As the biggest coal-consuming and coal-producing nation in the world, China is perhaps an unlikely place to find a burgeoning wind power industry. Yet today China is the biggest wind power market in the world and builds almost all its wind turbines at home. China’s wind power capacity has increased over a hundredfold in the past decade (from 344 MW in 2000 to 44,733 MW in 2010) and estimates for 2012 put installed wind capacity at about 80 GW (see Figure 1). Just a decade ago the country had only a handful of wind turbines in operation—all imported from Europe and the United States.
Figure 1. Installed wind power capacity, United States and China (2000-2012)
source: author’s database, various wind industry sources
Building an Industry
Historically it has been common for wind turbine manufacturers to get their start in their home-country markets. Home-market experience was important for many of today’s leading wind turbine manufacturers, with few exceptions. All of today’s top wind turbine manufacturers got their start in their home markets, including Vestas (Denmark); Siemens (which acquired Bonus—originally from Denmark); GE (USA); Enercon, Nordex and REpower (Germany); Gamesa (Spain); Suzlon (India); Sinovel, Goldwind, Dongfang Electric Corporation (DEC), United Power, Mingyang, Sewind, and XEMC (China). In addition, all continue to be dominant suppliers in their home markets, with the exception of the Danish manufacturers, as there is little remaining potential for onshore wind development in Denmark. There are few leading global wind turbine companies that did not primarily rely on their home market in the early stages of their technology development, including Mitsubishi of Japan; this will likely also be true of the emerging South Korean manufacturers, which are primarily selling to overseas markets due to limited opportunities in Korea. By beginning their industry experience in a home market, companies can benefit from national government R&D support or policy support for demonstration projects. It is particularly important that government policies be used to create a sizable, stable annual demand for wind power to give companies the long-term planning horizon necessary to allow for investing in the future.
So what could a country like the United States learn from China’s experiences in building its wind industry? China is a latecomer to this industry, and its wind turbine designs are largely rooted in intellectual property and designs that originated in Europe and the United States that Chinese firms obtained through commercial technology transfer agreements, M&As or joint technology development. China’s wind resources are also likely inferior to US resources. Without a technological or a resource advantage, it was China’s policy frameworks that simultaneously supported wind power expansion and wind industry development that allowed it to get ahead.
To build a new internationally competitive industry such as wind turbine manufacturing, it is necessary to put policies in place that ensure a stable demand if one does not already exist. Feed-in tariffs, which provide long-term price support for wind energy, are a common way that countries have promoted sizable and stable markets for wind electricity. Many countries have also implemented policies to specifically promote the development of a local wind manufacturing industry in addition to just the deployment of wind energy, including Germany, Spain, Canada, Brazil, and—perhaps most successfully—China.
There was almost never a time when China considered pursuing wind power utilization without simultaneously pursuing the development of an indigenous wind power technology industry. Various forms of government policy support have specifically targeted the wind power industry, and to some extent has benefited both Chinese and foreign firms involved in the Chinese market. The wind innovation system in China includes both direct support for industrial development and indirect support through the establishment of a local market for wind power. The government has used different types of policies to emphasize different areas of support over time, and the policy structure has clearly influenced firm strategies for technology development in this sector.
Establishing a Strong and Stable Policy Framework
A new era of policies to support renewable energy development began in China in 2006 with the launch of the Renewable Energy Law of the People’s Republic of China. The law directly benefited wind power development by establishing a framework for regulating renewable energy. Another instrumental policy was the August 2009 feed-in tariff policy, which established a unified nationwide pricing system and fixed return on investment, thereby standardizing the development process for wind farms in China.
Local content requirements— similar to those under recent WTO scrutiny in other countries— were widely used in China’s wind power industry until a few years ago but were far less effective than many give them credit for. While local content requirements instituted in 2003 gave local manufactures an early boost, 2008 Ministry of Finance programs to directly support the development of advanced Chinese wind turbine technology, along with large-scale deployment projects, have been extremely beneficial to emerging wind turbine manufacturing companies in China. Early in the development of China’s wind industry, local content requirements actually served to deter development, and China’s early wind power targets (including a year 2000 target to install 1,000 MW) were not met. Such requirements were originally implemented with the goal of encouraging technology transfer from foreign firms into the Chinese market, but this too proved unsuccessful, in that we know now that the primary sources of technological know-how for Chinese firms have been companies that do not compete in the Chinese market, or design firms that do not manufacture turbines directly. Today, investment in wind energy in China exceeds any single investment in any single renewable energy technology in any country in the world (see figure 2).
Figure 2. Clean Energy Investments by Technology and by Country
Data from NSF Science and Engineering Indicators (2012)
The United States saw a boom in wind power development in 2012 as companies raced to be eligible for the federal Production Tax Credit (PTC) which was set to expire. Even though the United States Congress opted to renew the PTC in the 11th hour, 2013 projections for wind power installations are far lower than for 2012. The on-again, off-again nature of US wind support has been harmful to US-based manufacturers (including Chinese wind manufacturers like Goldwind’s US arm that had been hoping to expand its US market presence in the coming year). As illustrated clearly by the U.S. EIA below (Figure 3), during the year following PTC expiration (or near expiration), US wind installations drop substantially.
Figure 3. US Wind Power Development and Key Policies
U.S. Energy Information Administration (2012)
Updating Policy Frameworks to Addressing New Challenges
China’s wind development is still far from perfect. While the feed-in tariff has lead to sizable wind capacity expansion in recent years, its becoming increasingly clear that a feed-in tariff alone isn’t sufficient to ensure that wind farms can sell their electricity to the grid and recoup their costs. Recent reports of widespread curtailment of wind farms may have cost the industry $1.6 billion last year as grid companies in northern China struggle to integrate high wind penetrations into an inflexible, coal-based grid system. Running combined heat and power (CHP) plants trumps wind farms particularly in the wintertime when the heat is needed. Given that China is trying to integrate far more wind power capacity nationwide than any other country in the world has ever attempted, it’s not surprising they are experiencing considerable challenges.
But even these setbacks are subject to new national policy initiatives. For the past couple of years, policy makers in China have been working to implement a new centrally-administered quota system which aims to mandate the use of wind electricity at the local level and make it more difficult for grid companies to curtail wind farms. While it’s still unclear whether the quota system will have the teeth to reverse the trend of pervasive curtailment, the program will once again send a strong signal that the country is serious about meeting its targets for renewable generation. Increasing renewable power generation will also be crucial for China to meet its carbon intensity targets for the 12th five-year plan and beyond.
The story of China’s rapid rise in the global wind power industry provides valuable insight into the country’s domestic energy strategies and global positioning, and into the evolving nature of technology transfer and diffusion around the world. China is beginning to serve as a center for global technological innovation, and green innovation from China could play a crucial role in the global transition to a low-carbon economy. Given global concern about the impact of China’s rapidly increasing energy needs on global supplies and its ability almost single-handedly to change the global climate system, it is worthwhile to understand the evolution of China’s wind power industry, as well as the broader context of how and why Beijing has embraced green innovation.
Portions of this post are excerpted from, Green Innovation in China: China’s Wind Power Industry and the Global Transition to a Low-Carbon Economy by Joanna I. Lewis. Copyright (c) 2013 Joanna I. Lewis. Used by permission of Columbia University Press.
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