China Wind Power Surges Ahead (FXI, FAN, CHIE, KOL, XLE)

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By Ryan Landon Swanson

Despite challenges, wind power in China surges ahead

After China’s (NSYEARCA:FXI) installed wind power (NSYEARCA:FAN) capacity doubled annually for nearly five years in a row, analysts in 2011 raised concerns about transmission limitations and overproduction of wind turbines, arguing that a slowdown was imminent.  However, while China (NSYEARCA:FXI) may not continue to annually double its installed capacity, its wind sector is far from stagnating.  Though the official 2011 statistics are not yet released, estimates suggest that China added as much as 20 gigawatts of installed capacity in 2011–roughly equivalent to the generating capacity of 80 US coal-fired (NSYEARCA:KOL) power plants.  China, home of the world’s largest wind power market (NSYEARCA:CHIE), also plans to install a total of 100 gigawatts of wind power capacity by 2015–the amount of wind capacity worldwide in 2008.  With four Chinese turbine manufacturers now in the global top 10, and with a new target of installing 1,000 gigawatts by 2050, China’s future development of wind power is bound to be nothing short of breathtaking.

It is true that grid bottlenecks have limited the sale of wind power, especially in Inner Mongolia, leaving roughly 30 percent of Chinese wind power capacity unconnected to the grid.  In some cases, wind resource-rich provinces in northern and western China have had to curtail wind power because there was not enough transmission capacity to export the electricity to China’s major load centers–the industrial cities along the east coast.  However, the Chinese government is taking measures to overcome these transmission constraints.  First, the State Grid Corporation of China is implementing the West-East Electricity Transfer Project which proposes to build three major transmission lines, each with 20 GW of transmission capacity, by 2020.  These cross-country transmission lines coupled with China’s smart grid investments will provide more flexibility in electricity dispatch and will help to prevent electricity shortages which continue to plague China’s (NSYEARCA:FXI) urban areas.

Furthermore, Longyuan Power, China’s largest wind developer (NSYEARCA:FAN), launched China’s second offshore wind farm in the shallow waters outside of Rudong in Jiangsu province.  The Rudong project has 131.3 megawatts of connected capacity, making it China’s largest offshore wind farm–ahead of the 102 megawatt Shanghai East Sea Bridge Project.  Eyeing China’s 750 gigawatts of estimated offshore wind power resources (three times that of onshore resources), Chinese and foreign wind developers are devising ways to power China’s coastal industrial centers by constructing offshore wind farms alongside them, completely bypassing the need for cross-country transmission lines.  The government, too, supports the idea as the Chinese National Bureau of Energy (NSYEARCA:XLE) passed a new target to construct 5 gigawatts of offshore capacity by 2015 and 30 gigawatts by 2020.

While the two offshore wind farms have proven successful, Chinese offshore development is far from perfected.  Installation costs for offshore wind farms are still relatively high, as they need stronger, higher quality wind turbines and submarine foundations and electric cables.  Moreover, unlike onshore wind farms, which enjoy a feed-in tariff (effectively a subsidy of 0.51 to 0.61 renminbi per kilowatt hour), the sale of electricity from China’s offshore wind farms is not subsidized.  Despite these challenges, however, developers remain optimistic that these two pilot projects will pave the way for a boom in China’s offshore wind power.

In addition to transmission constraints, another challenge that analysts have raised is the National Energy Bureau’s plan to repeal the authority of local governments to approve wind projects.  Thus far, national regulations have applied to wind farms 50 megawatts and larger in capacity; this capacity cut-off sparked a surge of 49.5 to 49.9 megawatt-sized wind farms, which circumvented national regulations and often combined to form larger projects.  With the tightening of control over wind farm approval, some analysts have predicted a slowdown for wind power development, as local authorities can no longer approve wind projects as they please.  But industry insiders also contend that tighter regulation will prevent careless construction, which has led to a number of equipment failures in wind farms across China, and will provide the policy framework necessary for safer, sustained growth.

While much news focuses on specific shortcomings of China’s wind sector (NSYEARCA:FAN), it is important to keep in mind that China still has the fastest growing wind power market in the world and that the government is addressing these shortcomings.  Even amid what some have called a slowdown, China’s turbine manufacturers, wind farm developers, and National Energy Bureau are still striding full steam ahead and have given us plenty of reason to believe that they can meet their ambitious targets.

Ryan Landon Swanson is an associate writer for Wall Street Sector Selector. His chief research focus is on the political economy of China’s energy sector, but he also enjoys writing on the political economy of Latin America. He fluently speaks, reads, and writes Spanish and Mandarin Chinese. Ryan has substantial experience living, studying, and working in both China and Argentina. He earned a B.A. from the University of California, Berkeley in Interdisciplinary Studies with a focus on international relations and energy.

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