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Wind-farm tenders show market faults


Nao Nakanishi and Niu Shuping

Thursday, August 31, 2006

Only state-owned companies took part in a tender this month to build wind farms, highlighting shortfalls in the country’s investment plan to promote clean energy sources.

Industry officials said no independent private companies or foreign firms were among 26 firms that had placed bids for the tender, known as the fourth concession project involving three large wind farms with total capacity of 700 megawatts.

“Right now, the Chinese wind energy market is not normal,” said China Wind Energy Association vice president Shi Pengfei.

“It’s not a game for private or foreign companies. It’s only for state- owned enterprises, which do not have to worry about making losses.”

Many industry officials have criticized Beijing’s concession system, which has awarded large wind-farm projects to those offering the lowest power prices.

As a result, leading utilities have rushed to offer bare-bone investment plans, regardless of a project’s quality or viability, potentially leaving China with large wind farms that sit idle or need constant repair, they say.

In the latest tender for three farms in Hebei and Inner Mongolia, known for its rich wind resources, bidders offered power tariffs of between 0.4 yuan-0.6 yuan (HK$0.39-HK$0.59) per kilowatt hour – prices many say are too low to obtain financing for projects.

Still, state-owned enterprises are keen to win the concession projects, even if they will have difficulty making them pay off, because Beijing is expected to introduce clean energy quotas for each utility in future, they said.

In addition, such projects would improve their image, particularly when Beijing is encouraging clean power. China now derives 70 percent of its energy from dirty coal.

To promote alternatives, Beijing has plans to expand the installed wind capacity to five gigawatts by 2010, up from 1.3 gigawatts at the end of 2005. By comparison, Germany, the world’s largest wind-power producer, had 18.4 gigawatts of installed capacity then. Beijing is unlikely to award contracts in the latest tender before October, due to the large number of bidders, the scale of each projects and various types of turbines involved, the officials said.

A lot of bargaining is expected among the state-owned firms. Officials also said Beijing might choose from those offering mid-level bids, instead of the cheapest, recognizing that the most competitive bidders may not be able to deliver, as happened with some past winners.

“There are rumors saying that actually they are going to get better prices,” said one official at a top turbine manufacturer based in Beijing.

“Hopefully that’s true … The prices in previous concession projects have been extremely low.”

Shi said: “After the results are announced, we will know the government’s intention for future development. If they choose the middle price, people may see it as an improvement.”

Many industry officials, including Shi, hope Beijing will gradually phase out the bidding system to introduce a feed-in tariff system, which guarantees fixed prices for wind electricity for a certain period to help investors map out business plans.

“We always hope there will be more transparency and certainties in the future for wind tariffs,” said Chan Ka- keung from CLP Holdings, which is building wind farms in China.

“[But] we need to give them some time,” said Chan, managing director for CLP Renewables department.