China's wind power has faulty connection
By Ryan Rutkowski
NANJING - China, the world's second-largest consumer of energy with more than
11% of global energy production, is turning to renewable sources, notably wind
power, as it seeks to reduce its dependence on thermal energy derived from coal
and other fossil fuels.
Thermal energy is the country's primary source of electricity production,
representing 80% of electricity generation in 2009, followed by hydro-power at
16%, nuclear power at 1.8% and other non-hydro renewables at 1.24%.
China's energy consumption has already outstripped domestic reserves, making it
a net importer of coal and oil. A water shortage due to pollution and limited
per-capita water has also
effectively curbed the prospects of further large-scale expansion in
hydro-electric power generation in China, although plans for large dams
continue to be put forward.
China hopes to overcome its long-term energy challenge with investment in
non-hydro renewable energy, especially wind power. According to Bloomberg New
Energy Finance, China invested US$34.5 billion in low-carbon technologies in
2009, compared with $18.6 billion in the US.
In 2009, China increased investment in power construction projects by 20%
compared with 2008, investing 755.84 billion yuan (US$110 billion), or 2.2% of
gross domestic product (GDP) in 2009. Investment in wind power grew by 44%.
The National Development and Reform Council (NDRC) has set a goal for wind
power to surpass nuclear power to become China's third-largest source of
electricity production after thermal and hydro-power by 2020. There is ample
room to grow as China only had 25.5 gigawatts (GW) of installed capacity in
2009, while the country has plans to reach 150 GW of wind power production by
2020.
However, China's policies designed to support domestic wind turbines have led
to overinvestment and overcapacity. In 2001, the government launched several
incentive programs designed to support domestic turbine manufacturers,
including a "National Deb Wind Program" designed to compensate wind farm owners
for use of domestically produced turbines, and a value-added tax reduction for
turbines with locally produced parts.
This led many local governments to fund the creation of turbine manufacturing
to break into the market. Today there are over 100 turbine manufacturers in
China with the top 13 holding 98% of market supply. The three largest are
Xinjiang Goldwind, Sinovel Wind and Dongfang Electric Corp.
In 2004, the NDRC responded by launching the "wind power concession project" to
help consolidate the industry. This called for the creation of seven 10 GW wind
farms across Gansu, Xinjiang, Hebei, Jilin, Inner Mongolia and Jiangsu
provinces.
Rather than help consolidate the wind turbine industry large-scale wind farm
development has led to massive output growth and overcapacity. By 2009, Chinese
Premier Wen Jiabao singled out wind turbines as one of China's emerging sectors
troubled by overcapacity. In 2010, Chinese companies were expected to produce
equipment equivalent to 20 million kilowatts of capacity, but the country only
installed 10 million KW of actual capacity.
Many internal experts have pointed to potential waste in China's large-scale
wind power development. China requires extensive upgrades to its power grid to
support large-scale wind farms. The country's geography means wind power
resources are primarily concentrated in remote provinces in the far northwest,
such as Inner Mongolia, Gansu and Xinjiang, while most of the energy
consumption is along the coastline.
With about 4,000 kilometers separating Xinjiang province from Shanghai on the
coast, transportation of wind-generated energy from west to east requires high
investment in the latest generation of ultra-high voltage (UHV) transmission
lines. China plans to spend over $600 billion to upgrade its power grid over
the next decade. The State Grid Corporation will invest 83 billion yuan ($12.2
billion) in UHV transmission lines in 2009 and 2010 alone.
The stability of the power grid is already a problem because of weak
inter-regional interconnections causing power shortages that hamper grid
efficiency in different parts of the country. Large-scale wind power is all but
impossible in the short run due to inconsistent changes based on prevailing
winds. Irregular power generation can lead to rolling blackouts as grid
operators are unable to compensate for periodic energy shortages.
To overcome this problem, China hopes to develop a smart grid system to be
operational by 2020 at the earliest. Smart grid technology with a more
intelligent monitoring system of power generation and consumption throughout
the country is designed to predict potential electricity loads and adjusting
generating needs, reducing the likelihood of rolling blackouts caused by
reliance on renewable energy.
In an article in the China Security Journal this week, an analyst was quoted as
estimating that "investment in smart grids over the next 10 years would total
four trillion yuan, of which a huge portion will be devoted to electricity
transmission".
Upgrades to the power grid continue to lag behind the expansion of wind
turbines, leading many of China's existing wind farms to be left unconnected
and unused. According the China Power Union, only 72% of the country's total
wind power capacity is connected to the grid. The 10 GW wind project in Jiuquan
in Gansu is among the biggest problems, with the wind farm located too far from
the regional load-bearing center. This requires major infrastructure upgrades.
Jiuquan was one of the first 10 GW wind projects approved by the NDRC and is
expected to have an installed capacity of 12.71 GW by 2015, with more than 120
billion yuan in investment. In Inner Mongolia, less than 2 GW of wind power is
connected to the grid, with 8.3 GW sitting unused waiting to be connected in
2009.
Over-investment in wind power generation without a grid capable of absorbing
the power is generating losses. Price caps on electricity costs means the cost
of building transmission lines and producing energy is not built into the cost
for consumers.
An amendment to the Renewable Energy Law requires grid operators to purchase
resources from registered renewable energy producers. Grid operators then pay a
premium on wind power purchased from wind farms in the form of an on-grid
tariff. This means that grid operators pay more for wind energy than they do
for coal-fired plants to help subsidize the development of wind farms across
the country.
Theoretically, grid operators can be compensated for this premium through a
nationwide tax levied on coal-fired plants. However, grid operators have been
reluctant to build upgrades linking new wind farms because they do not want to
absorb additional costs without the ability to fully utilize wind power
resources. As a result, many wind farms are generating losses as they are slow
to be connected to the grid and unable to recoup the losses of development.
With saturation in China's domestic market, many wind turbine manufacturers
have looked to overseas markets for demand to meet their expanding output.
Xinjiang Goldwind plans on spending 24% of share-sale proceeds on expansion
overseas. While the company received 99% of sales revenue from domestic sales
in 2009, it hopes to increase sales in Europe and the US. In December 2009,
Shenyang Power Group announced plans to enter into a joint venture to build a
14,500 hectare wind power plant in west Texas, with China's A-Power Energy
supplying cheap turbines for the project.
However, as high unemployment lingers in the US and the cost of China's
turbines are driven up in Europe due to a sinking euro, China's top wind power
manufactures will find it increasingly difficult to move into overseas markets.
As with Chinese steel, cheap wind turbines may also face import tariffs as they
flood foreign markets. China's A-Power Energy met resistance from US
politicians when it sought to supply turbines for the Texas project last year.
China's investment in wind power is clearly long term as existing wind farms
will not be fully usable until grid upgrades are fully implemented in 2020. In
the short term, investment in large-scale wind development has created
large-scale waste, and the sustainability of such projects is brought into
question.
Ryan Rutkowski is a master's student studying international economics at
the Johns Hopkins-Nanjing University Center for Chinese and American Studies.
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