While much of the industry will join the congratulations to Chinese wind turbine OEMs that have developed onshore and offshore prototypes unarguably bigger than their Western counterparts, this quest for size ignores important considerations around improved quality and efficiency, and – most importantly – financeability.
In 2016, I wrote that the renewable energy industry should start paying more attention to the innovation and product development activities of the Chinese wind turbine OEMs. At the time, their cash flows allowed them to invest heavily in R&D and product development, with the fruits of their labour now becoming evident to the world.
However, unless you are in Africa, Eastern Europe or Western Asia, you may not be able to get your hands on one of these lovely gigantic turbines, because Western financiers are not yet bought into the premise of financing a Chinese-built turbine at the same rates the Western OEMs enjoy.
This is further compounded by the fact that engineers in the industry have often lacked perspective on the development of new technologies. Their historical approach of “build it and they will come” has resulted in numerous products and services which received heavy investment but failed to deliver commercially, despite being technologically feasible.
The primary reason for this is that engineers are often disconnected from the fact that all new technologies, products and services must be technologically feasible and also financeable. Design for six sigma is a familiar concept, while design for financeability is not.
Bigger turbines do bring some cost efficiencies on foundations and O&M, but that is no guarantee of higher quality. A spate of recent turbine fires around the globe, foundation quality issues in Germany, and other turbine collapses due to mechanical component failure or inadequate lightning protection have resulted in significantly increased insurance claims and a black eye that is starting to become more publicly visible for the entire industry.
Markets with space constraints necessitate the largest possible turbine, but the other caveat to that is that it needs to be able to obtain a site permit. Turbines with excessive tip heights, or markets with insufficient setback distances continue to leave the door open for the industry’s OEMs to develop a newer version of their 2–4 MW product platform with higher efficiency and better quality.
The wind energy sector has moved away from developing high quality products to once again focus R&D spend on trying to capitalise on the hydrogen hype cycle or other prescient and headline-grabbing topics. In the meantime, during the past 25 years, the global average net capacity factor for wind energy has grown from 26% to approximately 40%, but the bulk of that growth happened more than 10 years ago now.
The industry is in desperate need of product portfolios which focus on higher quality, higher efficiency and improved financeability across all markets.
Western barriers remain
For their part, the Chinese have decided to strive for larger machines in an effort to better compete with Western OEMs in Western markets. This reflects a misinterpretation of the advice they received on how to develop their products to compete in a global market with the best profitability and lowest capital expenditure on design, manufacturing tooling and supply chain sourcing.
In the US and EU member countries, high import duties will continue to prevent Chinese OEMs from competing there using importation of lower cost goods manufactured in China. However, in Africa, Eastern Europe, Central and South America, as well as Western Asia, the Chinese OEMs are poised to gain significant traction due to a lack of protectionist trade duties.
Historically, poor performance in the operations or maintenance of Chinese wind turbine equipment was down to an operational philosophy where OEMs are not allowed to maintain much of the fleet they deploy in China. Service contracts in China are competitively tendered to independent service providers who do not operate the assets properly. This has created a performance risk and a reputational risk for the Chinese OEMs.
Western OEMs are increasingly being handed long term service contracts because the financiers and insurance companies see the benefit of OEM involvement in operations and maintenance. Past poor performance gave a skewed picture on asset reliability and availability to Western renewable energy project financiers and developers, largely eschewing the possibility of Chinese OEMs getting the same finance rates as the Western OEMs enjoy.
While many of the Chinese OEMs have built a portfolio of much larger onshore and offshore wind turbines, the question still remains open as to how quickly they can penetrate Western markets. Last year my contention was that it would still be another five to eight years before Chinese OEMs could gain significant market share in the US and EU, while the rest of the world will see impressive market share penetration, but with significantly smaller volumes.
If the Chinese truly want to go global, they need to focus their products on being more financeable and they will surely shorten that time-frame.
Philip Totaro is founder and CEO of renewables market intelligence consultancy IntelStor
