Wind power blows through China
The central government's heavy hand helps spark opportunities for Chinese and international players to green up the coal-fired country.
NEW YORK (CNNMoney.com) -- China, known worldwide for its smog-choked cities and rising status as global-superpolluter, may be cleaning up its act.
The country that has let coal-belching power plants fuel its economic miracle is now eyeing a cleaner, more benign form of electricity: wind power.
According to the Brussels-based Global Wind Energy Council, China added nearly 1350 megawatts of wind-generated electricity in 2006, doubling its wind capacity.
While that's still less than 1 percent of China's total annual electricity usage, and half of what the U.S. installed over the same period, China was still fifth worldwide when it came to the amount of wind power installed in 2006.
"[The wind-power business] is going gangbusters," said Greg Yurek, chief executive of American Superconductor, a company with $51 million in 2006 sales that, among other things, licenses wind turbine designs to Chinese firms. "They need electricity, and wind is a nice way to do it."
U.S. companies in the wind-power business, along with their foreign counterparts, could stand to gain as they license wind-turbine designs and construct windmills in China for the domestic market.
Driving the push to wind power is a 2006 declaration by the government that the country should invest more in renewable energy, and should eventually have 30,000 megawatts of wind power installed by 2020. (The U.S. is projected to have 50,000 megawatts installed by then, up from 11,000 megawatts currently.)
China is not a party to the Kyoto treaty, but its leaders have recognized that its heavy reliance on a single energy source - coal - is both dirty and dangerous.
Pollution in Chinese cities, partly caused by the burning of coal, is leading to serious public health concerns and an international image problem ahead of the 2008 Olympics in Beijing.
"They think it's urgent to correct some of the monumental mistakes they have made so far" in energy policy, said Yingling Liu, China program manager at the Washington-based research institute Worldwatch.
While the Chinese government doesn't say how its 30,000 megawatt target should be met, the very fact that the central Chinese government has set this target at all has prompted local officials to invest in the sector either directly with the government or through state-run corporations.
"That means a lot in China. Regional leaders are trying to please the government," said Liu. "It's not like a market mechanism, it's more like a command mechanism."
Command or not, it's creating a big market in China for wind-related equipment.
American Superconductor, which originally got into the wind business by making equipment that runs between windmills and the electric grid, bought an Austria-based windmill company in 2006.
That company had $35 million worth of contracts to license wind-turbine designs, mostly in China.
"It gave us a direct path to the Chinese market," said American Superconductor's CEO, Yurek.
Yurek said the firm, which also makes wires for electric motors and high voltage power cables, rang up 40 percent of its total sales from wind power in 2006.
Most of its wind sales came from China, and wind is projected to grow to 60 percent of its total business in 2007. The company could use a boost; it hasn't turned a profit in the last four years.
Ken Johnson, head of sales and marketing at PacWind Inc., a California-based maker of small and medium-sized turbines, said his company is also focused on China.
"It's exploding," said Johnson. "We've already had people try to knock off our products left and right."
To help combat such counterfeiting, he said PacWind has also licensed its design to a Chinese partner, which then pays PacWind a royalty fee, and would presumably protect the patent in China.
Victor Abate, vice president of renewables at GE energy, was cautiously optimistic on China.
Abate said GE was bullish long term on Asia, but pointed out that China's wind farms are currently less efficient than those in the U.S., and that the price of electricity there is lower.
"That is going to be a struggle in China," he said.
Besides GE, Liu said most other big international wind players have operations in China, including Spain's Gamesa, Denmark's Vestas, Germany's Nordex and India's Suzlon.
The desire to build or assemble windmills in the country is only partly economic.
As part of the 2006 law, the government is mandating that 70 percent of wind components be sourced locally by 2010, which means most foreign wind companies are building factories in China, or working with a local partner.
The mandate practically ensures Chinese companies will eventually acquire the know-how to build wind turbines themselves.
The U.S. business leaders didn't seem scared of the possible competition, essentially using the rising-tide-lifts-all-ships argument, while Liu looked forward to improved quality of Chinese products at a cheaper price.
"This will not only benefit China, but the rest of the world," she said.