Question: How will a stagnant Chinese market affect European companies wanting to enter it?
Giorgio Fortunato, Head of Marketing for Asia Pacific and China, Vestas
The Chinese wind market experienced high growth in recent years as the industry anticipated the country's onshore wind feed-in tariff being cut. Industry organisations expect high growth again this year. Even if growth slows in 2016, the China market will still be extremely important.
Our sense is that the market is transitioning from being driven by megawatts installed to being driven by megawatt hours produced. There is also an increasing focus on low-wind sites.
This is a significant evolution for a company like Vestas, as the market makes a fundamental shift away from prioritising low upfront capital costs toward a focus on the life-time cost of energy. This shift requires technical capabilities, innovation, and state-of-the-art operations and maintenance.
Among the initiatives Vestas is taking to secure growth in China is in creating tailor-made service packages designed in close collaboration with customers. This responds to a growing customer interest for more flexible service solutions. We have also introduced 2MW turbine variants using our most up-to-date technology, designed specifically for low- and medium-wind sites.
Regardless of growth rates, China will surely remain a major wind market. The shift toward life-time cost of energy considerations and the abundance of low-wind sites create opportunities for Vestas. We are confident we can grow profitably in this market.
Steve Saywer, CEO, Global Wind Energy Council (GWEC)
The rate of annual market growth will slow, that is agreed by all. 2014's 45% market growth (16GW to 23.2GW) is unlikely to be repeated. It is also true that after a rush to install in 2015 because of the lower feed-in tariff which takes effect on 1 January 2016, we may see some drop off in the market.
However, mitigating against that is the push to improve air quality; the need to meet an aggressive decarbonisation target; and the expected new RPS legislation. So, while there may be a dip after 2015, we do not at this stage think it will be very large.
In terms of market access for non-Chinese companies, that is more dependent upon whether utilities and other operators of wind farms are motivated by GW installed, or LCOE/profit. As both the utilities and the government gradually shift their emphasis to efficient and economic operation of wind farms, that will give more of an opportunity for non-Chinese companies in the market.
In the last seven years, Chinese companies have exported less than 2GW, with a peak of just over 600MW in 2013; a tiny fraction of overall manufacturing, and that is unlikely to change much. There are only a few Chinese manufacturers who are 'market-ready' for overseas, and they are concentrated on new markets in Africa, Asia and Latin America, and will not have much impact in established OECD markets.
Feng Zhao, head of wind energy, FTI Consulting
Coming off a record 2014 with more than 23GW added and up to 24GW lined up for 2015, the Chinese wind market is set to rapidly contract from the end of this year. FTI Intelligence does not see a return to current levels of demand until 2020.
Right now, developers are still racing to get projects that were approved before the start of this year completed in order to capitalise the higher onshore power purchase price before it drops at the start of 2016. The effect of that wind rush is clearly shown in the sharp 2014-2015 peak followed by a pronounced dip in our growth curve for the Asia Pacific region.
What it means is that foreign and Chinese wind turbine suppliers will be competing for a significantly reduced order volume, albeit in the world's largest market, forecasting an average 20GW annually over the period.
Only three turbine suppliers from the West, Vestas, Gamesa and GE, still have toeholds in China and it is unlikely others will join them. Between them they installed 383MW of 2014's 23GW, a 1.7% market share. That may improve, following the introduction by all three firms of new turbine models in China specifically for complex terrain and challenging winds. Already in Q1 2015, their combined sales reached 469 MW. If that can be doubled by the end of the year, it could raise their market share to 4%. Presuming, at best, the three firms secure 5% of the Chinese market ahead, a not impossible goal, that leaves them sharing a mere 1GW a year until 2020.
Meantime, with no prospects of market growth in China, the country's top five domestic manufacturers, led by Goldwind, will be looking for opportunities to grow in emerging markets in Latin America, Southeast Asia, Eastern Europe and Africa, placing their Western rivals under further pressure.
Shane Sun, China analyst, Make Consulting
Make does not believe an industry slowdown in China will be a medium or long-term trend. In addition, growth trends for installed and grid-connected growth will be different.
If we take a closer look at the installed market, which is of more importance to turbine manufacturers, there will be a slowdown in 2016 once the recently announced FIT reductions begin to be fully implemented.
Western turbine OEMs' performance in China will clearly have to follow the overall trends in the domestic market. For example, slow growth in China during 2012-2013 led to poor annual installations for western turbine OEMs in 2014 (longer lead time than Chinese turbine OEMs in general for order delivery). With strong growth in 2014 and running into 2015, western turbine OEMs are expected to improve results significantly for full year 2015.
Going forward to medium to long-term, Make expects a shift to low wind speed and high-altitude development in 2016-2017, where conditions are harsher and turbine efficiency will play a key role in ensuring overall project profitability. We believe this is an area where some of the better western turbine OEMs will have opportunities to grow.
In terms of Chinese turbine OEMs' export ambitions, Make expects this to be more of a medium- to long-term target. Many Chinese turbine OEMs have already began preparations for increasing export volumes. Goldwind, which is currently the most successful Chinese turbine OEM in terms of exports, has been attempting this for many years.
However, there are several obstacles to overcome still, including overall turbine quality, international certifications and overseas track record. We do not expect exponential growth of Chinese turbine exports in 2016 when the domestic market takes a break from the recent high growth.
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