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The Echoes of Turbines from Overseas

China, one of the largest energy consumers worldwide, is the leading the way in green energy initiatives. This year China became the foremost global manufacturer of wind turbines. So just in case you haven't heard the humming from overseas, here's some gripping insight into the wind energy sector.

China was not always a dominant wind turbine manufacturer, but in 2003 a policy took place which open doors for Chinese manufacturers. Some of you may know this policy as the "localization" provision. The policy stipulated that all domestic projects were required to use 70% of domestic materials and components to gain construction approval. In turn, the policy spurred the creation of four major Chinese manufacturing firms along with a dozen other firms in the development process. Today, China has decided to eliminate the domestic content requirement as they claim it was unnecessary since nearly all turbine installations were incorporating domestically-produced products. This seems to be a sound decision since 3 firms on the Top 10 global manufacturers list, for wind turbines, are Chinese firms.

The Echoes of Turbines from Overseas

But progression had to start from somewhere, and China really kicked things into gear with its 2005 Renewable Energy Law. There many goals China was looking to achieve with this law. The main concept was to institute a set structure of responsibilities, and have the People's Republic of China create strategic plans, development targets, and financial-guarantee measures for renewable energy.

When the Renewable Energy Law became active in 2006, one main provision was power utilities were required to purchase from renewable-energy generators and within the same provision mandated a national cost-sharing plan. The plan passed on some of the incremental costs of renewable power onto their consumers with customer classes remaining exempt.

By the end of 2009, the National People's Congress (NYSE:NPC) updated the Renewable Energy Law to include three new provisions.

  1. NPC mandated more detailed planning and coordination:

    Since the wind energy sector was experiencing such rapid growth, the NPC realize that interconnection and transmission planning were falling behind. The lack of transmission access was mostly due to delayed approvals or minimal coordination with national planning. There were also delays on completed turbines which still required time for interconnection, testing, and certification. This provision seeks to minimize if not elimination these time lags.

  2. NPC strengthened the 2006 provision by requiring electric utilities to purchase all renewable power generated.

    Firms were only obligated to purchase the renewable power if there was adequate demand, but with the new provision firms were required to purchase renewable power no matter what the level of demand. The policy also set deadlines and penalties for companies not in compliance.

  3. NPC strengthened the renewable energy fund.

    Originally, the fund collected a surcharge on electric power sales to cover renewable energy expenditures on various project. Unfortunately, expenditures were exceeding their funds, so NPC decide to supplement the renewable energy fund from the general revenues. This shows the government's commitment to the continued expansion in the renewable energy arena.

As we look back at the preceding years, you can see how the policy changes enable China to grow its wind power capacity by 30-fold. The capacity moved from 0.8GW by the end of 2006 to 26 GW by the end of 2009; leading them to become highest renewable power capacity worldwide. This increase also allowed China to account for 20% of the world's total renewable power capacity in 2009. Even though the wind power capacity only accounts for 3% of their total power generation capacity, this is still the fastest growing energy technology in China.

In 2010, China was able to surpass wind-power giant, Germany, to become the second largest in wind power capacity worldwide. It's sensible to see how China was able to jump to second place in such a short period of time with economic benefits already in place. For example, China continues to extend local income tax relief to provincial governments by reducing the effects of supporting renewable energy projects.

The Echoes of Turbines from Overseas

Many experts believe that wind power is the most promising renewable energy source for China. With the future ahead, China has already shown a strong commitment to reducing their dependence on coal with a 2020 goal of reducing carbon emissions by 45% from 2005 levels. Experts see another 15 to 20 years of expansion on the horizon, and with onshore sites dwindling, we will see offshore turbines become a crucial part of the of development planning.

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Global Profits Alert (GPA) is published by Trippon Financial Research, Inc. a financial media organization with offices in the United States, Hong Kong and Mainland China. GPA is written by Jim Trippon in conjunction with George Wolff, Sunny Wang, Jim Trippon, Kelley Damiani and J. Daryl Thompson.

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