Industry White Paper The Chinese wind energy market

September 2009 Global Intelligence Alliance ©2009. All rights reserved. Contact: Kim Khoo, Manager, Intelligence Services [email protected], Saraswati Diah, Analyst [email protected] Web: www.globalintelligence.com Tel: Singapore (65) 6423 1681

All Rights Reserved ©2009 www.globalintelligence.com Content

Market overview 4 Market drivers & restraints 10 Key manufacturers 17 Future trends 26 About Global Intelligence Alliance 33

This Industry Briefing report provides an overview of the wind energy market in . The report is provided as is, free of charge and without any warranty or guarantee. Global Intelligence Alliance rejects responsibility for errors or omissions, or for any loss or consequential loss arising as a result of decisions taken based on its contents. ©2009 Global Intelligence Alliance. All rights reserved. This report is copyright, however individual pages or portions thereof may be copied referencing “Global Intelligence Alliance” as the source. Global Intelligence Alliance (GIA) is a strategic market intelligence and advisory group. GIA was formed in 1995 when a team of market intelligence specialists, management consultants, industry analysts and technology experts came together to build a powerful suite of customized solutions ranging from outsourced market monitoring services and software, to strategic analysis and advisory.

Today, we are the preferred partner for organizations seeking to understand, compete and grow in international markets. Our industry expertise and coverage of over 100 countries enables our customers to make better informed decisions worldwide. For further information please see the About Global Intelligence Alliance section at the end of this report, contact the author or visit www.globalintelligence.com

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 2 Abbreviations and acronyms

AMSC American Superconductor A&R Abeking & Rasmussen Rotec BERR-UK (previously DTI-UK) Department for Business, Enterprise & Regulatory Reform – United Kingdom CASC China Aerospace Corporation CHEC China Huadian Engineering Co., Ltd. CHSTE China High Speed Transmission Equipment CWEA China Wind Energy Association CREIA China Renewable Energy Industry Association DEC Dalian Electric DHI Dalian Heavy Industries DTI-UK (now BERR-UK) Department of Trade and Industry – United Kingdom EREC European Renewable Energy Council GE The General Electric Company GW Giga Watt MW Mega Watt R&D Research & Development SAM Stahlturm- & Apparatebau Magdeburg SHFRP Shanghai FRP Research Institute SIAG Schaaf Industrie AG. VAT Value Added Tax WWEA World Wind Energy Association XEMC Xiangtan Electric Manufacturing Corporation YoY Year on Year

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 3 Market overview

www.globalintelligence.com Market overview Wind energy installations worldwide is expected to grow, with government policy being a key driver

Worldwide total installed capacity forecast (MW) • With increasing wind turbine capacity, the unit cost of power generated by wind energy is expected to decrease¹.

• WWEA forecasts that by 2020, wind turbine total installed capacity will reach an estimate 1,500,000MW worldwide accounting for 20% of global electricity consumption. At the end of 2008, wind energy accounted for 1.5% of global electricity Source: World Wind Energy Association, 2008 consumption.

¹ Unit cost for wind energy is dependent on many factors besides turbine capacity. There are many variables that may influence the unit cost of wind energy, for example the site of the , operation and maintenance costs over the life of the facility, backup unit or units of generation costs, extra costs imposed on transmission and grid management cost may also vary widely depending on the control area involved, the output and variability of output from the generator, load on the grid, etc.

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 5 Market overview At the end of 2008, China overtook India with the highest total installed capacity of wind energy in Asia

Top ten countries with the highest total installed capacity of wind energy worldwide (GW) and total installed capacity YoY growth between 2007-2008 (%)

107% 50% 37% 39% 38% 34%

7% 11% 22% 1%

25.2

23.9

22.2

20.6

18.4

16.8

16.7

15.1

12.2

11.6

11.6

10.0

9.6

9.1

7.9

6.3

5.9

4.4

3.7

3.4

3.3

3.2

3.1

3.1 3.1

2.9

2.7

2.6

2.5

2.4

2.1

2.1

2.0

1.7 1.7

1.6

1.4

1.3

1.0 0.8

US Germany Spain China India Italy France UK Denmark Portugal

2005 2006 2007 2008

Note: The installed capacity is rounded to the nearest decimal place; growth YoY is generated from the original installed capacity, rounded to the nearest whole number. Source: World Wind Energy Association, 2008

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 6 Market overview China’s total capacity is expected to increase rapidly with more units of higher capacity turbines installed

China installed capacity (GW) and YoY growth (%) 51.2

Affected by global economic downturn 32.0 60%

20.0 60% 15.0 12.2 33% Total installed 5.9 23% 2.6 107% capacity (GW) and 127% 29.7 YoY growth (%) 140% 12.4 433% 2.3 297% Breakdown of 0.6 14% 12.3 12% 9.3 17% 10.8 installed capacity 0.1 0.2 0.5 7.0 34% (GW) and YoY 293% 146% 5.2 35% 0.4 1.7 198% 24% 1.3 9% 1.4 7% 1.5 growth (%) 309% 0.8 28% 1.0 0.1 308% 0.3 161% 6.4 10% 7.1 4% 7.4 4% 7.6 2.1 78% 3.7 55% 5.7 14%

2006 2007 2008e 2009f 2010f 2011f 2012f Produced by wind turbines of the following capacities: <1000kW 1000-1300kW 1500-1650kW ≥2000kW Note: The installed capacity are rounded to the nearest tenth; the YoY are generated from the original installed capacity, rounded to the nearest whole number. Source: China Wind Energy Association, 2009, China Renewable Energy Industry Association 2009, GIA estimates 2009

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 7 Market overview Global players have seized opportunities in China, rapid advancement also made by local companies

China wind energy activities

Jan 2009 Feb 2009 Mar 2009 Mar 2009 Construction of an industrial China Wind Systems starts GE Drivetrain Technologies Sinovel installs a 3MW wind park for gearbox production in Wuxi. signs an agreement with A- turbine in the Shanghai East equipment production is to Supply agreements signed with Power to supply gearboxes and Sea Bridge’s 100MW offshore start in Jilin Province with Wuxi Lida Gear to establish a JV partnership for wind farm – the Chinese first capital from Sany Group Manufacturing, Gansu Keyao gearbox manufacturing. pilot offshore wind project. and Tongyu Asset Electrical Power and Management. Hangzhou Advanced Mar 2009 Apr 2009 Gearbox. Energy signed an introduces the new Jan 2009 agreement to supply wind V60-850kW wind turbine. American Feb 2009 turbines to Inner Mongolia Manufactured in Vestas’ new Superconductor (AMSC) GE plans to increase wind North Longyuan Wind Power facility in Inner Mongolia, over receives an order for wind turbine deliveries to Chinese Corporation. 90% of its components are turbine core electrical customers from 159 units in Chinese made. The turbine components from China's 2008 to 320 units by 2009, and Mar 2009 design includes innovation in CSR Zhuzhou Electric 600 units by 2010. Hansen Transmission delivers blade design and temperature Locomotive Research its first gearbox from its new control system which addresses Institute, that will be used Mar 2009 facility at the Beichen Hi-tech Inner Mongolia’s harsh climate. for wind turbines designed CLP Group announces it will Industrial Park, Tianjin. The by AMSC's subsidiary. acquire 50% equity interest in a gearbox will be deployed in wholly owned subsidiary of 2.1MW Suzlon turbine. China Wind Power Group Ltd for HK$101.3 million.

Note: For reference only; this is not an exhaustive list.

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 8 Market overview Repeat orders, second orders or an increase in current contract sizes seen amongst the existing players

China wind energy activities

May 2009 Jul 2009 Jul 2009 Aug 2009 nd Siemens is building a new Suzlon China receives Suzlon China receives repeat AMSC has received the 2 rotor blade and repeat orders of 40 units orders of 39 units of 1.25MW wind order for its D-VAR system for plant in Shanghai. The new of 1.25MW wind turbines turbines from Datang Power a Chinese smart grid from facility is scheduled to take from Honiton Energy Generation. China National Machinery up operation in the second Group, who has secured Industry Complete half of 2010, initially with development in Inner Jul 2009 Engineering. 400 employees. The wind Mongolia. Vestas has received an order for turbine plants produced in 17 units of 2.0MW wind turbines Aug 2009 Shanghai will be for the Jul 2009 from China Fujian Wind Energy Construction has started at Chinese market and for Gamesa and Huadian Company. The contract includes China’s first 10million kW wind export. have reached an supply and commissioning of the power station in Gansu agreement for the supply wind turbines, a VestasOnline® province. With 120 billion Yuan Siemens is investing more of wind turbines totaling Business SCADA system and a two investment, the station was than EUR60 million in capacity of 300MW. It year service and maintenance designed to have an installed setting up this new location. includes 200MW to be agreement. capacity of 5.16million kW by installed at a jointly the end of 2010 and 12.71 developed wind farm in Aug 2009 million kW by the end of 2015. Inner Mongolia, and AMSC has amended its contract It will be China’s largest wind 100MW for another with Sinovel, to increase its core power facility upon completion. Huadian project. electrical components to meet Sinovel’s demand.

Note: For reference only; this is not an exhaustive list.

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 9 Market drivers and restraints

www.globalintelligence.com Market drivers and restraints China has a unique position combining low labour costs, abundant wind resources and favourable policies

China wind energy market drivers and restraints

Chinese government firm commitment towards wind Chinese abundant energy Improvement in Chinese Chinese low resources component manufacturing

labour costs technology DRIVERS

Component Global economic Chinese under-developed supply shortage Relative immaturity downturn infrastructure in some “Buy Chinese of China’s wind

RESTRAINTS areas Policy” hinders energy market growth

Source: GIA 2009

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 11 Market drivers and restraints Government regulations on renewable energy targets and subsidies drive Chinese wind energy growth

Chinese government firm commitment towards wind energy

Chinese abundant resources • China has untapped wind resources. Exploitable wind resources are estimated to represent a potential power generation capacity at ten metres above the ground of 253GW, whilst ocean-based wind resources represents an exploitable potential of about 750GW.

Improvement in Chinese component manufacturing technology • Partnerships or acquisitions between Chinese players and their foreign counterparts speed up technology transfer, e.g. acquired Vensys to facilitate concentration on the development of direct drive wind turbines.

Low labour costs • China’s comparatively lower labour cost compared to North America and Europe’s, offers opportunities for cheaper manufacturing cost. • China’s minimum wages are set locally according standards laid out by the central government. For example in April 2008, monthly minimum wages in the Tianjin municipality was 820 RMB, whilst the hourly minimum for non-full-time workers was 7.8 RMB.

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 12 Market drivers and restraints Protectionist policies towards Chinese made components in tenders is a market restraint

Component supply shortage • High demand of wind turbines especially in 2007-2008 caused a supply shortage of wind turbine parts, particularly for gearboxes and bearings, which was a market restraint in China.

Relative immaturity of Chinese wind energy market • As a relatively new industry in China, there is a shortage of skilled human resources particularly for the higher-wattage wind turbines.

Chinese under-developed infrastructure in some areas • Some areas, notably in the Northern part of China where abundant wind resources are available, infrastructure is not yet fully developed, hindering the development of full facilities. • A lack of existing infrastructure also means a lack of grid availability and problems on grid connections.

“Buy Chinese Policy” hinders growth • As Chinese government regulation rules that at least 70% of wind turbine components in China must be locally made, foreign players face further difficulties to grow in the Chinese market unless they set up manufacturing facilities. • In addition, a recently released edict states that “government investment projects should buy domestically made products unless (they) cannot be obtained in reasonable commercial conditions in China.

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 13 Market drivers and restraints Regulation on renewable energy target and subsidies drive Chinese wind energy growth

Chinese government major regulations on wind energy

• Notice on Wind Power Generation Facility Construction and Management Requirement – July 2005 Specifying the domestic content of 70% or more as one of standards for approval of wind power generation plants and subjecting imported facilities to tariffs.

• Renewable Energy Industry Development Instruction List – November 2005 List of 88 projects (23 of them for wind power) for utilization of renewable energy and types of relevant equipment in a bid to promote relevant government at laboratories and enterprises, and instructions on investment and constructions.

• Renewable Energy Law – implemented since January 2006. The law prioritized energy policy in terms of its development. This included the utilization of renewable energy and required power utilities to purchase electricity generated with renewable energy.

• Administrative Provisions for Renewable Energy Power Generation – implemented since January 2006 The provisions specify the standards for administration of renewable energy power generation and the roles of power generation and grid enterprise in the development and utilisation of renewable energy.

• Provisional Administrative Measures on Pricing and Cost Sharing for Renewable Energy Power Generation – implemented since January 2006. The provision provides guidance on how to calculate prices and share costs for renewable energy power generation as approved by the government in and after January 2006

Note: For reference only; this is not a complete list of energy regulations.

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 14 Market drivers and restraints Policies and regulations built to increase renewable energy’s share of total energy consumption in China

Chinese government major regulations on wind energy

• Tentative Management Method for Renewable Energy Development Special Fund – implemented since May 2006 The guide offers additional measures to enhance support for renewable energy development. It allows the central government to provide financial assistance for the development of renewable energy for oil substitution and construction areas; and of wind power, solar and other renewable energy sources for power generation.

• Medium to Long-term Renewable Energy Development Plan – August 2007 Aims to increase renewable energy’s share of total energy consumption.

• Management Method for Power Grid Enterprises’ Purchasing of Renewable Energy Electricity – implemented since September 2007. The method provides the regulatory commission’s supervision and management duties, measures and legal responsibilities regarding power grid enterprises’ purchasing of renewable energy electricity.

• Energy-Saving Power Generation and Power Dispatch Method (pilot program) – Aug 2007 Gives priority to renewable energy power generations, sets a priority order for power generation methods in accordance with energy consumption and pollutant emissions. This also places power dispatch priority on methods in the order of lower energy consumption and pollutant emission.

Note: For reference only; this is not a complete list of energy regulations.

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 15 Market drivers and restraints In 2009, the Chinese government revised its 2020 target for wind power generation from 30 GW to 100GW

Chinese government major regulations on wind energy • 11th Five-Year Renewable Energy Development Plan – March 2008 The plan though is basically in line with the medium to long-term plan, remarkably revised the wind power generation goal for 2010 onward from 5 GW in the medium to long-term plan to 10GW, and specified sites for and sizes of, wind power plants for development and other relevant numerical goals. Also, it calls for achieving domestic production of 1,500kW or larger onshore generation units and 3,000kW offshore units by 2010.

• Notice on Adjustment Regarding Import Tariffs for Large-Output Wind Power Generation Units, Their Main Components and Raw Materials – implemented from January 2008 To refund import tariffs and phase out import value-added-taxes for main components and raw materials for Chinese firms’ development and production of larger-output (1,200kW or more) wind power generation units and repeal tax incentives for purchases of certain wind power generation units.

• Note released by Chinese Finance Ministry, Sept 2008 Chinese wind turbine makers can get a payout of 600 yuan ($87.79) per kilowatt for the first 50 units they produce of any new turbine with capacity of 1 megawatt or more. The subsidy should be shared equally between manufacturers of key parts and the companies that assemble the finished product.

• Note release by National Development and Reform Commission, May 2009 The National Development and Reform Commission revised the wind power generation goal for 2020 from 30GW to 100GW.

Note: For reference only; this is not a complete list of energy regulations.

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 16 Key manufacturers

www.globalintelligence.com Key manufacturers Wind turbine cost is indicated as absorbing more than half of the total capital cost of a wind farm

Indicative capital cost breakdown for a typical wind farm (%) and indicative cost breakdown for a typical wind turbine (%) Bearings Hub10% Interest during 13% construction 2% Blades 77% Misc Legal cost Others 17% 5% Rotor Yaw brake Slewing 2% 27% 7% ring Nacelle 43% Grid Yaw motor connection 8% 33% 6% Electrical 3% Tower infrastructure Wind turbines 21% Drive train Guards 8% 64% 21% Brakes 3% Civil works 8%Couplings Electronic & 5% 13% control 20% Gearbox & bearings 84% Misc 3% Cabling 12%

Generator Switch 30% gear & control 55%

Note: Based on typical wind farm in 2001, and typical wind turbine 1-2MW. For reference only; the percentage shown are indicative and not the fixed figures. Source: DTI UK (now BERR-UK) 2001, Garrard Hassan and Partners Ltd.

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 18 Key manufacturers More investment in companies producing higher capacity wind turbines by established market players

Major wind turbine suppliers worldwide

Acquired by CTC Group

Acquired by Siemens

Produce wind Produce turbines >1500kW Acquired by Alstom

Power –

Acquired by Suzlon

turbines 300kW turbines 1500kW Produce wind Produce Acquired by Goldwind

Acquired by Gamesa

Merged with Vestas

Produce wind Produce turbines <300kW

Note: For reference only; this is not an exhaustive list. Source: WindPower 2009, company websites 2009, GIA secondary research 2009

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 19 Key manufacturers A numbers of major wind turbine manufacturers have in-house component suppliers

Major wind turbine component suppliers worldwide

Blade Gearbox • A&R Rotec (SGL • Bosch Rexroth Group) • Brad Foote Gear Works • Euros • Echesa (Gamesa) • LM Glasfiber • Eickhoff • Sinoi • Hansen • Tecsis • Ishibashi Manufacturing • TPI Composites • Jahnel-Kestermann • Vestas Tower Getriebewerke (JaKe) • Gamesa Controllers • Coiper (Comonor) • Moventas • • Cotas (Vestas) • DMI Industries • GE • Siemens • GE • Hendricks Industries • Pujol Muntalá • Ingeteam • Tower Tech Systems • Suzlon Bearing • Renk • Enercon • Trinity Structural Towers • • Kaydon • Winergy • Siemens • Vestas • NTN Corporation • Maag • K.K. Electronics • Omnical • SKF Group • CHSTE • Suzlon • SIAG • The Timken Company • Mita Teknik • Gamesa • Nordex • KGW • SAM Hub Generators Shaft • Suzlon • Weier • GE • Nordex • Elin • Cantarey Transformer • ABB (Gamesa) Note: towers are often • LeroySomer • Suzlon produced locally to where • Flender Loher • Siemens projects are built.

Note: For reference only; this is not an exhaustive list. The wind turbine graphic is for illustration purpose only Source: Emerging Energy Research 2008, BTM Consult 2006, company websites 2009

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 20 Key manufacturers Weakness in proprietary technology seen for local Chinese wind turbine component suppliers

Major wind turbine components suppliers in China

Bearings Blade Wind turbine • SKF Bearing and Precision • Huiteng • CASC Acciona • Vestas Technologies • Zhongfu • DEC • Windey • Xuzhou Rothe Erde • SHFRP Gearbox • Gamesa • Baoding Huide • LM Fiberglass • CHSTE • GE • Shanghai Electric • Gamesa • Gamesa Control System • Goldwind • Guangdong Mingyang Generator • Vestas • DHI • Windtec • Nordex • Hunan Hara XEMC • Zhuzhou Electric • Suzlon • Chongqing Gearbox • Mita Teknik • Sinovel Windtech • Repower North • Lanzhou Electric • Sinomatech • Winergy/Flender • Siemens • Suzlon • DEC Wind Power • Sichuan Erzhong • Beijing Corona • Hangzhou Advance • Zibo Pulling Motor Blade • Beiche Group • Goldwind • Shanghai • Winergy/Flender Jiaotong • Suzlon University Tower • Shanghai Electric Automation • Taisheng Power Engineering Machinery Machinery • Qingdao Wuxiao Institution • China Petroleum 7th Construction • Ingeteam • Shengli Oildfield Shengli Petroleum Chemical Construction Casting • Shanghai Via Hub Systems • Jiangsu Baolong Electromechanical Shaft • Jiangsu Jixin • CHEC • Hangzhou Sound Foundry • Gamesa • Baotou Beifang Chuangye Steel Structure • Ningbo Yeong-Shang Casting Iron • Vestas Transformer • DHI • Suzlon Note: towers are often produced locally to where projects are built. • Faw Foundry • Shaanxi Diesel Engine Heavy Industry

Note: For reference only; this is not an exhaustive list. The wind turbine graphic is for illustration purpose only. Source: Investigation Report on China Wind Turbine Component Manufacturers 2009, company websites 2009

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 21 Key manufacturers LM Fiberglas is building its third blade manufacturing facility in China to supply the booming demand

Major blade suppliers’ relationship for wind turbine companies in China (2007)

Type 600kW 750kW 850kW 1MW 1.25MW 1.5MW 2MW

Blade Huiteng Gamesa Vestas Zhongfu HuitengLM SHFRP Suzlon manufacturer Fiberglas

Huayi Turbine Shenyang Electric Shanghai CASC- Goldwind Sinovel Gamesa Vestas DEC Windey GE Suzlon manufacturer Huachuang Apparatus Electric Acciona Group

Note: For reference only; this is not an exhaustive list. Source: China Wind Power Report 2008

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 22 Key manufacturers Amongst wind turbine manufacturers in China, only Gamesa produce its gearboxes in-house in 2007

Major gearbox suppliers’ relationship for wind turbine companies in China (2007)

Type 600kW 750kW 850kW 1MW 1.25MW 1.5MW 2MW

Hangzhou Gearbox DHI Gamesa Chongqing CHSTE Winergy/ Sichuan manufacturer Advance Gearbox Flender Erzhong

Huayi Turbine Shenyang Electric Shanghai CASC- Goldwind Sinovel Gamesa Vestas DEC Windey GE Suzlon manufacturer Huachuang Apparatus Electric Acciona Group

Note: For reference only; this is not an exhaustive list. Source: China Wind Power Report 2008

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 23 Key manufacturers Zibo Pulling Motor is the sole supplier of Gamesa’s generators in China in 2007

Major generator suppliers’ relationship for wind turbine companies in China (2007)

Type 600kW 750kW 850kW 1MW 1.25MW 1.5MW 2MW

Shanghai Zibo Lanzhou Beiche Zhuzhou Winergy/ Generator Electric HuitengPulling Suzlon Electric Group Electric Flender manufacturer Machinery Motor

Huayi Turbine Shenyang Electric Shanghai CASC- Goldwind Sinovel Gamesa Vestas DEC Windey GE Suzlon manufacturer Huachuang Apparatus Electric Acciona Group

Note: For reference only; this is not an exhaustive list. Source: China Wind Power Report 2008

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 24 Key manufacturers In 2007, Goldwind, Gamesa and Vestas manufacture their control systems in-house

Major control systems suppliers’ relationship for wind turbine companies in China (2007)

Type 600kW 750kW 850kW 1MW 1.25MW 1.5MW 2MW

Shanghai Control Shanghai Mita Beijing Jiaotong systems Goldwind Gamesa Vestas Siemens Windtec University Ingeteam Via Suzlon Teknik Corona manufacturer Automation Systems Institution

Huayi Turbine Shenyang Electric Shanghai CASC- Goldwind Sinovel Gamesa Vestas DEC Windey GE Suzlon manufacturer Huachuang Apparatus Electric Acciona Group

Note: For reference only; this is not an exhaustive list. Source: China Wind Power Report 2008

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 25 Future trends

www.globalintelligence.com Future trends China expects to become a wind energy market supply chain hotspot globally

China wind energy industry future trends time line

4 China as a major supply chain centre in the wind energy industry

3 Local technological advancement amongst wind turbine manufacturers and component suppliers in China

2 Partnerships across wind turbine industry players in China

1 Supply shortage for wind turbines and associated components in China

2009 2010 2011 2012

Note: Trends to fade away Trends to reach its peak

Source: GIA 2009

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 27 Future trends Component supply shortage is seen in China compared to its government’s wind energy ambitions

1 Supply shortage for wind turbines and associated components in China

• Demand for wind turbines and related components in some countries is increasing:

• US is targeting to reach total installed capacity of about 150GW by 20201 from 25.5GW in 20082 • China is targeting 100GW by 20203 from 12.2GW in 20084 • EU 15 is targeting 180GW by 20205 from 64.2GW in 20086 • Only a number of specialised suppliers are able to produce key parts for higher capacity wind turbines. As higher capacity wind turbine demand increases, a handful of specialised suppliers are overloaded with orders. This has been seen especially for gearbox and bearing supplies. • In addition to this, a number of wind turbine components are used in other industries. Parts such as bearing and gearboxes are also used in other industries’ equipment and machinery, putting higher pressure on already overloaded supplier capacities. • As an emerging technology, wind turbine designs are still evolving; hence parts made are mostly customised and non-interchangeable which makes it more challenging to find replacement suppliers.

Note: 1 U.S. Department of Energy, 2008 2,4,6 WWEA, 2008 3 Xinhua, 2009 5 EREC

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 28 Future trends New entrants in the industry face the risk of evolving technology, with a high technology entry barrier

Continued from the previous page

• The advanced technology requirement to enter the wind turbine industry is a barrier for new entrants. Currently, most Chinese wind turbines and components for higher-MW products are licensed or jointly developed with overseas players, whilst local manufacturers still lack the independent capacity to build higher wattage turbines. With less players supplying the higher-MW products, there are bottlenecks affecting the supply shortage for wind turbine related equipment, particularly with government emphasis on higher wattage turbines. • Volatility on raw material prices does affect the wind turbine manufacturing process. Some raw materials, notably steel, copper and carbon, are critical in some of the wind turbine parts. Steel is used in towers, gearboxes and rotors; copper used in generators and carbon in rotor blades. Any price volatility such as the one seen recently in early 2008 will affect their availability creating bottlenecks in the supply chain.

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 29 Future trends Partnerships reduce uncertainty, with the local aim of technology transfer to Chinese companies

2 Partnerships across wind turbine industry players in China

• Partnerships in various forms such as mutual agreements, joint ventures and acquisition, are seen amongst wind turbine industry players in China, including wind farm developers / operators, wind turbine manufacturers, and wind turbine component manufacturers. The objective of this is either to secure consistent supplies and services, to ease market entry for foreign players hoping to enter China, or to secure proprietary technology that is most suited to a company’s strategy. • Some examples of this include a Shanghai Electric’s joint effort with German Aerodyn, where Shanghai Electric is working on a 2MW double feedback, shift control and constant frequency wind turbine system. • Technically supported by the UK’s Garrad Hassan and Partners Ltd (GH), Zhejiang Windey plans to manufacture a 1.5MW double feedback, shift variable and constant frequency wind turbine model.

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 30 Future trends Joint foreign partnerships in China will drive local technological advancement

3 Local technological advancement amongst wind turbine manufacturers and component suppliers in China

• Currently still at an infant stage, technology such as direct drive and off-shore wind turbines are expected to gain more traction in China if the adoption of these are undertaken by major global wind energy players for future wind farms. Due to market regulation in China that give advantage to locally made products, foreign players wanting to enter China need to work with local Chinese companies which in turn promote technology transfer amongst Chinese companies as well as build local expertise. • An example of this is Sinovel’s joint program with Austria Windtec, whereby Sinovel is developing a 3MW double feedback, variable shift and constant frequency wind turbine system, the first Chinese offshore wind turbine system of high-tech model. This is to be installed in the first offshore wind farm, the Shanghai Donghai Bridge Wind Farm.

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 31 Future trends China will be a major supply chain centre within the wind energy industry if expected trends prevail

4 China as a major supply chain centre within wind energy industry

• If the expected trends persist, China is expected to become an important global supplier of key wind turbine components and services. High local demand, China’s strategic location to supply Asian markets with parts and equipments, coupled with development of local R&D skills may encourage a future role as a regional (or global) wind energy hotspot for services and equipment. • China’s interest in European companies may be of strategic geographical importance long term, such as that seen with Chinese market leader Goldwind and the German Vensys, whereby Goldwind acquired majority share of Vensys in order concentrate on the development of its direct drive wind turbine technology. After the acquisition of Vensys, Goldwind also bought the subsidiary companies that produced converters and variable propeller systems for Vensys through Vensys in Germany. This ensures a local foothold in Europe with spin off benefits both in Germany as well as China, for Goldwind. Goldwind has also absorbed a number of cross-border human resources with management experience in the domestic and international markets from companies such as Shenzen Huawei, Motorola, General Electric, the bearings industry SKF, Siemens and ABB.

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com 32 About Global Intelligence Alliance

www.globalintelligence.com About Global Intelligence Alliance

GIA is a strategic market intelligence and advisory group

Global Intelligence Alliance (GIA) was formed in 1995 when a team of market intelligence specialists, management consultants, industry analysts and technology experts came together to build a powerful suite of customized solutions ranging from outsourced market monitoring services and software, to strategic analysis and advisory.

Today, we are the preferred partner for organizations seeking to understand, compete and grow in international markets. Our industry expertise and coverage of over 100 countries enables our customers to make better informed decisions worldwide.

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com About Global Intelligence Alliance

Access local knowledge in over 100 countries

GIA Group has 12 offices on 4 continents. Together with affiliated GIA Member companies, certified GIA Research Partners and consultants, GIA provides access to local knowledge in over 100 countries.

All GIA Network companies adhere to GIA’s Research and Analysis Quality System as well as the SCIP Code of Ethics.

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com About Global Intelligence Alliance

International Global Intelligence Alliance Group [email protected] Baltic Region Gateway Baltic [email protected] Belgium Global Intelligence Alliance Belgium [email protected] Brazil Global Intelligence Alliance Latin America [email protected] Canada Global Intelligence Alliance Canada [email protected] Central & Eastern Europe EasyLink Business Services [email protected] China Global Intelligence Alliance China [email protected] Finland Global Intelligence Alliance Finland [email protected] France RV Conseil [email protected] Germany Global Intelligence Alliance Germany [email protected] Hong Kong Global Intelligence Alliance Hong Kong [email protected] India Global Intelligence Alliance India [email protected] Italy Masternet srl [email protected] Japan McRBC [email protected] Netherlands Global Intelligence Alliance Netherlands [email protected] Russia ALT R&C. [email protected] Singapore Global Intelligence Alliance Singapore [email protected] South Africa Butterfly Effect Intelligence [email protected] Spain Infoline [email protected] Tunisia Tunisie RV Conseil [email protected] UK Global Intelligence Alliance UK [email protected] United Arab Emirates GCC Consulting [email protected] USA East Coast Global Intelligence Alliance USA East Coast [email protected] USA West Coast I.S.I.S. – Integrated Strategic Information Services, Inc. [email protected]

GIA Industry White Paper 3 / 2009: The Chinese wind energy market www.globalintelligence.com