the seventh largest wind turbine manufacturer in the world, Sinovel Wind accounts for nearly 23% of China's wind turbine market. The company first introduced the technology of MW-class wind turbines and now is in the progress of developing its own 5 MW wind turbines to serve the global market.
Vestas Wind Systems is a Danish manufacturer, seller, and installer of wind turbines, currently the largest in the world with a 28% market share. Vestas unveiled what it claims is the world's largest integrated wind power production base – a 230,000 square metre facility in Tianjin costing nearly RMB 2.5 billion during October this year. The plant incorporates the production of turbine engine rooms, blades, generators, control systems and mechanical parts.
Siemens started the construction of a new wind turbine production facility in Shanghai Lingang New City in May 2009. The new RMB 573 billion investment signaled the company's official entry into China's wind power market.