Global Economics

China: Wind Power's New Force


Beijing spent some $2 billion on the renewable energy source last year, and the mainland is on track to eclipse Europe, Japan, and the U.S. in a few years

China's alternative energy market is growing in gusts. Beijing has set the ambitious goal of having renewable energy (including hydro, solar, biomass, and wind) meet 15% of its energy needs by 2020. The European Union, by contrast, is aiming for 20% by the same date, and the U.S. just 7.5% by 2013. Achieving that 15% goal will take an astonishing $265 billion in investment, and just last year China sank some $10 billion into alternative energy, second only to Germany.

For China, wind is the fastest growing renewable: In 2006, the government spent some $2 billion, doubling capacity, and putting China on track to eclipse top wind manufacturers in Europe, Japan, and the U.S. within a few years, predicts a report released on Nov. 14 by Washington (D.C.)-based Worldwatch Institute.

"Wind power in China historically has been driven by a desire for industrial development," says Eric Martinot, senior visiting scholar at the Tsinghua-BP Clean Energy Research& Education Center in Beijing and one of two authors of the report. "But it is now being eclipsed by a desire for energy security. Beijing wants anything that can substitute for energy imports and anything that can stretch out China's coal reserves." Martinot predicts China will easily exceed its wind power plan, which calls for 5 gigawatts (a gigawatt equals 1 billion watts) of installed capacity by 2010.

Promising Market for World Players

By the end of this year he expects China to already have 4.6 gigawatts and by 2010 two or three additional gigawatts beyond its goal. By 2020, Martinot says, Chinese wind projects will produce 30 gigawatts, equal to the amount the country will get from solar power. "I suspect that at some point in the middle of the next decade, the government will revise their target upwards," he says.

"The demand for turbines here in China is going to be huge," says Gary Evans, CEO of GreenHunter Energy, a privately held alternative energy company based in Grapevine, Tex. "That's because there is a mandate for state utilities in China to use alternative energy. And China has excellent wind resources, especially along the coast," he adds. China has estimated that it has total potential wind resources which, with development, could reach 250 Gw onshore and 750 Gw offshore. And installed capacity is expected to double again this year.

All that adds up to a very promising market for the wind players of the world, including Randers (Denmark)-based Vestas Wind Systems A/S, the world's largest wind company. Already, Vestas has 1,121 installed wind turbines in China totaling 843 megawatts, the largest number of any company. With the opening of a facility in late September, Vestas now has three factories, all in the coastal city of Tianjin, producing generators, nacelles (the hollow shells which house the drive shaft and gearbox), and hubs for 1.8- and 2-megawatt wind turbines. Its staff in China has grown from just 50 employees two years ago to more than 1,000 today. Meanwhile, the Copenhagen-listed company has seen its stock more than double in value over the past year.

Components Shortage

"In 2006, China was already fifth or sixth largest [wind market] in the world," says Vestas President and CEO Ditlev Engel. "It's clear that China will become very important," he adds. "During construction as we looked at the market development, we decided what we were doing was not big enough. So we enlarged the facilities. What we are ending up with now is quite a significant manufacturing setup," adding that Vestas in Tianjin will produce both for China and for export.

But while foreign wind powers like Vestas, Spanish company Gamesa Corporacion Tecnologica ,and GE Wind Energy (a subsidiary of General Electric's (GE) GE Energy) expand in China, local players are emerging, too. In the 10 years since its founding, Xinjiang-based Goldwind Science & Technology has grown to become the market leader, with 33% market share. That compares to 24% market share for No. 2 player Vestas, 17% for Gamesa, and 13% for GE. Now, according to Chinese press reports, Goldwind is seeking a listing on China's domestic exchange in Shenzhen. Meanwhile, the second-largest local player, Sinovel Windtec, only has 6%, with a scattering of other locals companies having around 1% and less.

China's massive wind rollout is even leading to components shortages around the world and a backlog of orders for wind turbines. "There's a short supply worldwide. Some of the larger European manufacturers will tell you to wait to 2012," says GreenHunter Energy's Evans, who is aiming to source Chinese-made turbines for wind farms he plans to open in New Mexico, California, and Montana. "Obviously, we are concerned about the technology and quality level," he says. But after inspecting some Chinese turbines, "we think they very well may be superior to some European turbines," he adds, declining to name which company he will be sourcing from.

Roberts is BusinessWeek's Asia News Editor and China bureau chief.

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