HOLIDAY READING FOR SUNDAY WORLD: CHINA, BRAZIL, GERMANY

Some original reporting:

Ming Yang’s $5B Milestone Highlights an Emerging Wind Trend; How today’s wind industry is like telecom in the ‘90s
Herman K. Trabish, October 21, 2011 (Greentech Media)

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A new Chinese competitor has emerged in the wind manufacturing arena. With Guangdong Ming Yang Wind Power Industry Group Co., Ltd.’s development financing and planning cooperation agreement worth up to $5 billion with China Development Bank Corp. (CDB), a government policy bank wholly owned by China's central government, the company steps into the big game.

Ming Yang is a subsidiary of China Ming Yang Wind Power Group Limited (NYSE: MY). MY is the only Chinese wind company listed on a U.S. exchange.

Ming Yang CFO Manfred Loong, who came aboard in early 2010 to help guide the company’s IPO in October of last year, called the agreement “a very important milestone” for his company.

As the only major non-state-owned Chinese wind manufacturer, this agreement signals a crucial step forward for Ming Yang. With this backing, it can move with China’s other big wind manufacturers into the international arena, just as the domestic Chinese market, which has supported unprecedented growth over the last two to five years, plateaus.

Loong said the agreement was the result of a year-long relationship between Ming Yang and CDB. “Since our listing,” Loong said, “we have continued to grow our domestic market share and ready ourselves for international expansion.” He noted that ICBC and CCB, two major Chinese financial institutions, have invested in the company. Its working capital, he said, is now at approximately 15 billion RMB, or roughly USD $2 billion.

Ming Yang’s focus on fundamentals, Loong said, earned the financial support. “We have always been a very reputable turbine manufacturer and supplier,” he explained.

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This latest affirmation of Ming Yang’s reputability is especially noteworthy because some of China’s 80-plus turbine manufacturers are not regarded as highly, a situation the government has recently attempted to rectify by tightening regulations on turbine quality.

Ming Yang’s association with the other banks and its support from the Chinese federal government, as well as many local governments in the Northern provinces where its turbines have most widely been used, buoyed its reputation, bringing about the CDB agreement.

The agreement highlights an emerging, China-led trend in the wind industry. “What China does is not an accident,” Chicago-based wind power Invenergy’s President/CEO Michael Polsky told Greentech Media in May. Their plan, he said, is to “create their own markets -- to generate, to build plants, to really learn, to attain economies of scale. And then they will come to the world, while we are debating whether $2 billion is a good investment. And then we’re going to be blaming China for bad trade practices.”

But that is just the beginning, Polsky predicted. “[This is] what I think Chinese manufacturers will do: they will bring not just technology, but also money.” This, he said, “will dramatically change the landscape.”

With its new financial backing, Ming Yang is fully equipped to follow Chinese powerhouses such as Sinovel and Goldwind (both of which, like Ming Yang, opened U.S. offices in the last year) into the U.S. and other international markets. Where these companies cannot get backing from local banks unfamiliar with their products, they will prove themselves by financing their own projects.

That this is an emerging trend was verified last month when German wind manufacturer Siemens announced it is willing to put up the balance of the money needed to build Cape Wind. As the first U.S. offshore project, Cape Wind has struggled to get financial backing despite its commitment to use proven Siemens 3.5-megawatt ocean turbines.

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The trend was demonstrated again last week when GE Financial, parent to leading U.S. wind maker GE Energy, announced both that it will partner with India’s Greenko Group to develop wind projects in India and that it will partially finance an Invenergy 110-megawatt project in Michigan that will use its 1.6-megawatt turbines.

“I was in telecom in the 1992-93 period,” Ming Yang’s Loong said. “In those days, all the telecom players were here. One of the things that differentiated the companies,” he remembered, “was the financing. The Japanese were sometimes able to get the large contracts, not because of the technology but because of the readiness of their financing.”

Wind today, Loong said, “is a capital-intensive business. Financing could be very helpful.”

Loong was clear that Ming Yang intends to use the new financial backing to expand internationally. “We do have a lot of interest in developing overseas and the U.S. is one of the very critical markets,” he said. The company is also interested, he said, “in Europe, in Asia (including India), in both North and South America, and in Australia.” He said the company expects to have deal announcements before the end of this year.

“We’re the only non-SOE [state-owned entity] big enough to be competing in this sector,” Loong said. By way of explanation, he added, “In this market, there are a few fundamental things that drive business.” He pointed out that Ming Yang has kept the quality of its turbines above reproach, especially its “workhorse” 1.5-megawatt model, and has worked to provide the best possible service to its customers. “Our relationship is just as good as any of the SOEs in all dimensions,” he said, "in business and in government support.”

Wherever it goes, Loong said, Ming Yang hopes to find local partners “with a strong local base and local expertise, because localization, service, response time and quality are the top of the list in any market.”

And, in this economy, add financing.


How Did Wind Beat the Price of Natural Gas in Brazil? In one of the world’s major oil and gas producing nations, what is wind doing so right?
Herman K. Trabish, August 29, 2011 (Greentech Media)

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In December 2009, the price of wind in Brazil -- derived in Ministry of Energy-supervised, regulated market auctions -- was 148 Reals ($91.93) per megawatt-hour. By December of the following year, the competitive price had fallen to 130 Reals ($80.75) per megawatt-hour. At that time, the Ministry revised its 2005 projection from a 2030 installed capacity of 5,000 megawatts to a 2020 installed capacity of 11,000 megawatts.

This summer’s National Electric Power Agency (ANEEL) auction saw wind’s price drop to 99.5 Reals ($61.79) per megawatt-hour. The best price for natural gas-generated electricity in the same auction was 103 Reals ($63.98) per megawatt-hour, an economy-turning event for a country that is one of the world’s major oil and gas producers.

The most recent auction resulted in contracts for 78 new wind projects in Brazil, representing 1,928 megawatts of new capacity. This came after contracts for some 6,000 megawatts of new wind capacity (nearly six percent of the country’s total electricity demand) were completed as the price fell in 2009 and 2010, according to Hamilton Moss, the Energy Development Director for the Brazilian Ministry of Mines and Energy and Brazil’s renewable energy czar.

It is clear from the results of the recent auction, Moss said, that the Ministry will soon again need to revise its projections for wind upward.

Present estimates put Brazil’s capacity potential at some 143,000 megawatts, but, Moss said, it could be twice that.

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“Wind development in Brazil is a perfect demonstration of basic economic laws,” Moss explained. “With competition, we pushed the price down. With the price down, the expectation of growth in the long term rose. People became interested in building factories here, so we have a complete chain of producers here now and they have prospered.”

A 60% domestic content requirement has helped spur supply chain growth. German turbine maker Enercon’s subsidiary Wobben Windpower and Agentinian turbine maker IMPSA were in Brazil early on. They were followed by multinationals like GE, Siemens and Alstom. Danish world-leading turbine maker Vestas and Spanish giant Gamesa are among the most recent entrants. Most international turbine builders, including a number of Chinese companies, are expected to turn up soon.

As a result, Moss said, “there was more competition and it pushed the price down further.”

Brazil’s wind, Moss said, has prospered because 1) the resource is rich, 2) a previous incentive system drove enough early growth for planners and builders to gain invaluable experience, 3) the Ministry of Energy carefully sustains legal and regulatory stability and predictability, and 4) the auctions result in 15- to 20-year power purchase agreement-like contracts, another dimension of stability that encourages competitive aggressiveness in developers.

“In a word,” Moss summarized, “clear competition, clear rules, clear regulation, clear benefits for enterprise and clear long-term profits.”

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Wind in Brazil, Moss said, “has proved we can combine clean, renewable energy with low price. And not just in Brazil.”

Two other factors, according to Moss, favor continued growth.

First, 76 percent of Brazil’s electricity comes from its rich hydropower resource and Brazilian wind’s variability perfectly complements the base load hydro supply. In the wind-rich northern and southern regions, there is an almost ideal match between wind and hydro, Moss said. "The best wind times are coincident with the worst water flow." During times of drought, this is particularly fortuitous.

Beyond this “complementarity,” Moss added, “We have an almost fully interconnected transmission system” and “the wind in the south is wholly complementary to the wind in the northeast.” With this robust 200,000-kilometer grid, wind-generated electricity can be moved around to minimize the impacts of variability.

Where there are wind resources far from a grid interconnection, the Energy Ministry encourages developers to share the cost of building one. “Every year we connect more of the country,” Moss said.


Can Germany’s North Sea Winds Blow Away Nuclear? Will the money keep coming for billion-dollar projects like ABB’s world’s-biggest HVDC transmission?
Herman K. Trabish, August 8, 2011 (Greentech Media)

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Power and automation provider ABB has won an approximately $1 billion order from Dutch-German transmission grid operator TenneT to build the world’s largest offshore HVDC (high-voltage direct current) system. The system, planned to go operational in 2015, will connect Germany’s offshore North Sea wind farms to its mainland grid.

The new ocean transmission system is another major step forward in development of the offshore wind power the Merkel government will need realize its ambitious, recently announced plan to abandon all nuclear power generation by 2022. Germany intends to double its present 27 gigawatts of wind capacity -- eight percent of its electricity requirements -- by 2020. Much of the new capacity will have to be offshore because so many of the available land sites have been used.

Skeptics say Germany can’t build enough offshore wind and other renewables to free them from nuclear power, and many have opined that the decision to abandon nuclear will result in more coal consumption, the purchase of French nuclear-generated electricity and higher German electricity bills. However, these skeptics may be underestimating the viability of Europe’s offshore wind industry.

In 2010, 2.6 billion euros were invested in offshore wind, according to the European Wind Energy Association (EWEA). The list of banks willing and approved to provide capital for European offshore projects now numbers over 20 and is growing rapidly, EWEA reported. Banks are expected to serve up a record three billion euros for offshore wind farms in 2011.

EWEA estimates investment in offshore wind will be 10.4 billion euros in 2020 and 17.1 billion euros in 2030.

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The recently announced KfW Bankengruppe program alone will provide five billion euros to 10 German projects. Support from Denmark’s EKF export credit agency and the European Investment Bank (EIB) is expected to continue, and the recently started U.K. Green Investment Bank is expected to be active in the sector soon.

Europe built 4.5% more offshore wind in 1H2011 than in 1H2010. The U.K., Germany and Norway built and connected 101 new turbines offshore with a capacity of 348 megawatts.

This brought Europe’s installed offshore capacity to 3,294 megawatts (49 wind farms in nine countries with 1,247 grid-connected turbines).

Eleven more offshore wind farms, representing a 2,844-megawatt capacity and a total value of 8.5 billion euros, are under construction.

EWEA estimates Europe will have 40 gigawatts of installed offshore wind capacity in 2020 and 150 gigawatts in 2030.

The 400-megawatt Gode Wind II wind farm is the third German offshore project that ABB has been tapped to connect to the grid. The company will design, engineer, supply and install a 900-megawatt-carrying-capacity HVDC land and sea cable system, the offshore platform, and the offshore and onshore converter stations.

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The highly efficient 320-kilovoltHVDC lines, which limit electrical losses to less than 1 percent per converter station, will take the power generated at Gode Wind II and other wind farms to an offshore HVDC converter station. From there, the electricity will be transferred via 135 kilometers of underwater and underground cables to an onshore HVDC station at Dörpen on the German coast, and from there will travel to the mainland grid.

The ABB transmission system is the kind of advanced technology and advanced capability the European offshore industry is ready to build, and it suggests that the Merkel government was not acting out some irrational green ideal when it shifted its commitment and priorities away from nuclear power.

Merkel, a physicist before she became a politician, can understand better than most world leaders the implications of such a technological capability. Her insight into offshore wind’s potential is no doubt buoyed by results from Research at Alpha Ventus (RAVE), a remarkably comprehensive public-private research program initiated in 2006 and built into the North Sea construction of the 60-megawatt Alpha Ventus wind farm, the world’s first deep water offshore wind project.

Interestingly, the other world leadership that is shifting its priorities to offshore wind is that of China. Eight of the nine members of its politburo began their careers as engineers.

The Chinese government recently announced that its preferential supports to wind turbine manufacturers will not be extended to those without the capability to turn out turbines at an offshore-wind-sized (2.5 megawatts or greater) scale.