IHS Global Insight Perspective | |
Significance | The 10-GW Jiuquan wind farm is one of six new planned mega wind farm projects designed to increase China's installed wind generating capacity to 100GW by 2020. |
Implications | The realisation of such massive projects will be aided by new fixed feed-in tariffs for onshore wind farms imposed by the government in July 2009. They are designed to improve the transparency of the tariff system and to foster clearer expectations of project returns to attract investment into the sector. |
Outlook | A lack of investment in transmission capacity to match the boom in wind generating capacity, and potential problems related to the quality of turbines manufactured in China, remain obstacles to the government's realisation of long-term wind generation targets, though its flexibility in addressing existing problems relating to tariffs and infrastructure and its determination to boost wind capacity to diversify the national energy mix, expand the longevity of domestic coal resource base, and reduce carbon emissions suggests the future prospects for China's fledgling wind power sector are bright. |
The Answer is Blowing in the Wind
Construction has begun on China's first 10-GW wind farm in the city of Jiuquan in the north-western province of Gansu. According to Feng Jianshen, vice-governor of Gansu, the Jiuquan mega wind power base will be built in two phases. An initial 3.8-GW base, comprising eighteen 200-MW wind farms and two 100-MW wind farms is now being developed by a number of companies, including Huaneng Power International and Datang International Power, as well as six foreign firms. It is expected to be completed by 2010. Construction of the second phase, consisting of forty 200-MW wind farms, will kick off in 2010 and be open to foreign investment. These projects are expected to raise Jiuquan's installed wind power capacity from the current 660MW to 5.16GW by 2010, 12.71GW by 2015, and 20GW by 2020, with a potential total capacity of 40GW. Around 10 large equipment manufacturers are stationed at Jiuquan to help implement the mega-wind farm project, which is expected to require an investment of 120 billion yuan (US$17.55 billion).
The Jiuquan project has been dubbed "Three Gorges in the Air", (or the wind farm equivalent of the massive "Three Gorges" hydroelectric dam on the Yangtze River), and reflects China's new approach to investment in the sector. Indeed, Jiuquan is one of six massive planned 10GW wind farms, to be located in wind-rich provinces such as Inner Mongolia, Xinjiang, Hebei, and Jiangsu. The National Energy Administration (NEA) is keen to utilise economies of scale when building wind projects in order to improve generation efficiency and to reach ambitious government targets for the sector. Indeed, from an almost a negligible wind capacity in 2006 China had developed 12.2GW of wind capacity by the end of 2008, making it the fourth largest producer of wind power in the world after the United States, Germany, and Spain. After setting an original goal of 20GW of wind power by 2020, the government is now targeting 100GW of wind capacity within the same time-frame, and views this target as realistic given that installed wind capacity has doubled in each of the past four years.
China's wind power boom kicked off in 2006 when the central government passed a law that required power companies with over 5GW of production capacity to build enough non-hydro renewable power sources to make up at least 3% of their installed capacity by 2010 and at least 8% by 2020. Given that wind power farms cost around half the price of solar farms to install and were simpler to operate than biomass, China's wind power sector saw impressive growth over the ensuing years. China's current move towards developing mega wind farms will be further aided by the government's recent revisions to the tariff system. Late in July 2009, the government set a fixed feed-in tariff for new onshore wind power projects to shore up profits for project operators. The tariffs per kilowatt hour (/kWh) are set at 0.51 yuan (US$0.075), 0.54 yuan, 0.58 yuan, and 0.61 yuan, on a regional basis. Areas with better wind resources will have lower feed-in tariffs while those with lower outputs will have more generous tariffs in order to promote investments in a number of provinces. These tariffs represent a premium compared to the average rate of 0.34 yuan/kWh paid to coal-fired electricity generators. Grid operators can offset the high tariffs on wind projects by levying nationwide surcharges on electricity users. The new fixed nature of the onshore tariffs is intended to replace the previous public bidding process for wind projects in which having a low power tariff was essential in gaining planning approval and supply contracts. In practice the previous system often led project operators to bid too low for tariffs, lowering the profitability for project operators. Lower returns also created deterrents for investing in large projects. The new fixed-rate tariffs are designed to improve transparency on tariffs and foster clearer expectations of returns in order to encourage large-scale investment in the sector.
Outlook and Implications
The launch of construction at the Jiuquan wind project and the new fixed feed-in tariffs indicate that the phenomenal growth in China's installed wind generating capacity is set to continue. However, the growth in its wind generation projects over the last few years has not been matched by growth in development of the transmission network around these projects. Many of China's major wind-producing areas lie in remote parts of the country, where existing electricity grid infrastructure is weak. Indeed, many of the wind farms in Inner Mongolia are located so far from the transmission network that it is uneconomical for the grid to invest in extending cables to these areas to harness the power. The state-run China Wind Energy Association estimates that in 2008 more than 20% of China's installed wind capacity did not generate any electricity because it was not yet connected to the national grid. The government is now moving to tackle this problem. In Gansu province the construction of advanced 750kV grids is being pushed forward to facilitate long-distance transmission of wind power. The government's economic stimulus package also envisages heavy spending on electricity transmission, although the further boost to generating capacity following construction of the six planned mega wind projects will increase the urgency of upgrading the transmission and distribution sectors to cope with increased wind generation over the coming years.
The government's ability to realise its wind generation targets could also be undermined by problems relating to the quality of China's wind turbines. The capacity utilisation of the country's installed turbines—which is a measure of how much the plant has produced for a period of time compared to the potential power it could produce if the plant operated at full capacity—is around 23%, according to a Morgan Stanley research note, compared to 30% in other countries. This has raised concerns about the quality of turbines, which are mainly supplied by low-cost local producers in China. Chinese local manufacturers are unaccustomed to supplying turbines for such massive projects; they are more used to smaller-scale schemes. Given that these manufacturers supply around 75% of the domestic market there are some concerns over whether they have the technical capacity to supply the most suitable technology for implementation of mega wind farms.
These hurdles will complicate and potentially slow China's attempts to significantly boost wind power generation to meet its 2020 wind generation target. Nevertheless the government has shown a willingness to address problems facing the sector as demonstrated by investments in developing transmission lines for wind projects, and the recent implementation of new fixed-rate tariffs. Indeed, the necessity of boosting wind capacity to diversify the national energy mix, expand the longevity of domestic coal resources, and reduce carbon emissions suggest that the future prospects for China's fledgling wind power sector are bright.