Wind farms to reap higher profits

PUBLISHED : Monday, 15 March, 2010, 12:00am
UPDATED : Monday, 15 March, 2010, 12:00am

The profitability of wind farm energy producers on the mainland is set to increase as a result of tumbling costs of wind power generation equipment, China WindPower Group chairman Liu Shunxing says.

'I see the price of a 1,500-kilowatt production unit falling from 5,000 yuan (HK$5,683) to 4,000 yuan per kilowatt - the current price of lower-end 750 kW units,' Liu told the South China Morning Post in an interview after the company reported its financial results for the nine months to December last year.

The mainland could now make completed wind power production units domestically, and the cost of such units could fall a further 20 per cent after tumbling 15 per cent in the past year, he said.

The price fall follows an investment boom in wind power turbine factories on the mainland over the past few years. No longer hindered by the high equipment costs and small-scale operations, most wind power project developers had seen their profits rising.

The delivery lead-time for equipment had also shortened, from 12 months a few years ago to two to three months, Liu said.

He would not set a timeframe for his prediction of further price falls, but said his company had adopted a policy of procuring equipment only when it was necessary in order to maximise savings and benefit from falling prices.

Most wind farms are currently making a return on equity of less than 10 per cent, according to a research report by Pierre Lau, the head of Asia-Pacific utilities research at Citigroup.

An exception is China WindPower's rival, China Longyuan Power Group, the nation's largest and the world's fifth-largest wind farm operator, whose return on equity was 19.8 per cent based on annualised profit from its results in last year's first half.

Lau attributed its superior return to the better location and wind resource of its projects. China WindPower's return on equity was 7.6 per cent, based on annualised profit from its results for the first nine months of this financial year.

However, it derived only 18 per cent of its profit from operating self-invested wind farms, while the rest came from project design, engineering and parts production for both its own and third-party projects.

The company last week posted a net profit of HK$181.24 million for the nine months to December. For the past financial year to March, net profit was HK$116.77 million.

Besides lower equipment prices, wind farm operators are benefiting from guaranteed power tariffs which vary between 51 and 61 fen per kilowatt-hour depending on where the project is located, Lau said. There are four designated regions for a project.

With the tariff policy, which took effect in August last year, developers are driven to find projects with the best wind resources to maximise their returns in a fixed-tariff operating environment.

Rising project returns had not reached a level that might trigger a cut in tariffs by the government, said Lau, who expected the present tariffs to remain in force for at least the next two years.

Future tariff adjustments would depend on whether developed and developing nations could come to an agreement on a mechanism to encourage clean energy projects in developing nations, he said.

Currently, mainland wind farm operators enjoy subsidies from a United Nations-run scheme.

Small returns

Most wind farms in the country are making a return on equity of less than: 10%