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China’s wind groups pick up speed

Author:admin  From:Financial Times   Date:2012-7-17 9:22:24  Click:13953
China’s wind groups pick up speed By Leslie Hook in Beijing and Pilita Clark in London

On a barren ridge in central Ethiopia, the 34 wind turbines scattered among stunted acacia trees are an unlikely marker of Chinese presence in Africa’s second-most populous country.

But they could be a harbinger of things to come. Chinese wind turbine makers have grown rapidly the past five years and now number among the world’s largest producers in a global wind market expected to be worth €60bn this year. Increasingly, they are setting their sights on places such as the windswept hill at Adama, shifting their focus to developing markets and away from the US and Europe.

Chinese wind companies accounted for more than 30 per cent of global turbine sales last year. They are expanding abroad as installation growth in China, the world’s biggest turbine market, flatlines due a bottleneck in the electricity grid and delays in a new turbine certification process.

The political backlash and anti-dumping tariffs Chinese renewable energy companies often encounter in the US makes non-western markets more attractive. These new wind markets are among the fastest growing in the world, and Chinese turbine makers’ competitive pricing and financing abilities have given them an edge, analysts say.

China’s turbine exports are still small as a per cent of total global installations, but increasingly Chinese groups including Sinovel and Goldwind – the world’s second- and third- biggest turbine makers by market share – are setting up local production facilities to meet the needs of wind markets overseas.

Global wind installation growth is expected to slow down in the US and Europe, two of the world’s biggest wind markets, because of political uncertainty over wind subsidies in the US and the eurozone debt crisis. With the climate gloomy, competition for niche emerging wind markets is fierce.

“Given the uncertain global climate for wind and solar since last year, we think this represents a very good opportunity for us to focus on developing markets,” Zhang Chuanwei, chief executive of Mingyang, China’s fourth-largest turbine producer by sales, told the Financial Times.

“Outside of China, India is the fastest growing market in the world for wind and solar, and the most active market in the world,” says Mr Zhang. But the group is also looking at developing economies, including Africa and parts of eastern Europe, he adds.

Mr Zhang has been putting his money where his mouth is. Mingyang recently paid $25m for a 55 per cent stake in Indian group Global Wind Power as part of a broader deal with Anil Ambani’s Reliance Power. Under the terms of their partnership, Mingyang will work with Reliance to install an ambitious 2.5GW of wind and solar capacity in India – a 16-fold jump in Mingyang’s current global order book.

Developing markets are still small: Africa and the Middle East combined accounted for less than 1 per cent of installed wind capacity at the end of 2011, industry figures show, while Latin America and the Caribbean together made up only 1.3 per cent.

However, they are growing quickly from a low base. “The established wind markets in North America and Europe are no longer projected to see much growth,” says Sebastian Meyer, Beijing-based research director for energy consultancy Azure. “The developing world is going to be the main area of growth in the coming decade in wind power.”

Most wind farms were installed outside OECD countries for a second year running in 2011, but the attraction of developing markets for turbine makers varies widely depending on subsidy policies and power grids. Upgrading or reinforcing electricity grids to cope with extra wind power is much easier in large markets such as Brazil or Argentina than in Ethiopia and many other African countries.

Analysts’ views differ on how much of a threat Chinese turbine makers pose to western rivals such as Vestas of Denmark, the world’s biggest wind company by sales.

Chinese turbine makers tend to tolerate higher risk than their western counterparts, and are able to tap state-backed financing: Goldwind and Mingyang each have credit lines of $5bn or more from China Development Bank.

But there is a “technology gap” between certain Chinese turbines and those made by European or US companies, says Eduardo Tabbush, onshore wind analyst at Bloomberg New Energy Finance, as well as issues around providing maintenance and repair services.

Concerns over intellectual property protection have dogged some Chinese turbine makers, such as Sinovel, which is embroiled in an intellectual property dispute with American components maker AMSC. The dispute threatens some of Sinovel’s biggest overseas contracts and has resulted in the suspension of its flagship 1GW project in Ireland.

But Chinese manufacturers will still have a disruptive influence on prices and margins, says Mr Tabbush, because their bids are often 20 to 30 per cent below those of western rivals.

Those low prices are a key part of Chinese wind companies’ success so far in developing markets.

“I really haven’t seen a downturn at all in Chinese wind turbine sales abroad [this year]; in fact there’s been an uptick,” says Caitlin Pollock, Asia wind analyst at IHS, the energy consultancy. “They seem to be targeting markets with financial problems, and seem to be very successful, partly because of low prices.”

China’s largest wind turbine producers are also making inroads in developed markets, though not as quickly.

“Being able to compete in the US is an important part of our strategy,” says Tim Rosenzweig, Goldwind’s US chief executive. “If you are able to compete here you are able to compete anywhere.”

Additional reporting by Gwen Chen