By Frost & Sullivan, edited by Kari Williamson
Chinese wind turbine producers have seen their market share rise dramatically in the past few years. Two of the top Chinese wind turbine producers now rank among the global top three manufacturers by megawatts of capacity sold. The rise has been fuelled by domestic demand for wind power, supported by the government target, and a requirement for 70% of wind turbine components to be manufactured locally.
However, there is a dark side to this story of rapid success. China has witnessed, by far, the highest number of accidents caused by failures and malfunctions of wind turbines, including massive power outages and even some fatalities, the analyst writes.
With their domestic market saturated and clear signs of overcapacity and upcoming consolidation, some of the biggest Chinese producers have announced plans for international expansion. While there is no doubt of the Chinese manufacturer's ability to learn quickly, adapt and alter the technology to bring the costs down, Frost & Sullivan believes that the wind power market presents a tougher challenge for the Chinese to crack.
Technology gap
Frost & Sullivan Renewable Energy Research Manager Alina Bakhareva says: "Firstly, there are a number of technology-related quality issues that the Chinese manufacturers will have to sort out before they are able to deliver a technology solution on par with the established Western manufacturers."
The technology gap is expanding with GE, Vestas, Siemens, and the like, investing in improvements that increase their turbines availability and reliability. A technical fault leading to reduced availability presents a huge risk to a developer and can wipe out a large chunk of expected profits.
"A faultless operating track record will have a positive impact on project developers who will be more confident in the quality of the Chinese turbines. But we need to consider that it will take years to build this trust. We are witnessing Chinese wind turbine manufacturers taking the first steps in the right direction; although the government had to step in and set stricter regulations", adds Bakhareva.
Stricter regulations
The Chinese State Electricity Regulatory Commission (SERC) has released stricter technical regulations, especially for low voltage ride through(LVRT) reformation. Additionally, 18 industry standards have been released in November 2011 by the National Bureau of Energy.
There are two immediate effects of the regulatory changes. Adding a LVRT capability will increase the cost of the Chinese wind turbines. This, coupled with slower demand, will lead to a squeezing out of the marginal producers who won't be able to afford to fit new equipment. Thus, the domestic wind power manufacturing sector in China is poised for tough times, when consolidation may even change the positioning of the top five players.
Operating efficiency
The wind power industry in established markets has moved beyond the frenzied initial stage when the emphasis was placed on the maximum number of wind turbines installed. The focus is now on increasing the operating efficiency, resolving performance issues rapidly, having real time control and visibility and reducing the maintenance time.
Providing a compelling service solution is nearly as important as supplying best-in-class equipment.
Quality after-sales services can easily add a few percentage points in efficiency gains, which results in lower levelised cost of electricity (LCOE). The Chinese manufacturers can undoubtedly deliver a cheaper wind turbine meaning lower capex, however, when an entire package is considered, they are still behind their Western counterparts.
Even if a compelling service offering is developed in their domestic market, unfolding a large scale after-service support in overseas markets will require a large initial investment. While Chinese wind turbine manufacturers are generously sponsored by the Government, there are other priorities for them to address. It is unlikely they will be channelling significant funds into expanding their service offering in those markets, where they don't even sell much. Thus, established wind power markets in Europe and parts of the US will be hard to penetrate for the Chinese. Certainly, a few odd orders can come through, but the Chinese presence is unlikely to reach the dominant scale similar to that of the solar energy industry.
"Upcoming wind power markets, such as Central and Eastern Europe and Latin America, may find lower equipment costs attractive, especially when coupled with a generous offer of providing project financing", concludes Bakhareva. "However, proven safety, quality, reliability and after-sale service may well tilt the scales in favour of Western wind turbine producers, even though the initial investment will have to be higher."