Power producers get second wind
Official policy and incentives generate investment in renewable energy projects
Mainland power producers are looking to the nascent wind power sector to diversify energy supplies and prepare for future regulations stipulating greater use of renewable energy.
Government policies supporting the sector have attracted investment from companies such as China Datang Group, China Huaneng Group and Hong Kong-listed power producer CLP Holdings.
Another Hong Kong-listed company, China Resources Power Holdings, is in talks with a European firm to form a joint venture on a wind power project, according to a recent UBS research report.
Wind power production in the mainland is limited compared with other energy sources and much larger investment is needed for operators to achieve economies of scale and meaningful profits.
At the end of last year, China had 730 megawatt (MW) of wind power generating capacity - up 29 per cent from 2003 but still accounting for just 0.17 per cent of the country's total capacity of 440,000 MW.
Growth is expected with 270 MW coming on stream this year, Dow Jones quoted China Wind Energy Association vice-chairman Shi Pengfei as saying.
One factor helping to improve the viability of wind farm projects is the sharp rise in the cost of coal, traditionally a cheap fuel, which has forced the government to raise tariffs to compensate power producers.
This reduces the price gap between on-grid tariffs of coal power - 0.26 to 0.35 yuan per kilowatt-hour - and that of wind power - 0.48 to 0.69 yuan a kWh.
The government has effectively subsidised the industry by reducing value-added tax charged on wind power and guaranteeing that local distributors will buy their electricity. It is also drafting legislation that would offer discount loans for the purchase of renewable energy generation equipment.
Beijing hopes to raise the share of wind and power sources other than nuclear, natural gas, hydro and coal to 4.1 per cent of all energy sources by 2020, from 0.1 per cent in 2003.
It has floated a proposal to require power producers with more than 5,000 MW of capacity to generate at least 5 per cent of their power from renewable resources by 2010 and 10 per cent by 2020.
But success in wind power is by no means guaranteed.
'One of the major obstacles for wind power is the high infrastructure investment cost,' said UBS head of Asian utilities research Alice Hui Suk-fong.
She cited the example of China Datang Group's 306 million yuan, 30 MW project in Fujian province, which entailed a per-megawatt investment cost of 9.15 million yuan.
CLP's 27 MW project in Changdao, Shandong province, involves investment of 247 million, or 10.2 million yuan per megawatt.
These compare with 3.5 to 4.5 million yuan per megawatt for typical coal power projects, and the 7.02 million yuan China Yangtze Power paid its parent company for two generating units at the Three Gorges hydroelectric project.
