China’s wind power sector to see more headwinds

China’s wind power equipment makers and wind farm developers, beneficiaries of Beijing’s war against air pollution in the past few years, will face greater headwinds for years to come as lower wind power prices and installation volumes are expected to lead to dimmer growth prospect for the entire industry chain, analysts say.

Weak power demand and excessive capacity expansion in remote regions were the main culprits.

“We see multi-year headwinds for the China wind sector, including worsening curtailment [of output offtake due to power grid bottleneck], [power] tariffs cuts and slowing capacity addition,” Daiwa Capital Markets head of utilities and renewables research Dennis Ip said in a report.

He estimated that new wind farms’ equity investment return rate will fall from between 11 per cent and 17 per cent last year to between 9 per cent and 16 per cent this year and reach 10 per cent to 14 per cent in 2018, given Beijing’s cuts to power selling prices and projected steady wind farms construction costs in the next three years.

Wind farms’ returns vary according to their locations, which carry different subsidised power-selling prices. The subsidies are funded by a surcharge on consumers’ power bills.

Ip said a policy induced shift of wind farm installation from grid-congested northern regions to more developed but densely-populated coastal regions would increase installation costs.