CHINA STIMULUS EXPECTED TO INCLUDE WIND

Chinese wind energy leaders at a recent Beijing conference used "tsunami" to describe the current financial crisis. And they were confident the government would move to counteract the crash, creating from the crisis an opportunity - including an opportunity for wind energy.

In short order, the Chinese government announced a 4-trillion-yuan ($586 billion) economic stimulus package to finance projects in 10 major sectors (including low-income housing, rural infrastructure, roads, airports, water, electricity, the environment and technological innovation).

Though no specifics have been announced, the building of wind energy capacity fits pretty well with rural infrastructure, electricity, the environment and technological innovation. It also fits well with the Chinese Premier’s stated intentions for the stimulus package.

Wen Jiabao, Premier, People’s Republic of China: "The country should strengthen management of large-scale investment projects, conduct feasibility studies and increase investment efficiency and profits…"

Developing more wind capacity would also be an especially precise response to a recent indication of China’s economic downturn, its drop in electricity supply/demand from 5.1% growth in August to less than zero growth in October.

Does this mean a reduction in China's storied dependence on fossil fuels?

Wen reportedly intends to use the stimulus implementation to withdraw subsidies for oil and gas and align pricing with global markets. This is likely to significantly reduce the use of petroleum fuels in China. If they are replaced by wind, solar and biofuels, this is good news. If they are replaced by coal, this is very very bad news.

The recent turn away from coal-to-liquid fuel technology (see CHINA DROPS COAL-TO-OIL) indicates it might be good news.

China’s wind industry has been extraordinarily robust. It is expected to reach its 2010 capacity goal of 10 gigawatts by the end of 2008.

Behind the "great leap forward" for wind, there are 2 problems looming. The first is the same problem every other nation building New Energy capacity has: Transmission. China’s wind, like that of the U.S., is in its rural regions. New wires are necessary to deliver the electricity it generates. This will delay the development of useful capacity - but presents another ideal stimulus project.

The other looming problem is quality control. This is a problem more often see in centrally planned and managed economies.

Companies that should not get installation contracts are getting them and companies with the skill to do the installations are saddled with a poor supply chain due to massive demand on inadequate manufacturing facilities. An unacceptably high percentage of turbines, reportedly 2%, are failing.

Central planners have 2 unwelcome choices: Use inadequate domestic developers and low quality domestic materials or import. The former hamstrings the wind industry with failure and the latter hamstrings it with dependence on foreign businesses, personnel and goods. Planners are at present attempting to work this dilemma out through joint ventures.

This is history unfolding. China's stimulus package move presents yet another fascinating opportunity to compare free market and centrally planned economies. The wind indutry is an almost ideal subject of study. Much will be learned in the coming few years.

Finally: There is every reason to believe the optimism of the Chinese wind industry leaders is well placed despite current economic circumstances.

Reportedly, growth was enormous again last year. (click to enlarge)

Silver lining for wind power industry
Si Tingting, November 10, 2008 (China Daily)
and
Premier Wen seeks prompt response
Fu Jing, November 10, 2008 (China Daily)

WHO
Wen Jiabao, Premier, People’s Republic of China (PRC); Liang Zhipeng, official, National Development and Reform Commission (NDRC); Wu Gang, chairman, Goldwind Science and Technology Co Ltd.; Li Junfeng, secretary general, Chinese Renewable Energy Industry Association

WHAT
China's wind energy industry leaders expect the wind industry to benefit from the 4-trillion-yuan ($586 billion) stimulus plan intended to generate "steady and relatively fast" economic growth and prevent future "economic ups and downs" despite fluctuations in the world economy.

The big players. (click to enlarge)

WHEN
- The Chinese stimulus plan, announced November 9, is to be spent over the next 2 years.
- The China Wind Power Report 2008 (of which NewEnergyNews has, as yet, been unable to find a copy) was issued last week at the annual wind industry conference.
- The report shows the industry’s growth to be 100%, year-on-year, since 2005.

WHERE
- Like in most other countries, China's wind resources are located primarily in remote areas.
- The wind industry convention was in Beijing
- Competition to China’s domestic wind industry is coming from Vestas Wind Systems (Denmark), Gamesa (Spain), Suzlon Energy Ltd (India) and REpower Systems Group (Germany).

WHY
- Goldwind Science and Technology Co Ltd. is China's biggest turbine manufacturer.
NDRC is China’s economic policy-maker.
- China's wind power industry is driven by the central planners’ push for New Energy and wind industry leaders are confident the planners will sustain if not up its commitment through the stimulus package.
- Goldwind's Wu predicted the government will soon streamline the approval process for new wind projects.
- Obstacles:
(1) Remote areas producing wind are not connected to the power grid. Building a wind installation takes 2 years but getting new transmission to it takes much longer.
(2) The country's current bidding system awards contracts to build installations based on low price but not merit. 2% of turbines installed in 2005 failed profit-seeking developers installed poor quality generators.
- Competition is heating up between domestic and foreign installers.
- Planners are using joint ventures to compromise between domestic Chinese developers with inadequate skills and supplies and foreign developers on whom the country does not want to have to depend.

Are joint ventures the answer? (click to enlarge)

QUOTES
- Wu Gang, chairman, Goldwind: "The wind farm operators that I'm in touch with all believe the government will invest more in the energy and transportation sectors to sustain the national economy. This means the credit crisis is actually a good opportunity for our wind power industry, despite of the more complex procedures to get bank loans…This would help consolidate the entire wind power industry by making the stronger much more stronger and by encouraging the weaker companies to unite…"
- Li Junfeng, secretary general, Chinese Renewable Energy Industry Association: "The Chinese government's subsidy for the industry in 2006 was 1 billion yuan, and last year it was 2 billion yuan. So I don't think the government will cut the subsidy for us…"
- Liang Zhipeng, official, NDRC: "China's wind turbine producers should develop their own turbines fit especially for the dry and cold conditions in North China. We should make it our core competence,"
- Premier Wen Jiabao: "In expanding investment, we must be fast, effective and forceful. We must focus on priorities and adopt a down-to-earth attitude to implement the measures…We are confident, and capable, of overcoming the current difficulties…"