By Ben Backwell
Tuesday, December 03 2013
Senior industry players such as Wu Gang, chairman of market leader Goldwind, and Gamesa China boss José Antonio Miranda agreed that the sector will see a return to a stronger path of growth, although it will take some time for it to regain the dizzy rate of installations in 2010 and 2011.
Despite a great deal of progress on solving the grid constraints that have stymied growth over the past two years, much remains to be done, particularly on the policy side. And there is still a huge — although shrinking — capacity overhang that is keeping conditions very tough for turbine manufacturers.
On the positive side, however, those attending the briefing at the Crown Plaza Airport Hotel in October — senior officials from European and Chinese supply-chain companies, analysts and industry bodies — left with a sense of how much progress had been made in terms of the quality of China’s turbine manufacturing and supply chain.
Other issues emerging from the discussions included how utilities will deal with managing their fast-growing fleets of turbines, especially as their warranties come to an end, and the country’s offshore sector, where there seems to be a mismatch between expectations and the current policy support framework.
Here are some edited highlights of the discussion.
Wu Gang | chairman of Goldwind The Chinese government now demands transparency of the industry. If there is some problem with a manufacturer or company, they should tell the government or report these problems to society. I think this is a positive signal.
And I think the Chinese government is paying great attention to new energy.
Steve Sawyer | secretary-general of the Global Wind Energy Council We are still waiting for the epiphany [in terms of removing the barriers to wind development] and it may be some time, but I’m very encouraged by what I see and hear from particularly government officials about the recognition that something fundamental has to change in the electricity sector.
There were rumours of a new round of electricity market reform. What that will look like in terms of unbundling and marketisation of either the wholesale or retail aspects of the electricity sector, I don’t know. It’s not clear to me how State Grid and some of the other key players can be incentivised to make the management changes necessary to the grid to integrate larger quantities of wind power or other variable renewables. But things seem to be coming to a head.
The traditional model is breaking down. But how we get to that point here, where the true cost of generation and real marketisation is, that’s a long way away.
So those are the issues, the same issues as everywhere in the world, but with Chinese characteristics. And on a scale that’s not comparable to anywhere else.
OVERCAPACITY IN THE CHINESE TURBINE INDUSTRY
Wu Gang It’s important in China to look at what we mean, because some of these companies are not really wind turbine manufacturers, so if you say overcapacity that just means manufacturing overcapacity.
Some of these companies have no real design process — maybe they buy a licence from someone else, but this kind of manufacturing is perhaps over. Wind turbines are designed and manufactured, it’s a very complicated system where you need to design for production of thousands of turbines and you need a supply chain.
So if you really cover all these issues, there are just a few companies.
Steve Sawyer The numbers were about 40GW or 45GW of manufacturing capacity a few years ago, and it will be a while before the market ever gets to 40-45GW, so I wouldn’t hold my breath. The number of manufacturers has decreased, but I am sure capacity is an awful lot more than 15GW per year, which seems to be the suggestion for what we can expect in the next few years.
Jukka-Pekka Mäkinen | chief executive of Finnish generator maker The Switch When we got started here everyone told us: “Don’t worry, you bring the technology and we’ll manufacture everything ourselves.” And that of course brought huge capacity for all areas, for generators and all turbine parts.
Now we’ve seen the stabilisation of the industry, where the number of turbine manufacturers has dropped from 80-plus to somewhere around 25 or 30. Clearly the current players there now are much stronger and they are making international-quality, compatible machines.
So in the next phase, there’s more capability for production in China now, but still going forward here I see a place for this co-operation. The successful companies in China will be the ones that choose the best partners, because the industry will need bigger and better machines.
WHETHER "GO GLOBAL" IS HAPPENING
Wu Gang For Goldwind it’s no problem. I think when Chinese companies go to foreign markets, there are several issues. First, if customers buy your machines they need banks and insurance companies to support [them]. If you have no record in the international market nobody will trust you, you won’t have bankability.
What Goldwind did is we tried to sell turbines but also we invested to set up projects, for instance with the Shady Oaks project near Chicago.
Europeans trust [Goldwind-controlled German turbine designer and manufacturer] Vensys because we manufacture in Germany. Now Vensys is starting to do some projects in Europe and Goldwind is giving financial support, supporting them in the market.
The second difficult issue is if you want to sell turbines in America or Australia you have to first get certification for safety or the electrical power grid. This is very important.
The third issue is that a lot of local governments, they want you to buy local components as much as possible to support the local economy. In the US, they’re comparing Goldwind machines with GE. I think even we bought a higher percentage of local components than GE. So that is the reason why we could get projects.
Steve Sawyer What turbine makers are discovering more and more, I think, is that in order to sell their products abroad they need a transparent track record. And there are very few that have that. One of them [Goldwind] is here.
The timing is also bad, of course, because competition is fierce, not only here in the domestic market, where you have 100% overcapacity, but in the global market which is in a similar state.
I think the biggest opportunities for Chinese companies in the short and medium term will be in emerging markets like Africa, Latin America and other parts of Asia where they can compete with significant advantages, especially with China Development Bank loans.
This whole business about “the Chinese are coming and are going to take it all” was never more than mostly Sinophobic propaganda by right-wing newspapers in Britain and the US. There was never any reality there and I think what you’ve seen is what we suggested would be the case years ago.
And that’s that it would start very small and that the companies would have to get used to doing business in a very different environment and slowly, gradually build.
Eventually it will reach some kind of equilibrium — 10% or 12% or something like that. And I think that’s pretty normal and what could have been expected. But the notion that the wind industry was going to follow a similar pattern to what we’ve seen in the solar industry, it was never going to happen — that was nonsense made up by people who don’t understand the industry.
José Antonio Miranda | Gamesa China chairman and chief executive Gamesa also faces the challenge of exporting from here. In my view the cost of exporting from China will rise, because the renminbi will appreciate, and the overcapacity we have now — almost double the needs of the market — will be adjusted.
So the question is, can cost in the long run, be the only competitive advantage of the companies that want to export from China? I say “no” and that we have to bet on quality as well.
QUALITY ISSUES WITH CHINESE TURBINES
Wu Gang The problem today is that our clients are more mature than before. They have more experience. And in Goldwind, we’ve learned from European countries like Denmark.
I learned my first lessons about wind power 25 years ago in the Risø national laboratory. They told me not just about the best parts about wind power but also the problems, like wind towers falling down. So I began to realise that wind power is a long run.
Goldwind pays great attention to the quality of its machines and with Vensys our machines have a German quality.
Goldwind has already been in this market for a long time because we also pay attention to put money into R&D and put our energy into building direct-drive machines. Permanent-magnet direct-drive can also save generation costs. Also it has a great cost advantage per kWh.
Steve Sawyer At the Shanghai offshore conference in June, the developers were very outspoken and critical of the quality of some of the companies. And I think if you look at individual buying patterns of the biggest utilities, there is much more emphasis on quality and life-cycle costs than there was several years ago.
J-P Mäkinen You may have the best ideas in the world for the next bigger machine, but no company can do it alone. They need partners to execute projects.
It’s really about how you work together. It means local manufacturing. For instance, we are locally manufacturing generators with Dongfang and we have our local production of converters.
The main thing is that we hang on with the customers — first of all supporting our existing customers and also looking at how to develop new machines with them. I see that there is a strong need for networking. No company, even in China, has succeeded in achieving fully vertical integration. Many tried but everyone has somehow ended up looking at their core competencies, what they can do best in the industry and concentrating on that.
When we came to China, everybody said they could make good generators themselves. They thought about it. But they never went on line to make high-quality products.
SERVICES BECOMING MORE IMPORTANT
Wu Gang The market is huge for services. From the beginning most activity came from a desire by operators to do it by themselves. But they have found that the efficiency is not high, so now they are looking for professional services companies to accomplish that.
Secondly, they need long-term monitoring for turbines, they need more information. Because the wind turbines maybe have 20 or 25 years lifetime, but currently in the market, some turbine manufacturers, maybe they are successful for five or six years, after then they have big damage, to gearboxes, generators... This is a big risk.
So the manufacturers are doing service themselves. So this is a huge market. We have built a big independent service team. I think 50% of the services are for Goldwind machines. But another 50% is in the market to provide services for other machines or for other customers.
José Antonio Miranda Our experience is that service expenditure is lower than in other countries because a lot of turbines are still under the warranty period and so utilities are not really conscious of the cost implications.
More and more we see that the fleet of turbines that each customer has to handle is growing exponentially. If the utilities want efficiency, they are going to have to learn how to have control centres — State Grid alone can’t be the solution, so we see a big gap there.
THE CHINESE OFFSHORE MARKET
José Antonio Miranda There is a lot of talk about the offshore business in China. And everyone is saying that it’s going to be the next booming market after 2015 and 2016 and so on.
But still we don’t have a tariff structure. The values that you hear sometimes, even in rumours, are very low. So the question is: how can China really build a strong, safe and healthy offshore industry with such a low tariff?
I don’t see it. I don’t know if people are aware of the situation. But the value has to be at least double. And I don’t see this trend yet.
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