Jul 6, 2009 Ecology, Environment

China’s ambitious plan to increase wind power capacity could attract up to US$150 billion (HK$1.17 trillion) in investment, but the central government will have to get serious about revamping regulations and building much needed infrastructure.

The mainland is set to raise its wind power capacity to 100 gigawatts by 2020 – eight times its current level, and more than Britain’s entire current power capacity – as part of a stimulus package aimed at boosting renewable energy. China, the world’s second-biggest energy consumer, is also the top greenhouse gas polluter, and the threat of climate change is driving Beijing to take a series of initiatives to restrain the country’s greenhouse gas emissions by power plants. “We see wind as the best investment option, as it is the world’s most commercial green energy,” said Nomura analyst Clarisse Pan, who expects China’s wind industry to grow at up to 24 percent a year through 2020. While private funding for wind projects is expected to soar, new transmission lines will have to be constructed as more wind power farms are built. And faced with tough regulatory hurdles, some firms might be discouraged and hold off investments, making it difficult for China to set its targets. “The market is too unstable [for us] to take the risk,” said Suzlon Energy China chief executive Paulo Fernando Soares, referring to the government’s large-scale project tenders, where foreign firms like Suzlon are struggling to compete with local companies. India’s Suzlon is the world’s fifth-largest wind turbine maker. Cash perks and tax breaks spurred growth in China’s wind sector, attracting more than US$2 billion in investment from the world’s biggest wind firms, including Denmark’s Vestas, Spain’s Gamesa, and GE Energy over the past five years. China’s rise to become the world’s fourth-largest wind power producer benefited local wind firms such as turbine makers Sinovel Wind, Goldwind Science and Technology, and Dongfang Electric. Together, they now account for more than 50 percent of a market once dominated by foreign firms. Analysts believe China’s long-term expansion target for wind power, along with more stimulus measures, will be a catalyst for outperformance for China High Speed and most domestic wind companies. China High Speed, which makes gearboxes for GE and German wind farm builders such as Nordex, is seen as a clear winner from the stimulus, because of its China market leadership. “The demand for wind power will remain strong in the next decade, leading to a robust business environment for CHST,” said CIMB-GK analyst Keith Li, who forecast the company’s revenues to rise 36 percent a year over the next three years. Analysts also expect the small wind farm builders like China WindPower and China Power New Energy to benefit, as wind turbine prices fall, electricity tariffs rise, and tax rebates kick in. But there are hurdles ahead. Most investors want to see clarity in regulations for project biddings, and the lack of investment in power grid infrastructure and transmission lines may hold up some projects. Although provisions were laid out to regulate the wind-power grid price, there are mixed views about open tenders, and whether they drive prices below a level sustainable for many projects.