Grid problems steer China’s huge wind power industry into financial doldrums

Source: Coco Liu, E&E Asian correspondent • Posted: Tuesday, May 29, 2012

Chinese wind farm

One of China’s pioneer wind farms is in Heilongjiang province, where additional facilities are now restricted until China’s power grid can accommodate them. Photo courtesy of Flickr.

SHANGHAI — After years of nurturing China’s wind power sector to become the largest in the world, the nation’s policymakers now appear to have second thoughts.

A succession of government policies issued during the past few months have begun pushing officials and developers to shift their focus from building more wind farms toward ensuring that more of the wind-generated electricity can flow into power grids safely.

“China’s wind power sector used to focus on its development speed, but now more attention is directed to the quality of its development,” said Dong Luying, an associate professor at the Energy Research Institute at the National Development and Reform Commission, China’s top economic planning agency. She explained the recent policy shift during a speech at a conference this month in Shanghai.

“Last year’s slowdown marked the beginning of this adjustment period,” Dong continued, referring to a slight decrease in China’s newly added wind power capacity in 2011 compared with the previous year, the first drop in more than a decade.

Experts attribute the latest adjustment partly to an old problem. Because China’s existing grids are unable to handle the unpredictable off-and-on nature of wind power, building more wind farms means wasting more wind-generated electricity. Chinese officials have known this for years, but now the amount of energy being wasted is beyond their tolerance.

In 2011 alone, the Chinese Wind Energy Association estimates, wind-generated electricity that could have been used by nearly 3 million Chinese for a whole year had nowhere to go, as the nation’s electric lines couldn’t carry it.

There is also an issue of grid safety. The more wind turbines get linked to electric lines, the less stable grid systems become. One example came last spring, when equipment at one wind farm in western China’s Gansu province broke down. That caused a chain reaction that knocked out hundreds of wind turbines across the region and threatened the electricity supply of a transmission network that covers about one-third of the nation.

“It is not wise to expand wind power capacity rapidly when plenty of technical problems still remain unsolved,” said Yang Hongliang, energy specialist at the Asian Development Bank. “The Chinese government will definitely continue to develop wind power, but they will have to do it more carefully.”

As China’s planners review its wind energy policy, President Obama is pushing Congress to reinstate expiring tax credits that have helped the U.S. wind turbine industry grow. “This is an industry on the rise,” he said during a speech yesterday in Newton, Iowa, a state where wind turbines provide nearly 20 percent of the electricity. He noted that the wind industry has nearly 500 facilities in 43 states and vowed to continue helping it grow. “It shouldn’t be a partisan issue,” he said.

Batting out ’49.5 MW wind farms’

For years, the Chinese central government has urged wind power growth to go hand in hand with the country’s grid infrastructure expansion, which requires a longer and more complicated development process. But wind farm developers are backed by municipal or provincial governments, which want to build as many wind farms as possible to maximize jobs and economic output.

That created a phenomenon called “49.5-megawatt wind farms.” As Lu Hong, a renewable energy expert at the Energy Foundation’s Beijing office, explains, many wind power projects in China are built with a capacity slightly below 50 MW — the power threshold at which a project needs permissions not only from local authorities but also from officials in Beijing.

Today, however, that phenomenon may no longer exist. While the lower tiers of government still hold their rights to approve wind power projects with a capacity below 50 MW, the central government for the first time has capped the total amount of wind power capacity each region can approve.

Any projects that exceed the cap will not be allowed to connect to power grids, let alone sell electricity at government-subsidized prices. Meanwhile, as China tightens approval for new projects, the total amount of wind power capacity the nation plans to add is also declining.

The National Energy Administration recently stated that it will approve about 40 percent less wind power capacity in 2012 than what it did last year. Six Chinese regions that have great wind resources as well as great trouble sending wind-generated electricity to the grid are forbidden from approving new installations.

Wind turbine manufacturers suffer

Any slowdown in China’s wind power installation is likely to shock the world’s turbine-making industry. Practically every wind turbine giant has expanded in China, including Denmark’s Vestas Wind Systems, Spain’s Gamesa Corp. and Siemens AG in Germany. Chinese manufacturers have also been ramping up their production capacity at a breathtaking pace.

In 2004, China’s wind turbine manufacturing industry barely existed. Today, it contributes to almost a third of the global wind turbine production, largely driven by a strong domestic demand. But with the fresh limits on wind power expansion in China, one question arises: Who would buy those wind turbines?

Already, small-scale wind turbine manufacturers in China have seen a sharp drop in their orders, and many of them have begun running out of business, said Justin Wu, lead wind power analyst at Bloomberg New Energy Finance. Even the big wind turbine producers are feeling the pain from declining demand.

For Sinovel Wind Group Co., China’s No. 1 wind turbine maker and the second-largest in the world, the slower wind power growth last year in China has erased nearly half its sales revenue compared with 2010. Another Chinese turbine-making leader, Xinjiang Goldwind Science & Technology Co., last year earned about one-quarter less income than a year earlier, for similar reasons.

Chinese wind turbine manufacturers have tried hard to explore markets other than China. But for now, the number of manufacturers that have succeeded can be counted on one hand, and the scale of their exports remains tiny.

Developing overseas markets could take time, Wu said, adding that the future of those manufacturers will still largely depend on the future demand of the Chinese wind power market, at least for the next 10 years.

Removing some constraints, but not all

Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, believes that future demand will not be disappointing.

Although China has already installed more wind turbines than any other country, Lin says, wind-generated electricity accounts for no more than 2 percent of the nation’s power mix — leaving a big space for growth.

“The slowdown of wind power sector is temporary,” Lin said. “China will again be in the fast lane once constraints on the grid are removed.”

Grid companies are working toward that direction. State Grid Corp. of China, the nation’s top electricity distributor, is extending, upgrading and smartening its transmission networks, aiming to absorb 100 gigawatts of wind power by 2015 — following the government’s blueprint for renewable energy use.

Additionally, developers here are ordered to design their wind power projects to be more grid-friendly. For one, starting in July, all the wind farms in China must feature devices that can forecast wind, helping grid companies make better use of intermittent wind power.

Besides that, Chinese officials who used to prefer large-scale wind farms built far from energy-guzzling cities are now calling for installing wind turbines just around where electricity is needed. That’s because the distributed wind power projects can hook up to power grids easily, because of their small scale as well as short transmission distance to energy consumers.

But what still prevents China from developing more wind power is where to send all that wind-generated electricity. Wind farms usually reach the highest power output at night, but most businesses and families need the least energy during that time.

Xie Guohui, who works at an energy research institute affiliated with State Grid, warns about another problem. As the current government subsidies cannot offset the huge investments required for extending electric lines and installing devices that help carry wind power safely, China’s grid companies end up taking on this financial burden themselves.

Because more wind turbine installations are expected to add to this burden, Xie says, removing grid constraints for China’s wind power use may be a task not only for engineers, but also for fundraisers.