Wind Energy Takes off in China

Businessweek.com The wind is free and almost limitless in this huge, coal-dependent country, but harnessing its power for energy is more expensive

When glimpsed from afar, the huge wind turbines look impossibly silent. Eleven machines, with 34-meter-long rotor blades, have been erected on the fringe of a large recreational park in Shanghai’s Nanhui district, about 34 kilometers from the international airport in Pudong.

Each of the General Electric-made units can generate 1.5 megawatts (MW) of power an hour. Standing 65m above ground, these giants dwarf the Shanghai Wind Power Museum. It was built to commemorate the facility that surrounds it, one of the city’s first wind farms.

Inside the museum you are treated to a short video presentation detailing the imminent disasters facing the world unless renewable energy is embraced. Wind power, naturally, is presented as an ideal choice. The World Bank was suitably convinced by such arguments, investing US$13 million in the Nanhui project, which was set up in 2006.

Wind energy is China’s renewable-energy poster-child. The country has wind to spare along its coast and arid western and northeastern regions. It also has the world’s fifth-largest amount of installed wind power capacity.

“China is working very hard to reduce its dependence on coal,” said Richard Spencer of the World Bank, who worked on the Nanhui project. “And it looks to nuclear, hydro and wind, particularly, to replace coal. Wind is very important.”

Wind energy produces a kilowatt-hour of electricity at about twice the cost of a coal-fired power plant, according to one analyst’s estimate. By comparison, the same output from a photovoltaic cell is about five times more expensive.

Growing pains

The National Development and Reform Commission (NDRC), the agency effectively responsible for national energy policy, recently doubled China’s installed wind capacity target to 10GW by 2010. Chinese wind turbine manufacturers are reporting booming business, and wind farms are mushrooming across the country.

But the industry appears to be facing growing pains. The wind farm/grid operator relationship is beset by technical and policy problems, which are an obstacle to getting wind farms online and adding to the electricity supply. As a result, only 4GW of China’s 6GW installed capacity actually finds its way into the power grid.

A major reason for the gap is the industry’s rapid recent expansion, triggered by the enactment of the Renewable Energy Law in 2005, which mandated grid companies to buy renewable energy. Installed wind power capacity that year was about 1.3GW. New installed capacity increased exponentially in the next two years, leaving China with 3.3GW of total installed capacity at the end of 2007.

While remote, windy areas are the ideal location for wind farms, these regions are often poorly served by transmission lines. This creates a mismatch between the grid’s reach and the wind-farm studded landscape of northern and western China, to the chagrin of developers.

“We do meet some technical problems in connecting to the grid in some of our projects,” said Xie Chang Jun, general manager of Longyuan Electric Power Group Corp, China’s largest wind power developer. “We feel integrating wind power to the grid is critical for the commercial development of large-scale wind energy [in China].”

Problems abound even if transmission lines are available. Because China’s grid was designed to work with coal-fired plants, which produce a steady stream of power, it has trouble accepting the intermittent power produced by wind farms.

“[Wind energy] is coming like shockwaves,” said Frank Haugwitz, a renewable energy researcher in Beijing. “Sometimes it is less, sometimes more. This makes it difficult for the grid to absorb.”

The smart way

What’s needed are “smart grids,” a collection of technologies and standards that would allow grids to allocate intermittent power effectively. For example, these grids would manage supply based on hourly power-generation forecasts from wind farms, said Caitlin Pollock, an analyst at Emerging Energy Research in Washington DC.

According to industry observers, the technology for these “smart grids” this already exists. It’s a matter of execution.

The market is dominated by developers who are linked to the big five state-owned power producers. Longyuan, for example, is a subsidiary of China Guodian Group. Analysts say that Beijing’s policy goals often override the profit motive at these companies. For example, firms may find it easier to secure large wind projects and grid connections, but paradoxically, they may have to do so at a loss.

“Financials are not the main reason for them,” said Qin Haiyan, secretary general of the China Wind Energy Association. “Policy is the main reason. The conditions here are different from in Europe.”

Geographical disparities Wind-power developers are regulated in two major ways in China: an NDRC-led concession program or approvals by provincial governments.

As the concession program is dominated by state-linked companies, foreign developers typically have to deal with provincial governments, which isn’t easy. Some provinces offer favorable policies, like a fixed price for wind power. Pricing policies are murkier elsewhere, which makes participation difficult for smaller foreign players in particular.

“It’s not like other countries where you’re developing wind [and] you go through the same type of checklist,” said Gerald Page, CEO of Han Wind Energy. His firm’s 50MW farm in Inner Mongolia, the first stage of a larger project, is waiting for approval by local authorities.

For all the problems facing wind energy development in China, the industry remains sanguine. They point out that obstacles will crop up in any young industry, particularly one that has grown as quickly as wind energy has in the last two years.

According to Sebastian Meyer, director of research firm Azure International, the gap between installed and grid-connected capacity could just be a matter of timing. He says grid companies typically start connecting power plants between January and April, so wind turbines installed in the preceding months may have to wait their turn to be connected.

“Anything that’s installed will also usually be commissioned,” he said. “It’s just a time thing.”

Indeed, Qin, of the China Wind Energy Association, says the longest he has heard a wind farm wait to get connected is six months. However, even Meyer admits that a lack of centralized data makes it difficult to tell exactly which wind farms are getting connected and which aren’t.

Despite the wind energy industry’s explosive recent growth, it satisfies less than 1% of China’s power needs. Steve Sawyer, secretary general of the Global Wind Energy Council, says that China could get 10% of its electricity from wind power by 2020. This isn’t inconceivable. Denmark currently gets about 20% of its electricity from wind turbines, while Spain gets around 10%. Of course, China’s electricity consumption, which came to 3.24 trillion kWh in 2007, is the equivalent of about 100 Denmarks.

But if government policy and the burgeoning wind power industry have their way, the figure will grow.

“At this point, there’s enormous demand, so the pie is big enough for everybody,” Sawyer said.