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The Market Analysis of Wind Energy in CHINA
Wind energy potential in China
According to the third National Wind Energy Resources Census, China’s total exploitable capacity for both land-based and offshore wind energy is around 700-1,200 GW.(1) Compared to the other leading global wind power markets, China’s wind resources are closest to that of the United States, and greatly exceed resources in India, Germany or Spain.
Due to varied wind resources across China and differing technical and economic conditions, wind power development to date has been focused on a few regions and provinces, including: Inner Mongolia, the Northwest, the Northeast, Hebei Province, the Southeast coast and offshore islands.
Market Developments in 2010
China’s wind market doubled every year between 2006 and 2009 in terms of total installed capacity, and it has been the largest annual market since 2009. In 2010, China overtook the United States as the country with the most installed wind energy capacity by adding 16,500 MW* over the course of the year, a 64% increase on 2009 in terms of cumulative capacity, reaching 42.3 GW in total.
According to Bloomberg New Energy Finance, the growth in installed capacity was driven by a record level of investment in wind power in China, which exceeded USD 20 billion in 2009. In the third quarter of 2010, China’s investment in new wind power projects accounted for half of the global total. In addition, the Chinese government report “Development Planning of New Energy Industry” calculated that the cumulative installed capacity of China’s wind power will reach 200 GW by 2020 and generate 440 TWh of electricity annually, creating more than RMB 250 billion (EUR 28 bn / USD 38 bn) in revenue.
The Chinese wind power sector
2010 was also an important year for Chinese wind turbine manufacturers, as four companies, including Sinovel, Goldwind, UnitedPower and Dongfang Electric, are part of the world's top ten largest wind turbine manufacturers, and are beginning to expand into overseas markets.
Driven by global development trends, Chinese firms, including Sinovel, Goldwind, XEMC, Shanghai Electric Group and Mingyang, have entered the competition to manufacture wind turbines of 5 MW or more.
China’s wind power generation market is mainly shared among the ’Big Five’ power producers and several other major state-owned enterprises. These firms account for more than 80% of the total wind power market. The largest wind power operators, Guodian (Longyuan Electric Group), Datang and Huaneng expanded their capacity by 1-2 GW each during the year, while Huadian, Guohua and China Guangdong Nuclear Power are following close behind. Most of the local state-owned non-energy enterprises, as well as foreignowned and private enterprises have retreated from the market. Access to finance is generally not a problem for wind power projects.
Progress on the Wind Base programme
In order to drive wind power development, the Chinese National Energy Administration selected locations from the provinces with the best wind resources and set targets for each of them to be reached by 2020.
According to the plan, wind power bases will add up to 138 GW of wind power capacity by 2020, on the assumption that a supporting grid network is established. So far the Chinese government has confirmed seven GW-scale Wind Power Bases, which amount to 83 projects. In 2010, the Wind Power Base in Gansu Jiuquan reported the fastest growth - more than 5 GW- while others followed with growth of 1.8 GW to 4.2 GW (see table below).
Offshore developments in China
Offshore wind power’s attractiveness stems from strong policy support and the desire to access large electricity markets along the eastern coast of China. The first offshore wind power demonstration project, which is also the first offshore wind project outside of Europe, the Shanghai Donghai Bridge Offshore wind farm, began generating power in June 2010.
At the same time, the government launched public bidding for the first round of offshore wind concession projects in May 2010, and this was completed in November 2010, adding 1 GW of planned capacity in four projects along the coastline of Jiangsu Province. The winning prices for these projects ranged between 0.62 and 0.74 RMB/kWh (USD 9.4- 11.2 cents / EUR 6.9-8.2 cents). These projects have to be finished within three years.
In 2010, the National Energy Administration and theIn 2010, the National Energy Administration and the State Oceanic Administration jointly published “Interim Measures for the Administration of Development and Construction of Offshore Wind Power”, which should give impetus to China’s offshore wind power development. The Interim Measures set out provisions for project approval procedures, as well as criteria for project development and construction. They also stipulate that tender procedures will be the preferred method for selecting project developers for offshore projects, and that foreign investors can only hold a minority stake in offshore wind developments.
The Renewable Energy Law and the Chinese feed-in tariff
The breathtaking growth of the Chinese wind energy industry has been driven primarily by national renewable energy policies. The first Renewable Energy Law entered into force in 2006, and gave huge momentum to the development of renewable energy. In 2007, the first implementation rules for the law emerged, giving further impetus to wind energy development. In addition, the “Medium and Long-term Development Plan for Renewable Energy in China” from 2007 set out the government’s long term commitment and put forward national renewable energy targets, policies and measures for implementation, including a mandatory market share of 1% of non-hydro renewable energy in the total electricity mix by 2010 and 3% by 2020.
In 2009, the Renewable Energy Law was amended to introduce a requirement for grid operators to purchase a certain fixed amount of renewable energy. The amendment also requires grid companies to absorb the full amount of renewable power produced, also giving them the option of applying for subsidies from a new “Renewable Energy Fund” to cover the extra cost related to integrating renewable power if necessary.
Also in 2009, China finally introduced a feed-in tariff for wind power generation, which applies for 20 years of a wind farm’s operation. There are four different categories for the tariff, depending on the region’s wind resources, ranging from 0.51 RMB/kWh (EUR 5.7 cents) to 0.61 RMB/kWh (EUR 6.8 cents).
Clean Development Mechanism
A total of 869 Chinese projects have been approved as CDM projects by the United Nations, accounting for 39% of the total number of CDM projects registered, and income from the CDM has made an important contribution to investors’ return. This has now been threatened, however, by challenges to the way in which Chinese projects have interpreted the rule that any CDM project must be ’additional’ to what would have happened otherwise. This issue needs to be resolved to maintain the growth of the Chinese wind industry. There is also uncertainty about whether the CDM will continue in the same form after the expiry of the current Kyoto Protocol emissions reduction period at the end of 2012..
Grid connection problems
The rapid development of wind power in China has put unprecedented strain on the country’s electricity grid infrastructure. This has become the biggest problem for the future development of wind power in the country, as some projects have to wait for several months before being connected to the national grid.
There are reports that a large share of China’s wind power capacity is not grid connected, but this is based on a fundamental misunderstanding, which has its source in the methodology used for calculating installed capacity. The Chinese Federation of Power Generation, which provides China’s energy statistics, only counts wind farms asoperational from the moment that the last turbine of a project has become grid-connected. However, in reality, most of the installed wind turbines of a project are connected to the grid and generating power much earlier. This explains the much reported “gap” between installation and grid connection which is often reported from China. In other markets, it is common practice to include all turbines that are grid connected, whether or not they constitute a completed wind farm.
Due to a lack of incentives, Chinese grid companies have been reluctant to accept large amounts of wind power into their systems. However, they have recently reached an agreement to connect 80 GW of wind power by 2015 and 150 GW by 2020. According to figures by the State Grid, at the end of 2010, 40 billion RMB (EUR 4.5 bn / USD 6.1 bn) had been invested to facilitate wind power integration into the national power grid.