Frost & Sullivan: An ill wind blows on China's turbines industry

Tough times for the Chinese wind turbines manufacturers: safety, quality, reliability and after-sale service may well tilt the scales in favour of Western companies

Chinese wind turbine producers have seen their market share rise dramatically in the past few years. Two of the top Chinese wind turbine producers now rank among the global top three manufacturers by megawatts of capacity sold. The rise has been fuelled by domestic demand for wind power, supported by the government target, and a requirement for 70% of wind turbine components to be manufactured locally.

However, there is a dark side to this story of rapid success. China has witnessed, by far, the highest number of accidents caused by failures and malfunctions of wind turbines, including massive power outages and even some fatalities.
With their domestic market saturated and clear signs of overcapacity and upcoming consolidation, some of the biggest Chinese producers have announced plans for international expansion. While there is no doubt of the Chinese manufacturer's ability to learn quickly, adapt and alter the technology to bring the costs down, Frost & Sullivan believes that the wind power market presents a tougher challenge for the Chinese to crack.
Frost & Sullivan Renewable Energy Research Manager Alina Bakhareva says: "Firstly, there are a number of technology-related quality issues that the Chinese manufacturers will have to sort out before they are able to deliver a technology solution on par with the established Western manufacturers". The technology gap is expanding with GE, Vestas, Siemens, and the like, investing in improvements that increase their turbines availability and reliability. A technical fault leading to reduced availability presents a huge risk to a developer and can wipe out a large chunk of expected profits. "A faultless operating track record will have a positive impact on project developers who will be more confident in the quality of the Chinese turbines. But we need to consider that it will take years to build this trust. We are witnessing Chinese wind turbine manufacturers taking the first steps in the right direction; although the government had to step in and set stricter regulations", adds Bakhareva.
The SERC (State Electricity Regulatory Commission) has released stricter technical regulations, especially for LVRT (Low Voltage Ride Through) reformation. Additionally, 18 industry standards have been released in November 2011 by the National Bureau of Energy. There are two immediate effects of the regulatory changes. Adding a LVRT capability will increase the cost of the Chinese turbines. This, coupled with slower demand, will lead to a squeezing out of the marginal producers who won't be able to afford to fit new equipment. Thus, the domestic wind power manufacturing sector in China is poised for tough times, when consolidation may even change the positioning of the top five players.
The wind power industry in established markets has moved beyond the frenzied initial stage when the emphasis was placed on the maximum number of turbines installed. The focus is now on increasing the operating efficiency, resolving performance issues rapidly, having real time control and visibility and reducing the maintenance time. Providing a compelling service solution is nearly as important as supplying best-in-class equipment.
Quality after-sales services can easily add a few percentage points in efficiency gains, which results in lower LCOE (levelised cost of electricity). The Chinese manufacturers can undoubtedly deliver a cheaper wind turbine meaning lower capex, however, when an entire package is considered, they are still behind their Western counterparts.
Even if a compelling service offering is developed in their domestic market, unfolding a large scale after-service support in overseas markets will require a large initial investment. While Chinese wind turbine manufacturers are generously sponsored by the Government, there are other priorities for them to address. It is unlikely they will be channelling significant funds into expanding their service offering in those markets, where they don't even sell much. Thus, established wind power markets in Europe and parts of the US will be hard to penetrate for the Chinese. Certainly, a few odd orders can come through, but the Chinese presence is unlikely to reach the dominant scale similar to that of the solar energy industry.
"Upcoming wind power markets, such as Central and Eastern Europe and Latin America, may find lower equipment costs attractive, especially when coupled with a generous offer of providing project financing", concludes Ms Bakhareva. "However, proven safety, quality, reliability and after-sale service may well tilt the scales in favour of Western wind turbine producers, even though the initial investment will have to be higher".
For further information on where the wind energy market is going in Europe and in the rest of the world and to receive a full insight on this topic, please contact Chiara Carella, Corporate Communications, at the following email address chiara.carella@frost.com

About Frost & Sullivan
Frost & Sullivan, the Growth Partnership Company, enables clients to accelerate growth and achieve best-in-class positions in growth, innovation and leadership. The company's Growth Partnership Service provides the CEO and the CEO's Growth Team with disciplined research and best-practice models to drive the generation, evaluation, and implementation of powerful growth strategies. Frost & Sullivan leverages 50 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from more than 40 offices on six continents. To join our Growth Partnership, please visit http://www.frost.com.

Featured Product

Easy monitoring with weather sensors from Lufft

Easy monitoring with weather sensors from Lufft

Professional weather sensors form the heart of large solar plants supporting their operation and performance. Lufft was the first manufacturer to combine several sensors in one housing, bringing the largest multiparameter weather sensor family with 19 members into being. Many of them are well-suited for solar site assessment and continuous monitoring. The most commonly used one is the WS600 delivering data on temperature, air pressure, wind, relative humidity and precipitation. Through its open protocol, it can easily be attached to radiation sensors e.g. from Kipp&Zonen. Other models have an integrated Silicon, Second Class or Secondary Standard radiation sensor.