Wind Energy in China, an Emerging Market with Great Challenges European Wind Energy Conference & Exhibition 2006 Athens, Greece, February 27 - March 2,

Wind Energy in China, an Emerging Market with Great Challenges

European Wind Energy Conference & Exhibition 2006

Athens, Greece, February 27 - March 2, 2006

EWEC 2006, Athens, February 27-March 2, 2006

The interesting question about the advent of $50-The interesting question about the advent of $50-a-barrel oil is whether it signals a new era in the a-barrel oil is whether it signals a new era in the economics and politics of energy. To sharpen the economics and politics of energy. To sharpen the question: Have we entered a period when, owing question: Have we entered a period when, owing to consistently strong demand and chronically to consistently strong demand and chronically scarce supplies, prices have moved permanently scarce supplies, prices have moved permanently higher? We don't know, but the answer could be higher? We don't know, but the answer could be "yes" for at least one reason: China."yes" for at least one reason: China.

-- Washington Post -- Washington Post


Wake up in Santa Barbara, Calif., one morning to Wake up in Santa Barbara, Calif., one morning to a sky that looks as though it is painted a shiny a sky that looks as though it is painted a shiny white. The morning's newspaper reports that the white. The morning's newspaper reports that the sunlight is playing tricks on something known as sunlight is playing tricks on something known as the Asian Brown Cloud, a mass of dust that has the Asian Brown Cloud, a mass of dust that has drifted over the Pacific from China. The cloud drifted over the Pacific from China. The cloud contains particles of loose earth from deforested contains particles of loose earth from deforested land mixed with arsenic and other industrial land mixed with arsenic and other industrial pollutants from the country's factories.pollutants from the country's factories.

-- Yahoo Global Business Outlook-- Yahoo Global Business Outlook


Wind energy development is accelerating in Wind energy development is accelerating in ChinaChina

• In 2004, China installed 197 MW new wind In 2004, China installed 197 MW new wind power capacity, with 35 percent power capacity, with 35 percent growth over over 2003.2003.

• Near 500 MW wind power capacity was further added in 2005, an even higher increaseincrease of 65 percent.


Wind Energy Development in China

0

200

400

600

800

1000

1200

1400

1990 1995 2000 2005

MW


China Wind Energy Development Heilongjiang57/ 58%

Major wind Farms

Province with installed capacity over 100 mw

Total installed wind power capacity (MW)/ capacity growth in 2005

Jilin109 / 264%

Liaoning127 / 1%

Shandong79 / 136%

Hebei108 / 209%

Inner Mongolia165 / 22%

Xinjiang181 / 60%

Ningxia113 / 104%

Guangdong140 / 62%

Fujian59 / 359%

Shanghai24 / 388%

Zhejiang34 / 1%

Gansu52 / 0%

Hainan9 / 0%

Xinjiang181 / 65%

China established 1.26 gwwind power by 2005, with 500 mw capacity built in 2005, an increase of 65%


Major forces driving renewable energy Major forces driving renewable energy development in Chinadevelopment in China

• Sustained energy demand growth;

• Growing energy supply security concerns with high oil import dependence;

• Rapid environment degrading;

• Relatively untapped large renewable energy resources;

• New investment and development opportunity.


Below 50w/m2

Above 200w/m2

150-200w/m2

100-150w/m2

50-100w/m2

Wind Power Density in China(W/m2)50

50

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100

100100

100

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100

100100

100

100

100

100

100

150

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150

150

150

150

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150

150

150

200

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200

China is endowed with large wind energy resources

(total of 5.3 billion kw, or 1,000 gw developable - 10 meters above the ground plus offshore)


Three key elements in China’s long-term Three key elements in China’s long-term energy strategyenergy strategy

• Clean coal technologies;

• Energy conservation and efficiency improvement;

• Renewable energy development


Planned Wind Power Capacity in China

0

5

10

15

20

25

30

1990 1995 2000 2005 2010 2015 2020

GW


Fuel Sources for Electric Power in China (2020)

nuclear4%

gas8%

hydro21%

coal61%

wind & other renewables

6%


National Renewable Energy Law was National Renewable Energy Law was promulgated in February 2005, and went promulgated in February 2005, and went into effect in January 2006into effect in January 2006

• The government lists renewable energy as The government lists renewable energy as preferential development and utilization.preferential development and utilization.

• The government encourages and supports grid-The government encourages and supports grid-connected renewable power generation.connected renewable power generation.

• Renewable energy projects listed in the national Renewable energy projects listed in the national industrial development guidance catalogue may industrial development guidance catalogue may receive preferential loans and tax benefits.receive preferential loans and tax benefits.


• Grid enterprises shall enter into grid connection Grid enterprises shall enter into grid connection agreements with renewable power generation agreements with renewable power generation enterprises, buy grid-connected renewable power, enterprises, buy grid-connected renewable power, and provide grid connecting service to renewable and provide grid connecting service to renewable power generation.power generation.

• Grid-connected renewable power prices will be Grid-connected renewable power prices will be determined by feed-in tariffs or tender.determined by feed-in tariffs or tender.


• The excess between the expenses that a grid The excess between the expenses that a grid enterprise purchases renewable power and enterprise purchases renewable power and conventional power prices shall be shared in the conventional power prices shall be shared in the selling price.selling price.

• Grid connection expenses by a grid enterprise Grid connection expenses by a grid enterprise for renewable power shall be included into the for renewable power shall be included into the grid enterprise power transmission cost and grid enterprise power transmission cost and recovered from the selling price.recovered from the selling price.


More recently, two detailed regulations on More recently, two detailed regulations on renewable power cost and expense sharing, renewable power cost and expense sharing, and wind farm land use and environmental and wind farm land use and environmental protection have been issued.protection have been issued.

• Renewable power feed-in price follows Renewable power feed-in price follows government guiding pricing mechanism, and is government guiding pricing mechanism, and is determined through tender.determined through tender.

• Excess renewable power costs and expenses are Excess renewable power costs and expenses are shared through price surcharge to end users.shared through price surcharge to end users.


Wind farm Capacity MW

Round 1 (2003) Phase 1 Rudong, Jiangsu Province 100

Shibeishan, Guangdong Province 100

Round 2 (2004) Phase 1 Huitenxile, Inner Mongolia 100

Tongyu, Jilin Province 400

Phase 2 Rudong, Jiangsu Province 150

Round 3 (2005) Dongtai, Jiangsu Province 200

Anxi, Gansu Province 100

Jimo, Shandong Province 100

Concession Wind Projects in China


Wind power development in China is, Wind power development in China is, however, confronted with many challenges however, confronted with many challenges such as legal regime, government policy, such as legal regime, government policy, power pricing mechanism, market power pricing mechanism, market liberalization, industrial structures, liberalization, industrial structures, financing vehicles, and etc.financing vehicles, and etc.


Diversified motives developing wind energyDiversified motives developing wind energy

• Driven by energy: the East Coast; Driven by energy: the East Coast;

• Driven by emission: the South;Driven by emission: the South;

• Driven by economic development needs: the Driven by economic development needs: the North and the West regions;North and the West regions;

• Driven by opportunity: the other places.Driven by opportunity: the other places.


Taking advantage of globalization vs. Taking advantage of globalization vs. protecting domestic enterprises protecting domestic enterprises

• Open to foreign investment, but encouraging Open to foreign investment, but encouraging domestic manufacturing;domestic manufacturing;

• Imported wind power equipment may not receive Imported wind power equipment may not receive tariff benefit.tariff benefit.


Rationalizing power sector to accommodate Rationalizing power sector to accommodate wind energy development wind energy development

• The power sector remains strictly state control, in The power sector remains strictly state control, in spite of years of reform and restructuring;spite of years of reform and restructuring;

• Wind power feed-in price tender vs. state Wind power feed-in price tender vs. state controlled electric power pricing.controlled electric power pricing.


Incomplete and insufficient legal framework Incomplete and insufficient legal framework and government policies and government policies

• Market operation transparency;Market operation transparency;

• Guidelines vs. executable rules and policies;Guidelines vs. executable rules and policies;

• Integrated incentives and support;Integrated incentives and support;

• Regulation implementations.Regulation implementations.

Main ConclusionsMain Conclusions

• China’s wind power development is moving into a fast track with huge long-term potentials;

• The government has established initial legal framework and guidelines, but more supportive and integrated policies / measures are needed;

• Further energy sector reform and market liberalization are required to allow healthy renewable energy development;

• China is in an early stage of wind energy development, and may well take advantage of the globalization, borrowing more matured technologies and experience of other developed wind energy markets.



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Documents

Wind Energy in China, an Emerging Market with Great Challenges European Wind Energy Conference & Exhibition 2006 Athens, Greece, February 27 - March 2,