China Wind Power: Market demand does not weaken interest in wind farm construction
Source:CCEN   Date:2009-10-20   Author:Tom Pellman

Joining the wind power industry requires millions in investment and strong technological support. And while it is slogans and other informal elements in wind power that attract the most attention, those who do invest share wind power’s bright future, provided there is a screening process for them to distinguish which projects have the best potential.


The first question usually asked by any reasonable investor is: Since the financial crisis has done heavy damage in the wind power industry, is there still a need to invest? Is now the right time to enter the market?


Wind power’s industrial chain can be divided into wind farm construction and power generation equipment production. Investing in a wind power generation plant requires 15-20 years for a return on investment. Thus, the general trend has been for China’s energy policies to allow large state-owned enterprises to play leading roles. However, when more profits on wind-power turbines can be made, other companies will target turbine manufacturing.


The a majority of the investment has come in the form of investors who buy complete sets of wind power generation equipment. Due to financial crisis, however, investment in large wind power plants is still being affected.


Investors are mostly China’s top-five power companies and other large enterprises. Large state-owned power plants must invest and construct wind farms as part of boosting capacity of renewable energies. Therefore, in the long-term, domestic demand for wind turbines shouldn’t weaken too much, as government policies supporting the industry are strengthening day by day. As the eventual buying of domestic turbines draws close, at present, these are relatively good days for Chinese turbine makers, and following the future economic recovery, the industry is poised to prosper further.


Building wind farms


The standard wind farm construction process involves project approval, equipment procuring, bidding, construction and grid-connectivity issues. However, the strength of a project’s capital leverage is the most extreme.


To deal with the situation, many companies foster ties with local businesses and ask the government to allocate them free or low-cost land for wind farm construction. Manipulating the government’s policies to take advantage of clean energy incentives is commonplace, unfortunately. Also, industry insiders have revealed that “the bigger the project, the more likely it will be approved.”


Typically, the starting capital to build a wind farm in China comes from government assistance in the form of free or low-cost land. Mortgaging a portion of this land and garnering other loans, the company may begin phase one of construction. When complete, companies may apply for project approval under the Clean Development Mechanism of the Kyoto Protocol to trade emissions overseas. The second and third phases of construction can be financed with earnings from phase one. It’s no wonder that some point out that in China, “as long as there is start-up money for wind farm land, the industry will grow.”


Wind farm construction is similar to other fixed investment, though the key to cost-recovery is on-grid electricity prices. At present, this is another area where government influence is high since it mandates companies buy wind power at higher prices. In addition, inviting the local shareholders to invest in wind farm construction has been an important way to raise electricity prices. This is also a way to secure some investment in wind farm construction. Hiring local government workers, local grid workers and close relations of workers is commonplace.


Of course, state departments are managing prices on the grid ever more strictly. As long as such policies are in place, profits for wind power companies should remain tenable.

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