China, the world’s biggest market for wind power, is bracing for a sharp slowdown in wind turbine installations this year, a move that will spark a “bloodbath” among wind turbine producers, industry executives say.
The slowdown has already claimed its first victim, as Germany’s Repower told the Financial Times that it planned to end wind turbine production in China by selling their majority stake in a turbine factory in Inner Mongolia.
“We’re not going to keep doing business in China when we have to take heavy losses just to install turbines,” Wolfgang Jussen, Repower’s China chief executive, said, referring to the way that turbine prices have plummeted in recent years as China’s turbine-making capacity has outstripped demand. Repower will still source some turbine components in China.
China’s explosive growth in wind energy took the country from having almost no wind power five years ago, to becoming the world’s largest installer of new turbines last year. This year, however, industry executives expect China’s new wind installations to fall by 20 per cent because of tightening government regulation and bottlenecks on the electricity grid.
China’s slowdown comes as the turbine-making industry globally is facing overcapacity and turbulent demand. The U.S., the world’s second-largest market for turbines, is seeing anaemic growth in new installations because a key tax credit is soon to expire.
In the first half of this year global wind installations were up 15 per cent, from a low base last year in the aftermath of the financial crisis. But China expanded by just 2.6 per cent, and that growth is expected to turn negative by the end of the year.
European demand for wind turbines has been growing healthily this year, but could be hurt by austerity measures in the eurozone.
One bright spot for the industry is Germany, which is expected to boost wind power to compensate for use of less nuclear power.
In interviews, executives at top Chinese and foreign wind companies said many Chinese turbine makers would be squeezed out by the slowdown. One European turbine maker executive, who did not wish to be named, said the Chinese market was facing a “bloodbath”.
China has more than 60 turbine makers, all relative newcomers to the markets, and executives expect that 10-12 major Chinese companies will be left standing after the downturn.
“We are really in a situation right now where something has to happen,” said Jens Olsen, chief executive of Nordex, a German turbine maker. He expects China’s market to consolidate around the 18GW per year level for the next few years, although other executives put the figure closer to 14GW. “The question is, which suppliers are those 18GW going to come from?” Mr Olsen said.
One cause of the slowdown is that wind farm developers are having trouble securing financing because of tightening credit conditions. Beijing has gradually tightened monetary policy this year in an effort to combat inflation, which came in at a stubbornly high 6.1 per cent in September.
Another reason is that Beijing is cracking down on low-quality turbines with new regulations, after several major blackouts caused by wind farm surges earlier this year. These include measures aimed at slowing down the building of new wind farms and China’s first turbines certification programme.
China’s wind turbine industry owes its rapid expansion to state-backed support, as Beijing’s mandate to embrace wind power translated into easy financing for wind farms and a proliferation of new wind turbine manufacturers. Wind capacity in China doubled every year from 2007 to 2010.
“The Chinese government has realised that this fast speed has a downside,” said Mr Jussen of Repower. “A lot of the poor suppliers are going to die, washed out by quality demands from the government. In the end this market have maybe ten mature Chinese players and a few foreigners.”
Although Repower will no longer produce turbines in China, Repower’s sister company Suzlon will continue to operate there. Repower’s Chinese partner, the state-owned North Heavy Industry, will eventually take control of the turbine plant in Inner Mongolia, one of China’s most wind-rich regions.
Some Chinese producers say the downturn will provide a strong impetus to improve quality. “Right now there is overcapacity in the market,” said Wu Jialiang, general manager of Sany Electric, a heavy industry company that recently diversified into wind turbines. “Quality problems abound, but raising technical standards will ensure the healthy development of the industry.”