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Increased Entry Barriers Force Wind Power Consolidation in Inner Mongolia

In a move to enhance oversight of the wind sector, the Inner Mongolia Development and Reform Commission recently released a set of new regulations concerning the management of wind resources in the region . According to the rules, wind power firms must have net assets of no less than RMB1 billion (approx. US$150 million). Local governments, which had previously supported the linking of wind power development with equipment manufacturing, will now require such relationships to be at arm's length, forcing wind power equipment manufacturers to sink or swim on their own.

Before the release of the rules, the commission had already issued guidelines concerning its policy towards mergers and acquisitions of wind power developers on March 20th. Specifically, the guidelines stated that the number of wind power firms in the region will be reduced to 25. For this reason, small and medium-sized players will be forced out or acquired by their larger rivals.

Inner Mongolia, the region generating the most wind power in China, is home to approximately 70 wind power firms, including the country’s top five power companies. Several large power companies have each set up over 10 subsidiaries in the region for project development, resulting in a highly fragmented market. To ensure the healthy development of the sector, the Inner Mongolian government has asked wind power developers to finalize their integration plans and submit those plans to the commission before March 31st.

The top five power companies were each required to limit the number of their wind power development units to two or three to further enhance operational efficiency. Liu Dongsheng, Director of New and Renewable Energy at the Inner Mongolia Energy Development Bureau, said that most firms have completed their internal integrations. The 25 wind power firms resulting from the consolidation will be units of the top five power companies and leading local companies and will be given priority in grid connection.

As of the end of 2010, Inner Mongolia’s grid-connected wind power installed capacity reached 10 GW, accounting for more than one third of China’s total. The province plans to increase its grid-connected wind power installed capacity to more than 33 GW by 2015. Installed capacity of wind power projects that have been put into operation so far this year have already exceed 10 GW. Otherprojects under construction have a combined capacity of 7 GW, and several completed projects going through final approvals have a combined capacity of 16 GW. These projects assure that the province will achieve its 2015 goal. 

Given Inner Mongolia’s leadership in the Chinese wind power market, the industry consolidation may encourage other provinces to follow suit, according to Yang Fuqiang, a climate change and energy expert.

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