If you thought that the wind industry in China had all but stalled (in favour of solar), think again. The nation’s market is in rude health and looking to boom in the near future. We present and up-to-date snapshot.
Since 2011, the Chinese wind market has been in a consolidation phase, following nearly a decade of explosive growth. However, the market in set to recover substantially, and in 2013 new wind installations were up by 24.1% from 2012, with 16.1 GW of new capacity connected to the grid, bringing total capacity up to 91.4GW. This makes China once again the global leader, both in terms of annual market and cumulative wind capacity.
In the meantime, turbine prices have also recovered, reaching an average price of RMB 4000-4100/kWh (EUR ~470/USD 650), up by about 10% from the previous year. Margins are still very thin for most manufacturers, who have cut their expenses to a minimum in the past two years.
Electricity generated by wind power accounted for 2.6% of the national total in 2013, an increase of 0.5% from 2012. The average annual full load hours reached 2080 hours, which represents an increase of 151 hours from 2012. This is partly due to improved system management and the fact that 2013 was a good year for wind.
The top ten turbine manufacturers dominated the Chinese wind market in 2013 with 78% of the market share. Goldwind consolidated its leading position with a market share of 23.31%, accounting for nearly a quarter of the national market, followed by United Power with 9.25% (1,487 MW), Ming Yang 7.9% (1,286 MW), Envision 7.01% (1,128 MW) and XEMC 6.54% (1,052MW).
In 2013, Xin Jiang ranked as the number one province in China in terms of wind development with a record capacity addition of 3,146 MW, which is comparable to Germany’s annual installation rate. Xinjiang has also a solid project pipeline for the next 2 to3 years, as it is expected that a new HVDC line will be commissioned, facilitating the transmission of the output of 8 GW of wind power to the densely populated Henan Province.
The other top wind power provinces were Inner Mongolia, adding 1.6 GW to the Chinese grid, followed by Shanxi with record installations of 1.3 GW in 2013. The lower wind speed area Yunnan, a province with very high biodiversity, dropped out of the list in 2013 due to environmental concerns expressed by the local government, halting all on-going projects. Installations slowed down in the northeast provinces of Hei Longjiang, Jilin and Liaoning, due to decreased electricity demand and lack of sufficient grid infrastructure.
Feed-in tariff premiums, which consist of the difference between the wholesale price of electricity and the feed-in tariff, have in the past been paid by the central government to the grid companies at the end of each fiscal year, after which they were then paid out to operators.
The government raises the funds through a Renewable Surcharge which is paid by all electricity customers. In 2011, premium payments began to be delayed due to the huge numbers of wind projects, and the backlog built up to a high level during 2012. The premium accounts for more than half of the feed-in tariff, thus having a considerable impact on the cash flow of project owners and consequently on the entire supply chain.
At the end of 2012 a new mechanism for payments was put in place by the National Energy Administration (NEA), providing for quarterly instead of annual payments, which is gradually solving the problem. However, the rapid growth of the wind (and now the solar PV) industry has meant that the availability of support for renewable electricity is still very tight.
At the end 2013 the government had to raise the Renewable Surcharge, which is added on top of each kWh of renewable electricity produced, up to RMB 1.5 cent/kWh (EUR 0.17/USD 0.25 cent), almost doubling the previous level of the tariff (RMB 0.8 cent/ kWh (EUR 0.09/USD 0.13 cent).
The rapidly expanding renewable energy industry has put great pressure on the government to finance its development. This has initiated an on-going debate as to whether wind energy will reach grid parity by 2020, therefore making the case for lowering the FIT in the next few years.
The current feed-in tariff, which came into force in 2009, has four categories based on the quality of wind resources in the different provinces. The FIT will be reviewed for the first time in 2014.
Air pollution: new opportunity for the renewables industry
China is suffering from an increasingly severe air pollution problem and the situation has further deteriorated, especially in northern China. Prime Minister Li Keqiang announced a new “Combating Air Pollution Action Plan”, which aims to curb pollution in particular by targeting the reduction of the use of coal.
This was followed by another action plan published by the government in 2014 to combat air pollution, which includes a prohibition of new coal-fired power plants in the region of Beijing, Tianjin, and Hebei and Shandong provinces. The plan also aims to reduce coal consumption below 65% of the national total energy consumption, compared to 65.7% in 2013. The severe air pollution problem offers the renewables industry an opportunity to further expand and to consolidate its role as a clean energy provider.
Restructuring of the NEA and the project approval process
In 2013 the new Chinese government carried out a reform of the energy administration by giving project approval authority to the provincial governments. In the new system the NEA is responsible for overall strategic planning of the energy policy, leaving project permitting to local officials working closer to the ground.
Moreover, in 2013, the NEA was re-structured and merged with the State Electricity Regulatory Commission (SERC). The latter was established in 2002 after the initial round of electricity reform, which separated the transmission companies from the utilities. However, the electricity reform did not advance further at the time, and did not separate distribution and transmission companies, and hence the SERC’s role was to further facilitate the reform and to open the electricity market.
The fact that the grid companies are the biggest monopolies in China, however, made advancing the reform difficult. Now the merger of the NEA with the SERC shows signs that the new government is aiming to create an electricity market, including opening the sector for private investment. This discussion, however, is still on-going.
Obstacles to wind development
The grid remains the most serious challenge facing the wind industry in China. The real bottleneck is the transmission system and the curtailment of wind production at peak periods due to the grid companies’ inability to manage the transmission system effectively. However, the rate of curtailment has slightly decreased; reaching 11% nationwide, down by about 6% from previous year, yet in some areas the rate goes up to 25-35% at certain periods of time. A series of measures to tackle the curtailment problem were put in place in 2013 and the government has put an increasing focus on “increasing the flexibility of the grid”.
Additionally, a new HVDC line of 800 kV was commissioned to connect Hami, XinJiang and Zhengzhou provinces with the load center in densely populated Henan province. This immediately caused a series of orders for about 8 GW for wind projects in the Hami area, giving a significant boost to the industry at the end of 2013.
Some further innovative solutions were also suggested in order to solve the curtailment issue, including a wind heating system along with a number of pilot projects which started operation at the end of 2013 in the eastern part of Inner Mongolia.
The long awaited Renewable Energy Portfolio Standard (RPS) is expected to be introduced in 2014, which should be by far the strongest policy measure to date to force the grid companies to respect the Renewable Energy Law, which gives wind and other renewable electricity sources priority access to the grid. The responsibility for meeting the RPS would fall on the shoulders of the local grid companies (subsidiaries of the national grid company) and the provincial governments.
The tricky part is the level of penetration: if the level is too low, it will be used as a ceiling for further renewable electricity to be fed into the grid. All in all, the RPS is a compromise solution to the curtailment problem. But given the enforcement situation in China, the RPS seems to be the best way forward at this stage.
Outlook for today and beyond
Despite the challenges the Chinese wind market is set to further recover in 2014 – annual installations are expected to continue to grow over the next few years, as the grid connection becomes easier and the government establishes more favourable policies. Furthermore, the offshore sector is expected to take off in the next year or two. The Chinese government has also set a new ambitious target of 200 GW by 2020 and if the past is any indication, the target will certainly be achieved, and likely exceeded.
PES would like to thank GWEC, the Chinese Wind Energy Association, CWEA, and Chinese Renewable Energy Industry Association, CREIA for their assistance with this article.
