Wind Power in China 2008

Table of Contents

1 Introduction
1.1 Background
1.2 Content & Methodology

2 The Global Development of Wind Power
2.1 Development of the Global Wind Power Market
2.2 Drivers and Trends of Wind Power Development

3 The GTZ China Wind Power Project

4 Energy Policy in China
4.1 Energy Supply and Demand
4.2 Relevant Players in Energy Policy Making
4.3 Renewable Energy and Wind Power Policy
4.3.1 The Concession Programme and Origins of Wind Power Pricing
4.3.2 The Renewable Energy Law
4.3.3 Investment Conditions & Financial Incentives

5 Wind Power in China
5.1 Wind Energy Resource Characteristics and Development Potential
5.2 Current Status of Development
5.3 Market Forecast
5.4 Wind Turbine Manufacturers
5.5 Wind Turbine Component Suppliers
5.6 Project Developers
5.7 Project Economics

6 Potential Pitfalls for Wind Power Development in China
6.1 Policy
6.2 Human Resources
6.3 Wind Farm Performance & Lack of Transparency
6.4 Grid Integration

7 Recommendations for the GTZ China Wind Power Project
7.1 Wind Power Education & Training
7.2 R&D and Technological Capacity Building
7.3 Information Services
7.4 Final Remarks

Bibliography

Figures

Figure 1 Global Installed Wind Power Capacity Development

Figure 2 Drivers of Wind Power Development

Figure 3 Total Primary Energy Demand in China 2005

Figure 4 Major Players in Energy Policymaking in China

Figure 5 NDRC Approved Feed-In Tariffs

Figure 6 Medium and Long-Term Development Plan for Renewable Energy

Figure 7 Policy Framework Governing the Wind Power Sector in China

Figure 8 China Coal and Electricity Price Growth

Figure 9 Distribution of Wind Power Density in China

Figure 10 Imbalance of Power Production and Consumption in China

Figure 11 Development of Wind Power Installations in China

Figure 12 Geographical Distribution of Wind Farms in China

Figure 13 Market Shares According to Turbine Size in China

Figure 14 China Market Forecast 2008 - 2012

Figure 15 Wind Turbine Manufacturer Market Shares in China (Annual Installed)

Figure 16 Technology Sources of Chinese Wind Turbine R&D

Figure 17 Average Capacity of Wind Turbines

Figure 18 Wind Turbine Manufacturers’ Market Shares in China 2008

Figure 19 Planned Expansion of Chinese Wind Turbine Production

Figure 20 Wind Power CDM-Projects in China

Figure 21 International Support of the Chinese Wind Power Sector

Figure 22 CWPP Options to Support Education and Training

Tables

Table 1 Global Total Installed and New Wind Power Capacity 2007

Table 2 Participants in CWPP Advanced Training

Table 3 Sources of Power Generation in China 2007

Table 4 Top Project Developers in China - Installed Capacity and Pipeline (June 2008)

Table 5 Typical Training Needs of Project Developers & Manufacturers in China

Annex A77-A114

Abbreviations

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1 Introduction

1.1 Background

The last two years mark a turning point in public perception of human-induced climate change as a problem of global importance.^[1] The widespread acceptance that “most of the observed increase in globally-averaged temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic greenhouse gas [GHG] concentrations” ^[2] has increased political pressure on governments to reduce GHG emissions. At the same time, rising oil prices have made the reduction of dependence on energy imports and diversification of the energy mix strategic imperatives for many countries around the world.

While governments worldwide are confronted with this dual challenge, it is of special relevance to China. On the one hand, China has recently become the world’s largest emitter of CO2, accounting for 24% of global annual CO2 emissions.^[3] China is therefore one of the most important players to effectively mitigate global warming and pressure from governments around the world on China to join emission reductions efforts is mounting. On the other hand, energy demand is growing exponentially and China is increasingly relying on energy imports to satisfy energy needs.^[4] Worried that growing dependency on energy imports may be accompanied by foreign-policy and economic pressures that might threaten national security as well as social and political stability, China has implemented a number of policies to address this issue ranging from policies to save energy and reduce energy intensity, to the diversification of oil supply sources and routes, the support of equity oil overseas acquisitions and the build up of strategic oil reserves to the diversification of the energy portfolio.^[5]

In line with the objective to diversify the composition of the energy mix, China’s leadership is increasingly realizing the need to reduce emissions and support renewable energy development. At a recently held Politburo study session, President Hu Jintao exclaimed: “Our task is tough, and our time is limited. Party organisations and governments at all levels must give priority to emission reduction and bring the idea deep into people's hearts”.^[6] To address the issue of energy security, the Chinese government has adapted a two-pronged approach. While measures to promote energy savings and efficiency curb the increase in energy demand, the support of renewable and nuclear energy reduces dependency on energy imports and contributes to the broadening of the foundation of energy supply.^[7]

This study focuses on China’s renewable energy policy and the development of wind energy in China in particular. Commitment by the highest levels of government and a host of favourable policies have triggered a boom in renewable energy in China, especially in the wind power sector. A major step in the development of renewable energy in China has been the Renewable Energy Law that came into effect in January 2006. In addition, the government has set ambitious targets for energy intensity reduction, and share of renewable energy of primary energy consumption.

China is on the way to become the world leader in renewable energies. In 2007, investment in renewable energies in China amounted to approximately US$ 12 billion, second only to Germany. In terms of installed renewable energy capacity, China leads the world with 151 GW of installed capacity, largely due to the widespread utilization of hydropower for electricity generation.^[8] According to a report by the United Nations Environmental Programme, China is the world’s leading manufacturer of solar cells, with an estimated annual production capacity of 3.000 MW.^[9] China’s wind power market was the third biggest worldwide in 2007 and growth rates continue to exceed expectations. In 2009, China is expected to take the lead as the largest manufacturer of wind turbines.^[10]

Hydro power represents the most important source of renewable energy in China and plays an important part in the power generation portfolio, most notably since the construction of the Three Gorges Dam. Hydro capacity is expected to double to 290 GW until 2020, but concerns about the social and environmental impact of large-scale hydro power are becoming stronger.^[11] Although China is the world’s leading solar manufacturer, installed solar photovoltaic power capacity amounts to a mere 0.01% of total power generation capacity (80 MW, approx. 50% of which are off-grid).^[12] Solar power equipment is produced almost exclusively for export. Considering China’s enormous energy demand and the pace of its growth, deployment of solar photovoltaic power is not viewed as a first-rate solution to satisfy China’s energy needs, since it features high costs and low efficiencies compared to other renewables like hydro or wind power. While China does not have significant amounts of solar PV capacity, it is the biggest market for solar thermal systems for heating and hot water supply with 64,5% of global capacity, amounting to 68 GW.^[13] Biomass covers 13% of primary energy demand, mostly used in rural households for heating and cooking. In 2007, only 0,28% of power generation capacity were fuelled by biomass. The government plans to expand biomass capacity from 2 to 30 GW by 2020.^[14] Despite the impressive progress of recent years, renewable energies - excluding hydro - only contribute less than 1% to China’s electricity supply and the skies above China’s urban areas continue to be shrouded by smog.

Since coal-fired power generation accounts for 82,9% of total electricity supply, it is no surprise that half of China’s emissions are attributable to power generation.^[15] With electricity demand growing rapidly alongside the economy, dependency on coal as the major source for power generation is likely to persist. However, as the most important source of renewable energy next to hydro, and growth of installed capacity constantly accelerating, peaking at about 130% in 2007, wind power is one of – if not the – most promising option on China’s path towards diversification of the energy mix. In recent years wind power has become a mainstream source of renewable energy excelling with mature technology and power generation costs almost competitive with conventional power sources, providing a viable alternative to coal as a source of electricity generation.

In 2005, just before the development of wind power started to pick up pace, the China Wind Power Training and Research Project (CWPP) of the German Development Cooperation (GTZ)^[16] saw its inception, with the aim of improving the conditions for sustained development of wind power in China. Primary objective of CWPP is the support of sustained long-term wind power development in China. To attain this goal CWPP supports the improvement of technical capabilities of private and government institutions and organizations through activities in the fields of wind power training, technical support and research. The project’s engagement ranges from training of technicians in charge of operation and maintenance (O&M) at wind farms to the introduction and localisation of software vital to wind resource assessment. These capacity building activities are complemented by wind power information services as well as policy advice to relevant government institutions.

The CWPP activities and the indicators measuring its success are based on an analysis of framework conditions in 2003/2004. However, since then the general conditions for wind power in China have changed drastically due to policy changes inducing exponential growth of the industry. While from 2000 to 2005 total installed capacity grew at an average rate of 31%, it more than doubled in the last two years. Newly installed capacity increased at an even faster rate averaging 156% annual growth from 2005 till 2007.^[17] In light of the boom in the Chinese wind power sector, it is imperative to realign project activities with actual market conditions on the basis of an up-to-date assessment of the current situation and future outlook. This analysis of the wind power sector in China in 2008 will serve as a basis for the review of current CWPP activities with the aim of developing recommendations for adaptations where deemed necessary.

1.2 Content & Methodology

The study is divided into seven chapters. Subsequent to the introduction, the global development of wind power, its major drivers and trends are discussed briefly serving as a backdrop to the study. The third chapter introduces CWPP and its activities along with the current status of project implementation. The fourth and fifth chapter form the main body of this study. Beginning with the current picture of energy supply and demand, the fourth chapter goes on to introduce the relevant government authorities in charge of Chinese renewable energy policy. Since the basis for wind power development is government support, a detailed examination of renewable energy policy in China is given. The policies governing the wind power sector are reviewed in order to explore the origins of the current boom of the wind power industry. The fifth chapter offers an in-depth discussion of wind power in China, including wind power potential, current status of the market and future development as well as the situation with regards to wind power equipment manufacturers and project developers. In the sixth chapter, major determinants that have the potential to negatively affect the perspectives of wind power development in China are identified and discussed. As a conclusion, chapter seven offers recommendations for the realignment of CWPP activities according to the actual needs of the market.

A series of expert interviews was conducted within the scope of the study.^[18] The experts interviewed included representatives of relevant government authorities, foreign and domestic wind turbine manufacturers, component suppliers, project developers, industry associations, universities, research institutes, consultancies, CDM agencies and environmental organizations. These interviews serve as a supplement to the evaluation of secondary literature and online sources so as to guarantee the timeliness and validity of information in the study. In cooperation with the China Electric Power Research Institute (CEPRI) and the Chinese Wind Energy Association (CWEA) the need for wind power-specific training and education for wind power equipment manufacturers and power generation companies was assessed through two separate surveys. In addition, two polls were conducted among wind turbine and component manufacturers at the China Wind Energy Exhibition 2008 in Shanghai and the Wind Power Asia 2008 in Beijing.^[19] These polls helped to identify the major challenges for the wind sector’s future development in China and contributed to the assessment of the current situation with regard to human resources and qualification.

2 The Global Development of Wind Power

2.1 Development of the Global Wind Power Market

2008 marked another record year for the wind industry. Worldwide installed capacity of wind power has been growing at a rate of 28% annually for the last ten years (see Figure 1). By the end of 2008, total installed capacity has reached 120.000 MW enough to satisfy the residential electricity needs of more than 150 million people.^[20] 27.000 MW of wind power have been installed in 2008 alone representing a record addition of wind energy capacity, equivalent to around € 36 billion of investment and a growth rate of 36% over the previous year.

Figure 1 Global Installed Wind Power Capacity Development

Abbildung in dieser Leseprobe nicht enthalten

Source: author, data from GWEC (2009), p. 10

One in every three countries derives part of its electricity from wind, with 13 countries possessing more than 1.000 MW of installed capacity.^[21] Steve Sawyer, secretary general of the Global Wind Energy Council (GWEC), stated that by 2020 wind power could account for as much as 12% of the world’s electricity needs, up from just above 1% today.^[22]

The top growth markets for wind power were the USA, China and India. 2008 marks the fourth consecutive year, the USA has led the world in new installations – its 8.400 MW of newly-added capacity account for almost a third of total global additions. In total, the USA has an installed wind power capacity of 25.200 MW. Rapid wind power growth has been spurred by government support through the Production Tax Credit (PTC), worth 2 cents per kWh.^[23] The USA is overtook Germany as a leader in installed capacity in 2008. However, the future of wind power in the USA – analogue to all around the globe – is heavily dependant on continued policy support.^[24]

Table 1 Global Total Installed and New Wind Power Capacity 2008

Abbildung in dieser Leseprobe nicht enthalten

Source: GWEC (2009), p. 9

With 6.300 MW installed in 2008, China was the second largest market in terms of capacity additions of wind power, up from third in 2007. Regarding total installed capacity, with more than 12.200 MW China moved up one rank to fourth place. In spite of recent growth rates of annual installed capacity well-above 100%, wind power makes up only 0,8% of installed power generation capacity in China.^[25]

With 1.800 MW installed in 2008, India reached a total installed capacity of 9.600 MW falling from fourth to fifth place on the list of top wind power countries. Renewable energy in India lacks broad policy support. In contrast to China there is no national renewable energy law establishing targets and few economic incentives for renewable energy development.^[26]

Europe installed almost 8.900 MW of wind power capacity in 2008, representing almost 33% of the total global installations. Marking a historic shift in Europe’s power generation portfolio, in 2007 wind power capacity additions exceeded the additions of any other power source in Europe for the first time. In 2008 wind power accounted for more than 35% of all new power installations. Power generated from wind now makes up around 4% of Europe’s electricity demand.^[27] With 23.900 MW, Germany lost the position as a global leader in terms of total installed capacity (see Table 1) to the USA with 25.200 MW. In terms of newly-added capacity Germany only placed fourth behind the USA, Spain, China and India. The reasons for slowing market growth in Germany can be traced back to the saturation of suitable sites for wind power deployment onshore as well as the degression of the feed-in tariff for wind power. Wind power accounts for approximately 7% of electricity generation in Germany. Spain has witnessed a slowing of growth in installed capacity in 2008, with only 1.600 MW installed compared to 3.500 MW added in 2007, falling from second to fifth place in terms of newly installed capacity. In terms of total capacity installed Spain ranks third, while it only trails Denmark in terms of the portion of electricity generated from wind (~10%).^[28]

2.2 Drivers and Trends of Wind Power Development

Drivers

Wind power is booming worldwide. Identifying the underlying drivers that triggered the boom and fuel the rapid commercialization of the wind power industry is necessary in order to steer the development and guarantee for sustained development in the long-term.

Government support has been the single most important driver of wind power development, prerequisite for fast development of wind power markets and industries worldwide. Policies in support of wind power have made the exploitation of wind resources a business with a secure and profitable return. Economic incentives, like feed-in tariffs and tax credits, attract investment in wind power projects by making them economically viable. In some cases, mandatory market share (MMS) policies forced the often oligopolistic power industry to enter a path towards diversification of energy supply. Without governmental support of wind power, the wind power industry would not have witnessed the development it has in recent years.

The year 2007 marked a decisive turning point towards support of wind power and renewable energies in general. Climate change became a major topic receiving broad media coverage and public attention. The Intergovernmental Panel on Climate Change (IPCC) stated in its’ 4th report that global warming is very likely to be attributable to human influence. Together with Al Gore, distinguished for his movie about global warming “An Inconvenient Truth”, the IPCC was awarded the Nobel Peace Prize for the promotion of public awareness of climate change.

More and more governments acknowledge climate change as one of the major challenges of the 21st century and have put the reduction of GHG emissions on the national agenda to limit its’ effects. Since power generation is accounting for 41% of total energy-related emissions worldwide, increasing the share of renewable energies in the electricity generation portfolio is a major path towards lowering emissions - besides saving energy and increasing energy efficiency.^[29] In March 2008, the European Union has confirmed the goal to reduce emissions by 20% by 2020 and at the same time raise the share of renewables in energy supply to 20%.^[30] Air pollution and other forms of environmental degradation caused by conventional sources of energy, can be avoided through a switch to renewables. As a clean emissions-free source of energy and one of the most mature renewable energy technologies, wind power has significantly profited from increasing public awareness of climate change and is bound to profit even more as governments around the world commit to binding renewable energy targets or start to participate in emission trading systems.

Figure 2 Drivers of Wind Power Development

Abbildung in dieser Leseprobe nicht enthalten

Source: author

Figure 2 illustrates the underlying arguments driving government support of wind power. There are four major drivers of wind power development: volatile fossil fuel prices, avoiding climate change and environmental degradation by reducing emissions through replacement of conventional power sources, increasing energy security through a reduction of dependence on energy imports, and last but not least the promotion of economic development through support of domestic industry, technological innovation, job creation and economic development in rural areas.

Wind power does not generate any emissions during the phase of electricity generation. Hence, wind power can significantly contribute to the improvement of environmental conditions. A switch to wind power will help lower the external costs of electricity generation via replacement of conventional sources of energy. The costs of pollution to society may be reduced, mainly via reduction of air pollution. In countries like China, which depend heavily on coal for electricity generation, taking a path towards cleaner energy supply is of special importance.

Along with growing public awareness of climate change and the need to take action against it, the rising prices for oil, gas and coal have contributed to increasing the attractiveness of wind power.^[31] When prices for conventional sources of energy increase, renewable energy becomes more competitive. The comparative advantage of lower costs for power generation of fossil fuels diminishes with a rise in prices of input fuels. Renewables are not dependant on the vagaries of global commodity markets, but instead rely on ubiquitous resources of natural energy. Accordingly, their prices for electricity generation, exhibit a greater stability, largely unfazed by the ups and downs on the commodity markets. Thus, an investment in indigenous renewable energy sources hedges against unpredictable fossil fuel prices. Moreover, while still well above prices for conventional energy at the moment, costs of renewables are constantly decreasing due to advances in technology and emerging economies of scale.^[32]

Contrary to popular belief, wind power may even help to keep electricity prices low. In Germany, a study revealed, the more wind power is produced, the lower the wholesale electricity prices on the Leipzig Power Exchange fall. When wind is blowing strong in Germany, the most expensive power stations are shut off. The purchase of electricity from wind farms mandated by the Erneuerbare Energien Gesetz (EEG) displaces electricity generated by the most expensive power stations.^[33] This is called the merit-order effect. According to a study by the Fraunhofer Institute, in the year 2006 the savings attributed to the merit-order effect (~ € 5 bn.) surpassed the additional costs of renewable energies (EEG costs: € 3.3 bn.) by € 1.7 billion.^[34]

Renewables, like wind power, also increase energy security through reduced dependency on energy imports. Energy security is an important strategic consideration for governments, especially considering the political instability or unreliability of energy exporters like Iran or Russia. As the share of renewable energy increases, the geo-political risk of dependency on energy imports decreases. In addition, the costs for energy imports will be reduced.

The development of wind power is often accompanied by regional economic development, creating jobs and increasing tax revenue. Since wind resources are often most abundant in rural regions which are relatively underdeveloped economically, wind power deployment can contribute significantly to regional economic development. Jobs are created for skilled workers needed for planning, erection, operation and maintenance of wind farms. With proper government support, the development of a domestic wind industry can be facilitated. The wind power industry creates a range of jobs across the value chain, from assembly line workers at suppliers of wind turbine components, over engineers in research and development (R&D) at wind turbine manufacturers and scientists at research institutes studying grid integration, to IT-professionals working on wind resource assessment or micrositing.^[35] While R&D and production expands, more tax revenues are generated through taxation of the sale of products, incomes and electricity.

The deployment of wind power does feature relatively high initial costs for planning and construction, however once the wind farm is built, power is generated without the input of fuel. Since input fuels do not have to be purchased and transported, costs and emissions are saved. There is no need for large upfront investments into exploration or extraction, like with oil, gas and coal. Of course, wind resource assessments and studies on grid integration have to be made in order to ensure selection of adequate sites and proper reception of wind-generated electricity into the regional grid. The costs for connecting wind power to the grid are sometimes substantial, but tend to be significantly lower than construction of the infrastructure necessary for conventional fuels, e.g. building an oil pipeline.

Another important driver for wind power development is the constantly rising energy demand requiring the continuous expansion of power generation capacity worldwide. Traditional thermal (coal-fired) power plants usually have a running time of 50 years or more. Building a thermal power plant today, is thus determining the mode of electricity production for a generation to come. This fact, also referred to as technological lock-in effect, stresses the importance of todays’ actions for the composition of future energy supply. In view of rising energy demand, wind power provides a viable alternative source of power to avoid the lock-in effect of conventional power generation technologies. The deployment of wind power today, is a step towards sustainable power generation for the future and will contribute to the lowering of emissions.

Trends

Rising prices of coal, gas and oil as well as governmental support have increased the relative competitiveness of wind power and made investment in wind power projects and the wind industry more profitable. However, in cases where government support of wind power remains steady as rising fuel costs drive up wholesale electricity prices, the premium of wind power development actually decreases. External costs of traditional sources of power generation, mainly in the shape of costs of environmental pollution and increased costs to society’s health care, are not figured into wholesale power prices in absence of a global emissions trading system. Wind power on the other hand is almost emissions-free with no significant external costs. The increase of the share of wind power in the power mix, may even contribute to lowering electricity prices adding to the net benefit of wind power to society as a whole. Yet, these considerations are not part of the equation of the individual investor considering the diminishing profitability of an investment in wind power project development. Therefore, paradoxically the rise in fuel prices is also putting pressure on wind power companies along the value chain if government support schemes are not adjusted. Take the feed-in tariff in Germany for example: It provides a fixed feed-in tariff of € 9,25 cents for the first five years of operation, this initial tariff is then replaced by a lower tariff. When fuel prices rise, the wholesale electricity price increases. If government support of wind power remains the same, the advantage in profitability of wind power in comparison to conventional power decreases.

In 2007, the global wind industry has made important steps on its path to globalisation. The rapid expansion of wind power markets worldwide, especially in the USA, Spain and China, was accompanied by large investments in build-up of production capacities and project development around the world. GWEC asserted at the beginning of 2007: “Experts predict that there is no end in sight for this boom.” ^[36] The continued rapid growth of demand for wind power has surpassed any expectations and thereby created a sellers’ market with demand outstripping the available supply of wind turbines by far. Especially, component suppliers have not been able to manufacture in sufficient quantities. The explosion in demand for wind turbines as well as increases in turbine size coupled with pressures in the global machine tools industry, have created intense supply-chain difficulties. This development translates into rising turbine prices and an increasing order backlog of up to three years for wind turbine manufacturers. In addition to demand and supply imbalances, higher prices of commodities needed for wind turbine production (e.g. steel, copper and carbon fibre) drive the increase in turbine prices. For project developers, the bottleneck in turbine supply has increased capital costs and made long-term equipment purchase arrangements necessary in order to enable timely project realisation.

Along with heavy expansion of production capacity of traditional wind turbine manufacturers, rapid market growth has also attracted companies outside the wind industry to enter the wind power business. Especially in China, large enterprises, e.g. from the heavy machinery and electric power equipment industry, and even power generation companies are starting wind turbine manufacturing enterprises in order to participate in the booming market.

The types of companies developing and owning wind farms is also changing – from relatively small, specialized independent project developers towards utilities, large independent power producers (IPPs) and multinational oil companies. The trend points to greater market consolidation, with big utilities and large IPPs increasing the share of wind power in their portfolio through acquisition of smaller project developers. Power generation companies, as well as institutional and private investors are increasingly looking to wind power as a promising investment with secure and profitable returns.^[37]

In the mid-term the wind power market is moving from a sellers’ to a buyers’ market. While the market situation has been characterized by supply-chain constraints, long wind turbine delivery lead times and an abundance of funds in the past, in face of the global financial crisis and the expansion of manufacturing capacity the market is expected to consolidate further in future. A turbine surplus is expected as early as 2010, the availability of financing will be constrained and focus on quality projects and turbines will increase.^[38]

3 The GTZ China Wind Power Project

As mentioned in the introductory remarks, the GTZ China Wind Power Project strives to improve the “technical capabilities of private and state institutions for the nationwide development of grid-bound wind energy use”.^[39] The project was started in April 2005 and is scheduled to run through February 2010 with a funding of € 5 million from the German Ministry of Economic Cooperation and Development (BMZ). At the outset of the project, the lack of qualified technical personnel and managers with expertise in the wind energy sector has been identified as one of the core problems to be addressed by project activities. In addition, a stated goal of the project is to promote the sustained development of the Chinese wind power sector by enhancing the capacity of domestic institutes and organizations with regard to the establishment of technical guidelines and standards as well as regulatory framework. A third objective, influencing government agencies towards the establishment of a renewable energy policy framework conducive to the development of wind power was in part accomplished, when the Renewable Energy Law was introduced.

In order to achieve these goals, CWPP cooperates with two partners or implementing organisations: China Longyuan Power Group (CLYPG), the nation’s leading wind power developer and a subsidiary of Guodian, one of the five big power generation companies^[40], and the Chinese Electric Power Research Institute (CEPRI), a leading academic institution providing research and services for the power sector, affiliated with the bigger of the two national grid companies State Grid Corporation of China.

The cooperation with CEPRI is focussing on capacity building with regard to research, consultancy and technical services facilitating the development of wind power in China. As a result of project activities, the Renewable Energy Department (RED) was established at CEPRI in 2006, which has since developed into a principal institution in the field of wind power research and services. CWPP supports the RED with respect to capacity building in the field of wind resource measurement, micrositing, wind turbine testing and grid integration of wind power. The support includes financial backing of the purchase of equipment for testing and other purposes, software localization and training, as well as support in improving capabilities with regard to technical consulting and services.

Main groups calling upon CEPRI’s expertise for technical support and advice are wind farm developers, grid operators on provincial level, wind turbine manufacturers as well as government agencies. RED is consistently engaged in consultancy services for wind farm planning and output calculation as well as diverse research projects, e.g. concerning the testing of wind turbines with “low voltage ride-through” capability.^[41] Moreover, CEPRI took over the distribution and support of two kinds of wind resource assessment software used for wind farm planning. In cooperation with CLYPG, RED is currently conducting a project to develop recommendations on how China’s specific climatic and geographical conditions affect the deployment of wind power. In summary, it can be asserted that CEPRI’s RED has garnered recognition throughout the Chinese wind power sector and is accepted as a leading institution in the field. To cope with demand for its services the number of staff was increased from 8 to more than 20 employees.^[42]

To improve the situation with regard to much-needed technical wind power training, CWPP established a training centre together with CLYPG. Located in Suzhou, the Suzhou Training Centre of CWPP, also known as Suzhou Longyuan Bailu Wind Power Vocational Training Center, offers training for technical as well as executive personnel in the wind industry. The training courses focus on imparting practical knowledge in a variety of areas: from long-term courses (two to three months) on basic wind power knowledge for recent graduates aiming at operation and maintenance technicians, to short-term seminars (two to four days) on wind resource assessment, wind farm planning, construction management or wind turbine design primarily directed at development engineers and management personnel. The training activities of the CWPP Suzhou Training Centre have been well-received, mainly by project developers, but also by wind turbine manufacturers. The operation and maintenance staff and safety training was certified by the China Electricity Council (CEC) and the current progress indicates that activities are underway of exceeding the targets set at project inception (see Table 2). However, in face of the enormous boom in the Chinese wind power sector since the original project planning, the training activities in Suzhou are only a drop in the ocean considering the demand.^[43]

Table 2 Participants in CWPP Advanced Training

Abbildung in dieser Leseprobe nicht enthalten

Source: GTZ (2008), p. 2

The lack of qualified personnel seriously impairs the development of the industry leading to reduced performance in research, planning and manufacturing processes. A wide array of problems may arise or intensify if this issue is not addressed properly: erroneous wind resource assessment and micrositing may reduce wind farm performance, faulty wind turbine design or inadequate wind turbine testing may result in low-quality or even defective turbines, flaws in turbine erection and wind farm construction may cause safety risks and affect reliability, sub-par condition monitoring may drive up maintenance costs and reduces wind turbine availability, etc. The outcome: underperforming wind farms with electricity outputs not living up to expectations and revenues failing to recoup investment costs. If actions to prevent this development are not taken, the trust in wind power technology in general may be seriously undermined. Since the domestic industry in China, for the most part, relies on technology licensed or bought from overseas companies, occurring problems might cast a shade on foreign technology in particular. To avoid those pitfalls, the CWPP training activities are essential and have to be reviewed with regard to scope and content in order to be subsequently adapted to the current market situation.

4 Energy Policy in China

4.1 Energy Supply and Demand

The fast pace of economic growth has made China a major player on the global energy market. In 2007, China ranked second in terms of energy consumption behind the United States, set to become the world’s largest energy consumer by 2010.^[44] In face of this enormous demand for energy, China is in need of affordable, secure and environmentally sustainable sources of energy for its 1.3 billion people. Since China is no longer self-sufficient in meeting national energy needs^[45], China’s energy footprint will have a direct impact on energy markets around the world. In addition, the pattern of energy demand, generation and consumption has major implications for the local and global environment. Consequently, Chinas’ energy future will affect economies and the environment around the world.

At the end of the 1970s Deng Xiaoping started a process of economic reform through the promotion of “Socialism with Chinese characteristics”. The introduction of a socialist market economy helped spur economic development and modernize the country. Since 1980 GDP growth has averaged a striking 9.8% per year, accelerating to around 11% in 2006 and 2007. Main drivers of growth were market liberalisation, reform of state enterprises and later-on the accession to the WTO. The acceptance into the WTO in 2001 facilitated Chinas’ integration into the global economy. In 2007 China was the top recipient of foreign direct investment (FDI) and the third-largest trader worldwide. Domestic consumption and investment in conjunction with the relocation of manufacturing processes from other countries to China have spurred the production of energy-intensive goods.

The main source of economic growth is the industrial sector, heavy industry in particular. The chemical industry, industrial output of manufactured goods for export and domestic markets as well as the production of iron, steel and building materials for domestic use are constantly growing. While China was able to meet its energy needs entirely from domestic sources for many years, today it is increasingly relying on energy imports raising national concern about supply security.

Primary Energy - Supply and Demand

In the period from 2005 to 2030, China’s primary energy demand is expected to more than double according to the International Energy Agency (IEA). In order to fulfil its energy needs China relies heavily on coal. Of the total primary energy demand more than 60% are met by coal (2005), followed by oil and biomass (see Figure 3).^[46] Despite its vast coal resources, in 2007 China became a net coal importer for the first time in order to satisfy demand. The share of coal of primary energy demand is expected to remain steady around 60% until 2030 according to the reference scenario of IEA projections.^[47] The reliance on resource-intensive industries as a driver of economic growth leads to an insatiable demand for energy and severe environmental problems. Even more so, since the lion’s share of energy demand in China is satisfied from coal.

Figure 3 Total Primary Energy Demand in China 2005

Abbildung in dieser Leseprobe nicht enthalten

Source: IEA (2007), p. 262

The replacement of old fossil fuel power plants by more efficient super- and ultra critical power plants may help to reduce the environmental impact.^[48] The use of carbon capture and storage (CCS) technology, which is currently under development, may be an option to minimize emissions in the long-term. Nevertheless, the projected increase in energy demand will inescapably be accompanied by a further surge in emissions. Since per-capita emissions are still much lower than those in the USA or OECD, China sees the industrial nations in the responsibility to lower emissions first, allowing for China to catch up to their economic development.

Electricity Generation - Supply and Demand

Increasing demand for electricity is one of the major drivers of the surge in primary energy demand. China had a power generation capacity of 713 GW in 2007 which is characterized by a heavy dependence on coal (see Table 3).^[49] 554 GW of installed capacity, representing 82.9% of the power generated, were attributable to coal-fired power plants.

Table 3 Sources of Power Generation in China 2007

Abbildung in dieser Leseprobe nicht enthalten

Source: adapted from Shi (2008b), p. 1

Hydro power is the second biggest source of electricity and with 15.0% makes up a significant portion of power generation. Nuclear energy accounted for 1.9% of the electricity. As the most significant of renewable energies after hydro power, wind power contributed only a relatively small amount of electricity. With 5.9 GW or 0.8% of power generation capacity, the electricity generated by wind power amounted to a mere 0.2% of the total power generated.

In 2006 and 2007 around 100 GW of power generation capacity were added per year, with most of the capacity increases in form of thermal power plants. In 2007 alone, 88 GW of coal-fired power plants were built; i.e. China installed more coal-fired power plants in a year than the total power generation capacity of the United Kingdom.^[50] Considering the share of coal in its power generation profile it comes as no surprise that China has recently become the worlds’ largest emitter of carbon dioxide. 20 of the world’s 30 most polluted cities are located in China. Environmental pollution and related detrimental effects on people’s health are causing huge costs to society - air pollution is estimated to cost China from 3 to 7% of GDP annually.^[51]

The recent financial crisis on the American financial markets is affecting economies around the globe. As liquidity in the markets dries up and consumer confidence deteriorates, China will feel the effects of the global economic downturn. Officially, exports made up close to 40% of GDP in 2007. This would suggest that China is hit especially hard by a global economic slump. However, according to estimates by Swiss bank UBS the “true” export share of GDP is just under 10% of GDP.^[52] On that account, and due to strong domestic demand China’s economy is likely to be less affected by the financial crisis as commonly expected. Nevertheless, after five years of double-digit growth, for 2008 economic growth is expected to be in the single digits. Since exports account for as much as 28% of its energy consumption (2004), the growth of energy demand in China is likely to slow down as well.^[53]

The Chinese government is searching for ways to secure its’ energy supply, while providing for sustainable development, avoiding social unrest and maintaining strategic independence. Already, mismatches between energy supply and demand have led to power shortages in part of the country.^[54] Sharply rising energy imports have prompted China to reach out to African countries rich in energy resources in order to secure energy supply.^[55] China is also promoting structural adjustment by increased efforts to curb investment in overheated sectors and to cut energy intensity. In addition, the diversification of energy supply has recently become a stated goal of Chinese energy policy, signified by increased policy support of nuclear and renewable energy. The implementation of the Renewable Energy Law in 2006 has manifested the Chinese governments’ commitment to the development of renewable energies as part of its’ energy strategy and triggered a boom in renewable energy, especially in wind power.

4.2 Relevant Players in Energy Policy Making

The Chinese power sector has undergone a gradual reform process since the mid-1980s. In 2002, an important move has been made with the reform of the structure and ownership of China’s power markets. The State Power Corporation was disintegrated and its assets distributed among two grid companies and five power generation companies. The separation of power generation from the grid (transmission & distribution) aims at improving operational efficiency and lowering prices, taking advantage of market forces to profit from more efficient allocation of resources.^[56] As a result of this reform, five big state-owned power generation companies are dominating the power sector to this day. As powerful, relatively autonomous players with full or vice-ministerial rank, they are able to influence government energy policy directly. As the influence of market forces on China’s electricity sector remains limited, supply and demand imbalances persist with power shortages and overcapacity alternating in boom and bust cycles.

As the power sector was restructured, China’s energy policymaking apparatus has also been subject to frequent discussion and reorganization. In March 2008, the National People’s Congress resolved upon the latest institutional reform of energy governance (see Figure 4). In future, energy policy will be guided by the State Energy Commission (SEC), a high-level strategy and coordination board, and the National Energy Administration (NEA), a vice-ministerial body under the National Development and Reform Commission (NDRC).

Figure 4 Major Players in Energy Policymaking in China

Abbildung in dieser Leseprobe nicht enthalten

Source: author

The SEC, replacing the National Energy Leading Group, will be in charge of the national energy development strategy, energy security and overall strategic oversight. The NEA, the successor to the Energy Bureau, will deal with the drafting of plans and policies, as well as their implementation, supervision and administration. In addition, the NEA has a mandate to negotiate with international energy agencies and approve foreign energy investments.^[57] Specific regulations in support of energy policy are issued by a host of respective ministries. The provincial level authorities are responsible for the execution, administration and monitoring of national policies on provincial level, with autonomous regulatory power over certain projects.^[58]

Although the establishment of the NEA is a step towards integration of the fragmented energy policymaking apparatus, the NEA lacks the autonomy, authority and resources (especially manpower) necessary to tackle the challenges China faces in the energy sector. Most importantly, the NEA can make recommendations, but has no authority over energy pricing. Since the setting of energy prices is one of the major instruments of macroeconomic control, it is not surprising that NDRC and ultimately the State Council retain that power. Opposition to a more powerful “Ministry of Energy” was strong, from both NDRC, fighting to keep control over power pricing, and the big power generation companies, who do not want to relinquish their current influence on the government and fear stricter regulation. As a consequence, energy policymaking will continue to be limited by a series of factors: “conflicts of interest will impede decision-making; the energy companies will remain important drivers of projects and policies; state-set energy prices will continue to contribute to periodic domestic energy supply shortfalls; and the NEA, with no authority to adjust energy prices, probably will resort to “second best” administrative measures to try to eradicate those shortages”. ^[59] In absence of market price signals, NDRC attempts to accurately forecast demand, approve new generation capacity accordingly and adjust prices to keep profits within a reasonable range. Unfortunately, this approach has resulted in a volatile power sector, swinging between power shortages and supply surpluses.^[60]

4.3 Renewable Energy and Wind Power Policy

In recent years, China went from a country primarily looking to coal-fired power plants for electricity generation to one of the world’s foremost advocates of renewable energy. Through swift and resolute policy action China managed to create a burgeoning market for renewable energy as well as a thriving domestic renewable energy industry. Looking at the enormous amount of thermal power generation capacity additions necessary each year to satisfy the rapidly increasing energy demand, the present boom of renewables in China may only seem like a drop in the ocean. Nevertheless, government policy support has initiated a development opening up the path towards a sustainable energy future for China.

It was only four years ago, at a renewable energy conference in Germany, that China announced the ambitious goal of generating 16% of its energy from renewables by 2020. Since then, through the implementation of a series of policy measures, renewable energy deployment has gathered momentum, triggering a boom in the renewable energy sector in China unimaginable in 2004. By pushing the major players in the power sector towards renewable energy development via government targets and mandatory market share requirements for renewables and pulling investors to investment in project development and the domestic renewable energy industry by installing a series of economic incentives the government created a billion dollar market for renewable energies in general, and wind power in particular.

The Chinese market for new renewable energy capacity was worth US$ 12 billion in 2007, equal to 20% of the worldwide investments just behind world leader Germany who invested US$ 14 billion. The investment needed to accomplish China’s 2020 renewable energy development goals is estimated at a staggering US$ 268 billion.^[61] The biggest share, US$ 91,1 billion representing 34% of renewable investment, is expected to be invested in new wind power installations. Actual investment figures may even be bigger, since these numbers do not include investment in new manufacturing capacity, R&D spending or government subsidies.^[62]

4.3.1 The Concession Programme and Origins of Wind Power Pricing

One of the most influential determinants of wind power development in China is the wind power tariff or pricing system. Development of wind power pricing can be divided into three distinct phases. During the first phase from the late 1980s to the late 1990s, wind power project development was for the most part funded by overseas donors (international assistance funds) with very low electricity tariffs of less than 0,3 yuan/kWh, comparable to coal-fired plants, barely covering maintenance costs. The second phase, from late 1990s to 2002, was characterized by local governments determining the tariff, which was then approved by central government, with prices varying widely from very low up to generous 1,2 yuan/kWh. In the third phase, from 2003 up until now, wind power prices for national concession projects are decided by competitive bidding.^[63] Today, tender-based pricing as well as an “approved price”, decided directly by the government, are applied. Provincial authorities are responsible for projects of less than 50 MW capacity (pending verification by NDRC), while for wind farms with a capacity above 50 MW, NDRC is in charge of the approval process.^[64] The pricing regime and the allocation of project development rights have been criticised by project developers and wind turbine manufacturers as opaque, due to a lack of transparency in permission and negotiation processes.

The concessionary approach to wind power development was adopted since wind power was not able to compete with coal power due to high costs. Financial viability of wind farms suffered from small project sizes and a lack of economies of scale. The domestic wind industry was small without the capacity to manufacture large MW-scale turbines. Moreover, difficulties in obtaining connection to the power grid hindered project development.^[65]

In 2002, the Chinese government sought to stimulate the development of wind power in China by initiating the national wind concession programme. Under the concession programme the right to build wind farms in certain sites, selected by the NDRC, is allocated through a bidding process with the lowest electricity tariff winning the bid. The main objectives of the concessionary approach to wind power development are: promoting larger project sizes, support of the evolution of the domestic wind industry, realizing economies of scale and as a consequence driving down the cost of wind power.

The government stipulated a number of features for concession projects: The project size was determined to be least 100 MW. Contracts have a duration of 25 years. The government guarantees a fixed price (feed-in tariff) for the first 30.000 hours of full operation; subsequently the average local electricity price is adopted. The grid company is mandated to provide for the grid-connection of the wind farm and purchase all electricity generated. The difference between the wind power price and the conventional power price is shared across the national grid (until 2006 across the provincial grid). The provincial government conducts pre-preparation work (wind resource assessment, site selection, land rent etc.) and is responsible for the road access to wind farms. A minimum turbine capacity of 750kW (until 2006 600KW), a 70% local content requirement (until 2004 50%) and assembly in China are mandatory. The 70% localization rate has been extended to non-concession wind power projects in 2005.^[66] Since 2006, the bidders have to specify the wind turbine manufacturer in project application.^[67]

A batch of two to four concession projects are put out for tender on an annual basis. Five rounds of concessions - one every year - have been conducted so far, accounting for almost 3,4 GW, equivalent to 60% of total installed wind power capacity until the end of 2007.^[68] Results of the sixth concession conducted in 2008 are still pending. The wind power concession programme has been largely successful at promoting the development of the domestic wind industry, creating a sizable demand for wind turbines with a high localisation rate^[69], thereby enabling cost reductions at manufacturers through economies of scale. A multitude of domestic wind turbine manufacturers are emerging supported by a host of wind turbine component manufacturers. In addition, the goal of increasing project size was achieved with the average total capacity of wind farms increasing from 14,6 MW at the end of 2002 to 37,4 MW by the end of 2007.

On the other hand, the provision that the lowest bid wins, resulted in bidders engaging in detrimental price competition. Investors either overstated wind resources and electricity output or underestimated wind equipment and maintenance costs, so that electricity prices calculated in the feasibility studies were on the low side. While calculation of prices is based on standard operation of mature wind turbine models, the domestically manufactured turbines are regularly not sufficiently tested and have to be troubleshooted and improved as a result of operational experience. This has resulted in a swath of largely unprofitable wind farms, with a considerable number of winning tariff bids too low to recover capital costs. One expert on the concession programme has stated that “all the projects authorized so far [through 2006] will suffer a net loss”.^[70]

Therefore, the concession programme is dominated by large state-owned power generation companies with strong financial backing able to cross-subsidise the wind concessions through revenues from profitable thermal or hydro power plants. Drivers for the power generation companies to invest in wind power in spite of low returns are often of political nature, e.g. fulfilling mandatory market share requirements, promoting a good image through clean energy development or enhancing government guanxi. ^[71] Another motive is securing sites with rich wind resources in order to win control over the resources or speculate with the rights for project development. Looking at project implementation of the second through fourth concession round (2004-2006), only 28% of planned capacity had been installed until 2007, suggesting that investors are focussing on acquisition of project development rights ahead of project profitability.^[72]

In contrast to other investors, the big power companies benefit from close ties with China’s state banks, enabling them to secure loans in spite of questionable profitability of projects. Some companies have gained an unfair advantage by exploiting a loophole in the Chinese tax code, in order to avoid VAT and reduce income tax. Projects with a share of over 25% foreign investment are eligible for a full VAT refund on fixed asset purchases. Unfortunately, this measure has not been able to attract foreign investors as originally intended, but was taken advantage of by domestic companies by establishing joint ventures registered abroad.^[73]

Small and medium-size developers have been discouraged by the costs of the bidding process, which can easily run into tens of millions of Yuan, e.g. for preparing the bidding documents and conducting feasibility studies. Likewise, private and foreign investors have been deterred from participation in the concession programme by high transaction costs and unreasonable returns. Thus, the concession programme has not been able to diversify sources of investment, but added to the dominance of the big power companies instead.^[74]

Another downside of the concessionary programme is that wind electricity tariffs determined in concessions, exerted intense pressure on project developers and wind turbine manufacturers to reduce costs wherever possible. Up until now, no distinct study on the performance of national concession projects exists and data collection on the electricity output and availability of wind turbines of wind farms is generally difficult. Persons in charge at project developers, power generation companies and wind turbine manufacturers are reluctant to give out information in fear of loosing face, damaging guanxi or endangering their own position. Nevertheless, the strong pressure to drive down project costs almost certainly has an impact on wind farm performance.^[75] Project developers pressured to reduce costs may cut expenditures for planning and construction, while wind turbine manufacturers may choose to use less expensive components or raw materials and have less money to invest into research and development. In the end, once in operation wind farm performance consequently suffers from the use of low-quality equipment, potential lower efficiency of wind turbine operation or even wind turbine collapse. In some cases, the provision of inaccurate wind resource assessment data by government authorities may have added to this effect. Unprofitable projects generate fewer taxes and as a consequence do not contribute significantly to local economic development. If profits for provincial governments fail to materialize, willingness of government officials to support future wind power development may deteriorate.

The negative impacts of the concessionary pricing policy have not gone unnoticed. Thus, the criteria for the awarding of concession projects were continuously revised since 2005. While the lowest bid won the concession in the beginning, the weighting of price as the determining factor was reduced to 40% in 2005 and 25% in 2006. Factors like local manufacturing content, technical competence and financing capacity gained in importance. Since these measures did not significantly improve the situation with regard to project profitability, by the fifth round “in 2007 the winning criterion was set as the bid closest to the average bidding price, excluding the highest and the lowest bid”.^[76] As a consequence, the average electricity tariff of concession projects rose above 0,5 yuan/kWh for the first time since the concession programme was started. The average tariff increased by 0,0637 yuan/kWh compared to 2006 (to 0,5253 yuan/kWh).^[77]

While the concessionary programme is commended for jumpstarting the Chinese wind turbine industry, the flawed pricing policy, at least in the first four rounds of the programme, induced high cost pressure and added to the dominance of unsound motives in investment decisions. An adverse long-term effect on wind farm performance and the manufacturing capability of the domestic wind industry may be the result. It remains to be seen, how the recent revision of bidding criteria influences wind electricity prices in the long run, and how project performance of already awarded concessions turns out with respect to financial conditions, annual electricity sales and wind turbine performance after a couple of years.^[78] While the tender-based wind power pricing mechanism is supposed to provide a basis for fair competition, it has proven to be a flawed pricing instrument in the Chinese market environment. Essentially, the government is taking the role of the regulator as well as the implementer at the same time, with the state organizing a bidding for state-owned power generation companies. This makes a fair commercial bidding virtually impossible.^[79]

4.3.2 The Renewable Energy Law

The Renewable Energy Law, enacted in February 2005, came into effect on 1 January 2006. One of the main objectives of the law was to attract stakeholder interest in the Chinese renewable energy sector. Sending out a clear signal of the Chinese government’s commitment to renewable energy development by establishing favourable investment conditions and a stable market for renewable energy, the Renewable Energy Law aims to increase the share of renewables in China’s power mix, promote the domestic renewable energy industry, and support regional economic development.^[80]

The Renewable Energy Law does not in itself promulgate binding renewable energy development targets or economic incentives, but instead serves as a framework law designating responsible government authorities, on national and provincial level, to draft renewable energy development and utilization plans as well as supporting legislation. NDRC is in charge of energy pricing and planning issues, the Standardization Administration of China administers technical standards and codes related to renewable energy projects, the Ministry of Finance is responsible for economic incentive mechanisms, like tax breaks, and government financial support of renewable energy in form of subsidised loans and research and development encouragement. In line with Chinese legislatory practice, the law is purposely vague in its stipulations, serving as an umbrella document providing an outline of general principles to be clarified in subsequently released “implementing regulations”. This approach allows for high flexibility of the regulatory framework, since the implementing regulations are easily revised to improve effectiveness and reflect market conditions.^[81]

While broad in language, the Renewable Energy Law does include a number of supporting measures crucial to the creation of a favourable market environment for renewable energy. Power grid companies are obliged to connect all licensed renewable energy projects to the grid and purchase the energy generated within their power grid. The expenses for grid connection as well as the excess cost of renewable energy compared to conventional power can be (partially) retrieved via a renewable energy surcharge on the electricity price (also known as renewable energy premium).^[82] The burden of the renewable energy surcharge is shared across all electricity consumers, with the exemption of agricultural communities and other low-income administrative divisions.^[83]

Wind Power Pricing under the Renewable Energy Law

The Renewable Energy Law stipulates that feed-in tariffs for renewable energy are to be determined by the price management department of NDRC according to type of renewable energy and specific regional conditions. Moreover, the price setting shall be favourable to renewable energy development and guarantee economic viability, i.e. the return on investment of renewable energy projects should be higher than the average return on investment of conventional power projects. Drafts of the Renewable Energy Law included a fixed feed-in tariff for wind power based on the price of coal-fired electricity plus a subsidy. This type of pricing mechanism has been much anticipated by investors, since it would create a clear and stable framework for wind power investment, providing a sound basis for planning and calculation of projects. As it turned out, the government decided to rely on a different mechanism for wind power pricing based on the experiences of the concession programme.

In January 2006, a directive pertaining to wind power pricing was issued, imposing the following principle: “The grid-connected power price of wind power projects will be determined by government guided pricing, the standard of which is set by the responsible pricing department of the State Council in accordance with the price selected through a public request for tenders.”^[84] Modelled after the practice of the concession programme, the government conducts public biddings for wind power projects in order to determine the wind electricity price and select the project developer. The tender-based mode of pricing under government supervision aims at determining the wind power price levels appropriate for different regions, accounting for distinctive local circumstances with regard to wind resources and geographical conditions.

In another implementing regulation, the responsibilities for reviewing and approving wind power projects are divided among NDRC and Provincial Development and Reform Commissions (PDRC): wind power projects with an installed capacity of at least 50 MW need NDRC approval, while smaller projects can be approved by provincial authorities, but still need verification by the NDRC pricing bureau.^[85] Following this, tenders based on the same principles as the concession programme were conducted on provincial level. According to GWEC, these provincial level tenders account for 3.000 MW of project development.^[86] In addition, some wind power projects are implemented based on government approval without a bidding being held. These projects are sometimes politically motivated pushed by high level government officials. In one instance, in order to help the local economy in face of the decline of the local coal industry a large wind power project was approved despite unfavourable wind resource conditions.^[87]

In practice, prices of large-scale projects approved by NDRC tend to be lower than the prices of projects approved on provincial level. Lower prices may result in less financially viable projects. Approval procedures on national level are also known to often consume more time and effort than provincial approval resulting in higher transaction costs. Provincial governments offer higher prices in order to attract wind power investors and increase their tax base, at times attracting not only project development, but also investment in local manufacturing capacity. All these factors combined had the effect that most of the wind power projects built and under development are less than 50 MW in size, in order to avoid the approval process on national level. Many are featuring an installed capacity of 49,5 MW.

Figure 5 NDRC Approved Feed-In Tariffs

Abbildung in dieser Leseprobe nicht enthalten

Source: Azure International (2008), presentation

Recently, wind power pricing policy in China has been moving away from the tender-based approach towards a fixed feed-in tariff regime. Prices are now regularly determined by provincial governments, and then approved by NDRC, without going through a bidding process. Since June 2007, NDRC has issued two pricing documents approving feed-in tariffs for 95 projects in eleven provinces (see Figure 5). To a large extent, the prices are the same for projects within one province, with few exceptions to account for special resource and investment conditions. The prices approved in these pricing documents mark a movement towards a more realistic and economically viable pricing regime in China. As in projects allocated by bidding, the feed-in tariffs apply to the first 30.000 hours of operation. Guangdong decides on wind power pricing autonomously from the central government and was the first province to establish a province wide fixed feed-in tariff (0.064 yuan/kWh). It may be expected that other provinces will follow suit.^[88] Although wind power electricity tariffs in China remain low by international standards, the tendency to approve uniform price levels on provincial level improved investment conditions by increasing predictability and security for investors.

Renewable Energy Targets and Mandatory Market Share Requirements

In September 2007, more than one and a half years after the Renewable Energy Law called for the establishment of overarching renewable energy targets, the NDRC released the Medium and long-term Plan for Renewable Energy Development (see Figure 6). It was the first time the Chinese government set explicit quantified goals for renewable energy development. The plan establishes a national renewable energy target of 10% of total primary energy consumption by 2010 (incl. hydro power), and 15% by 2020. In February 2008, the target was revised to 15% by 2015, twice the proportion renewables represented in 2005. In addition, specific development targets for different types of renewable energy technologies were set, including a 5 GW target for wind power by 2010, and 30 GW by 2020. These targets have been adjusted upwards since, in order to accommodate for the tremendous pace of renewable energy development, with the wind power target adjusted to 10 GW by 2010.

[...]

^[1] Main drivers of public awareness of climate change were Al Gore’s movie “An Inconvenient Truth” (May 2006), the Stern Report (October 2006), the Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report (2007) and the Nobel Peace Prize for Al Gore and the IPPC (December 2007).

^[2] IPCC (2007), p. 10

^[3] Netherlands Environmental Assessment Agency (2007), online / The Climate Group (2008), p. 5

^[4] In 2006, China relied on imports for 50% of its total oil consumption. China started to import gas in 2006, and has become a net importer of coal in 2007. The energy imports are expected to increase markedly in future, accompanied by a growing impact on international fuel trade. (cp. OECD/IEA (2007), p. 325 et seqq.)

^[5] cp. OECD/IEA (2007), p. 175 et seqq.

^[6] cp. Watts (2008), online

^[7] China is also supporting the development of a natural gas market as well as R&D and deployment of clean coal, coal-to-liquid and biofuel technologies.

^[8] Hydro power accounts for 145 GW out of 151 GW renewable energy capacity (2007). Cp. The Climate Group (2008), p. 8

^[9] Data from 2007. cp. May (2008), online

^[10] cp. Schwartz/Hodum (2008b), online

^[11] cp. The Climate Group (2008), p. 8

^[12] cp. The Climate Group (2008), p. 8 et seqq.

^[13] cp. REN21 (2008), p. 12

^[14] cp. cp. The Climate Group (2008), p. 11

^[15] cp. Shi (2008b), p. 1

^[16] The webpages of the GTZ wind power activities in China can be found under www.cwpc.cn.

^[17] cp. Shi (2008a), p.1 et seqq.

^[18] For summaries of selected interviews conducted in Beijing between March and July 2008, please refer to the annex.

^[19] For a detailed evaluation of the CEPRI and CWEA surveys as well as the two polls please refer to the annex.

^[20] Dorn (2008), online

^[21] cp. GWEC (2008), p. 1

^[22] Reuters (2008), online

^[23] The PTC for wind power has recently been extended for one year within the scope of the US$ 700 billion “bailout” package that was passed in the beginning of October 2008.

^[24] cp. Russel (2008), online

^[25] For details on the current status of wind power in China, please refer to chapter 5.2.

^[26] cp. Dorn (2008), online

^[27] cp. Dorn (2008), online

^[28] cp. Dorn (2008), online

^[29] Data for 2005 from IEA (2007), p. 195

^[30] The EU committed to raising its target to 30% emissions reductions if the USA and major developing countries, like India and China, also commit to significant binding targets.

^[31] Oil prices peaked at US$147.27 over worries of Iranian missile tests in July, but have declined ever since to below US$100 in September 2008. Coal prices have almost doubled in 2008.

^[32] The cost of renewable energy equipment is subject to the variations in prices of the raw materials needed for their production as well as supply and demand. Still, the price sensitivity of renewables is far below conventional energy generation.

^[33] cp. BWE (20 Sept. 2006), online

^[34] cp. Sensfuß/Raugwitz (2007), p. 10 and BMU (2007), p. 41

^[35] Micrositing refers to the placement of individual wind turbine generators within a wind farm.

^[36] cp. REN21 (2008), p. 18

^[37] cp. GWEC (2008), p. 2

^[38] cp. New Energy Finance (2008), presentation held at Global Wind Power 2008, Beijing

^[39] Neubauer (2008), p. 3

^[40] Also known as “the Big Five”: Huaneng Power Group Corp., Datang (Group) Corp., Huadian Corp., Guodian (Group) Corp., China Power Investment Corp.

^[41] Fault ride-through capability enables wind turbines to continue delivering electricity to the grid in spite of temporary grid defects, instead of shutting off the turbine - and essentially the wind farm altogether.

^[42] GTZ Projektfortschrittsbericht (2008), p. 3

^[43] cp. GTZ Projektfortschrittsbericht (2008), p. 3

^[44] IEA (2007), p. 261

^[45] In 2006, China was the world’s third largest oil importer after the USA and Japan. In addition, China has started to import natural gas, and in 2007 became a net importer of coal. (cp. IEA (2007), p. 261)

^[46] mostly traditional biomass used for heating and cooking in rural households

^[47] IEA (2007), p. 283 et seqq.

^[48] While subcritical fossil fuel power plants operate at an efficiency of 36 to 40%, supercritical and ultra critical designs achieve efficiencies of up to 48%.

^[49] In comparison, Germany possessed only a fifth of China’s electricity generation capacity in 2007 (138 GW), with 38% or 52 GW coal-fired power generation capacity. Cp. BMWi, Energiedaten Tabelle 22, online

^[50] cp. Heinberg (2008), online

^[51] cp. IEA (2007), p. 252

^[52] Jonathan Anderson, an economist at UBS, argues since exports are measured in gross revenue and GDP in value-added terms they are not comparable. In order to measure exports in value-added terms, Anderson strips out imported components and converts the remaining domestic content into value-added terms by subtracting inputs purchased from other domestic sectors. With these adjustments the effective share of exports amounts to 10% of GDP. Cp. Economist.com (2008), online

^[53] cp. IEA (2007), p. 290

^[54] Energy shortages are mainly attributed to higher than expected industrial growth, deficiencies in the national power grid as well as imperfect planning of expansion of power generation capacity, in part due to conflicts arising from the mixture of market-based fossil fuel pricing and government-guided electricity pricing.

^[55] One third of China’s oil imports in 2006 stemmed from Africa (for the most part from Angola, Equatorial Guinea, Nigeria, the Republic of Congo, and Sudan).

^[56] OECD/IEA (2006), p. 33 et seqq.

^[57] cp. Dows (2008), online

^[58] With regard to the wind power sector provincial authorities are in charge of approval and regulation of wind farms with a capacity of less than 50 MW.

^[59] Dows (2008), online

^[60] cp. Rosen/Houser (2007), p. 26

^[61] For details on China’s renewable energy targets, please refer to chapter 4.3.2.

^[62] cp. The Climate Group (2008), p. 25 et seqq., New Energy Finance estimates (excl. large hydro)

^[63] cp. Li et al. (2006), p. 3 et seqq.

^[64] For more information on wind power pricing, also see Chapter 4.3.2.

^[65] Shi (2006), presentation held at the Great Wall Renewable Energy Forum

^[66] cp. Baker & McKenzie (2007), p. 39

^[67] cp. Li et al. (2007), p. 8

^[68] Not all of the 3,4 GW capacity is directly attributable to allocation through tenders. In some cases, when scale and wind resources of the development area allowed for it, after negotiations, NDRC authorized additional projects of the same scale, conditions and bidding price as the winning bid.

^[69] Some wind turbine manufacturers have been known for circumventing the localisation rate of wind turbine generators in lack of a proper monitoring mechanism, simply re-labeling imported components.

^[70] cp. Li et al. (2006/2008), Executive Summary /p. 8

^[71] guanxi (关系) = network of relationships

^[72] cp. Suzlon (2008), presentation held at the Renewable Energy Finance Forum

^[73] Personal communication with XXX, Senior Advisor, Chinese Electric Power Research Institute

^[74] cp. Li et al. (2006), p. 27/58

^[75] On wind farm performance, please also see chapter 6.4.

^[76] Li et al. (2007), p. 8

^[77] cp. CWEA (2008), presentation

^[78] cp. Li et al. (2007), p. 8

^[79] cp. Liu (2006), online

^[80] cp. Baker & McKenzie (2007), p. 10 et seqq.

^[81] cp. Baker & McKenzie (2007), p. 12

^[82] The tax-exempt renewable energy surcharge has been set at 0.001 yuan/kWh, raised to 0.002 yuan/kWh in 2008. cp. Renewable Energy Surcharge Level Regulation, NDRC Price [2006] No. 28-33 & GWEC (2009), p. 26

^[83] The renewable energy surcharge is collected by the government and then redistributed to developers and grid companies through a fund (worth RMB 3 bn. In 2007). cp. GWEC (2009), p. 26

^[84] Trial Measures for Pricing and Cost Sharing Management for Renewable Energy Power , government document

^[85] Relevant Regulations on the Administration of Power Generation from Renewable Energy, government document

^[86] cp. GWEC (2008), p. 30

^[87] Personal communication with XXX, Senior Advisor, Chinese Electric Power Research Institute

^[88] cp. Azure International (2008), presentation held at the Renewable Energy Finance Forum