LONDON — In their bid for market share, Chinese wind energy companies are pressing rapidly into the Americas, Europe, Africa and Australia with a strategy that incorporates two seemingly disparate credos: ‘Buy from China’ and ‘Buy local.’
Major Chinese manufacturers and developers are setting up branch offices and subsidiaries throughout the world, then hiring local talent, purchasing equipment from local vendors, and partnering with companies that are savvy about the local marketplace. Goldwind, one of China’s largest wind manufacturers, calls the approach ‘globalisation through localisation.’
‘The majority of our projects in the United States consist of more US content than foreign content,’ said Tim Rosenzweig, CEO of Goldwind USA, the American subsidiary of the China-based Goldwind Group. ‘Specifically, our projects in Minnesota and Illinois were built with over 60% American content by cost. This figure includes blade and tower manufacturing in North Dakota, Texas, Wisconsin and Minnesota as well as engineering, procurement, transportation, construction, O&M and a variety of ancillary work including legal and accounting services.’
Rosenzweig, himself, represents part of the localisation strategy. Hired by Goldwind in 2010, Rosenzweig was already known in the US market for his work at First Wind, a Massachusetts-based wind development company, which he helped expand from five to 150 employees. Joining him at Goldwind USA were others who previously worked at First Wind, as well as Gamesa USA, Enel North America, Texas Wind Power, Plug Power and other American energy companies.
The same year that Goldwind hired Rosenzweig, it also completed its first US demonstration project – in fact its first overseas megawatt level project – a 4.5 MW installation at Uilk Wind Farm in Pipestone, Minnesota. Less than three years later, Goldwind now trumpets projects on six continents, with 14 deals struck between June 2010 and January 2012 in the US alone. The company has wind farms built or underway in Minnesota, Illinois, Massachusetts, New York, Rhode Island, Ohio, Iowa and Montana. Among them is the 109.5 MW Shady Oaks in Lee County, Illinois, a strong example of the company’s globalisation through localisation strategy. The wind farm was developed through a local partnership deals with the Timken Company, an Ohio bearings manufacturer; LM Power, a North Dakota blades manufacturer; and Broadwind Towers, which fabricates towers from facilities in Texas and Wisconsin.
In addition, Goldwind accepted an invitation from Chicago to locate its US headquarters in the city, part of Chicago’s effort to build its standing as a hub for international corporate headquarters. Aware of the Chinese localisation strategy, World Business Chicago, a non-profit economic development organisation, began courting Goldwind in 2009, travelling to China to meet with the company. The organisation sold Goldwind on the city’s proximity to the US wind energy corridor, and access to industry talent and suppliers. More than a dozen other wind energy companies have corporate offices in the city. Two years later, Goldwind joined them.
‘Goldwind has a philosophy about bringing in Western expertise. They were not going to come in with an all Chinese staff. They wanted to draw from North America, and they did,’ said Tom Bartkoski, World Business Chicago’s director of international business.
A Strategy of ‘Co-opetition’
Brendan Andrews, vice president of sales and Marketing at IOXUS, a New York-based manufacturer that sells its ultracapacitors globally, including into the Chinese wind market, says that such ‘co-opetition’ is widespread among Chinese wind energy companies as they move quickly into international markets.
‘They are setting up manufacturing facilities, sales offices, engineering support locally, in the most viable regions. Not only that, they have started to partner with US and European OEMs. So you’ve got what I call co-opetition; they are competitors in the market, but they have joined forces to benefit each other,’ he said.
Co-opetition brings jobs and economic activity to the host nation, and diffuses political concerns that the Chinese will use their market clout to dislodge local players. This is a particular worry in the US now, given that it is an election year and China’s economic growth is serving as political fodder to highlight US manufacturing decline.
‘In our short time in the Americas, our presence has created or retained over 500 US jobs in a variety of industries and at a variety of levels including engineering, manufacturing, transportation, construction, professional services, and project operation,’ said Goldwind’s Rosenzweig.
Meanwhile, the Chinese enterprise gains local partners that can help it navigate the unfamiliar legal and regulatory complexities of foreign governments, a particular problem for those entering the US market with its myriad of rules and government agencies. America’s fluctuating energy policy is especially difficult for the Chinese ‘who are used to a five-year plan, a 10-year plan, obviously no changes in government or administration, so tremendous consistency in government policy,’ said Charles Dewhurst, who frequently works with Chinese companies as head of the Natural Resources Industry practice at law firm BDO USA.
‘To develop a power project is quite a challenge for someone coming into the US from any country. There are federal regulations, state regulations, county regulations and permits that you have to acquire,’ added Kerin Cantwell, who is a partner in the global project finance group at Akin Gump Strauss Hauer & Feld. ‘And when it comes to financing, the banks have their requirements and may want to change aspects of how a deal is structured. So that will pose a challenge too.’
In fact, project financing may be the biggest hurdle for Chinese wind companies in the US, according to Cantwell. The problem? Chinese wind turbine manufacturers, new and unfamiliar to the US investors, must demonstrate that their technology is bankable.
‘The loans are secured by the project assets, which includes both the hard assets and intangible project rights. When banks take a look at projects, they are looking at all the project assets, including the wind turbine technology. For wind turbines to be bankable, they have to have a track record of performance,’ Cantwell said.
In some cases, Chinese companies will build small, self-financed demonstration projects to prove their technology is bankable. But this can take time since some North American engineering firms advise banks to require demonstration of at least 100 turbine years of experience (100 installed turbines operating for a year at 95% availability). So buying turbines from a proven manufacturer, or partnering with a developer that is already established locally, offers a quicker route to project financing.
As Chinese wind companies enter new markets they sometimes are still dogged by the image that their product is inferior compared with turbines and components manufactured by North American or European companies. BDO’s Dewhurst says these concerns are little more than a ‘lingering stereotype from 20 years ago when it maybe had some validity’. Nevertheless, partnering with local companies helps defuse any worry customers may have.
That’s not the only stereotype Chinese companies face. Another is that that they are entering the market for a quick profit or to pilfer resources for China’s own use. But again Dewhurst says the stereotype is misapplied. He argues that in fact these companies behave in the opposite fashion. He sees Chinese wind companies as serious investors and partners in new markets.
‘The stereotype is that Chinese investors are extremely aggressive; they will come in, buy up a power source in country ‘A’ and basically divert the power from meeting that country’s domestic needs by exploiting it in some way. My experience is quite the opposite. Chinese companies take a very long-term conservative view. They will retain existing experienced management in the country for a good number of years to learn the intricacies of the particular market,’ Dewhurst said.
Impetus for Expansion
China topped the world last year for new domestic wind power, adding 18 GW and bringing its total wind capacity to over 62 GW, the highest in the world, according to the Global Wind Energy Council (GWEC). That’s just the start. China expects to have as much as 200 GW of wind capacity by 2030.
In response to all of this growth, wind manufacturers expanded capacity to accommodate the growing sector, so not surprisingly in 2011 four appeared on the list of top ten manufacturers worldwide: Sinovel, Goldwind, United Power and Ming Yang.
‘In some ways, they have become a victim of their own success,’ said Dewhurst. ‘Their huge production has led to a very depressed pricing structure globally for both [solar and wind turbines]. As a result, they are looking to tie up the market in other countries as part of a long-term strategy.’
Furthermore, the Chinese government is intentionally slowing growth, imposing stricter approval standards on wind projects, because the country has been unable to expand transmission quickly enough to accommodate the new wind farms.
Chinese wind companies were ‘putting turbines in the field at a very high rate, at a higher rate than could be attached to the grid. So at present there is a great deal of turbines in the field that aren’t even attached to the grid. So this is obviously an issue,’ said IOXUS’s Andrews.
Local Deals Increase
With the slowdown at home – and a desire to be worldwide player in clean tech – evidence is mounting that China’s wind industry is striking a growing number of deals and partnerships in the Americas, Europe, Australia, Africa and India:
• Longyuan Canada Renewables, a subsidiary of China Long Yuan Power Generation, China’s largest wind power developer, is building the 100 MW Dufferin Wind Farm in Ontario, and has contracted with GE for 49 wind turbines. Dufferin is Longyuan’s first project outside of China, according to Wu Hao, president of Long Yuan Canada. The project is expected to begin commercial operations in 2014. In addition, Longyuan plans to develop projects in the US, Europe and Latin America under a joint agreement with Spanish wind turbine manufacturer Gamesa. Announced in April 2011, the agreement marks the first between Chinese and Spanish companies in the wind energy industry.
• Ming Yang Wind Power Industry Group formed an alliance in July 2012 with a unit of the Reliance Group, which operates India’s largest private sector power company, to co-develop a large portfolio of clean energy projects in India and south Asia. A few months earlier, the wind turbine manufacturer established its first North American research centre at North Carolina State University in Raleigh. The facility is focusing on offshore wind turbine technology. Ming Yang has also opened an operations office in Dallas, Texas. In addition, the company is supplying turbines for two Bulgarian wind farms with total capacity of 125 MW in a partnership with W. Power EOOD.
• Goldwind not only has 14 projects underway in the US, but also in several other countries. In Australia, it is building the 182.5 MW Gullen Range Wind Farm. Goldwind sold its first Australian wind project, the 19.5 MW Mortons Lane Wind Farm, to China Guangdong Nuclear Wind Energy Company in June 2012. In Ethiopia, the Chinese company provided turbines for the 51 MW Adama wind farm. The company also has secured deals in Chile, Ecuador, Pakistan and other locations.
• Sinovel Wind also has announced several foreign deals. It is supplying turbines for a 34.5 MW project for Desenvix in Brazil; for Irish wind farms totalling 1000 MW, as well as for projects in Greece and Turkey.
Chinese companies also are among the many pushing into Latin America, one of today’s most active wind development markets. One of the largest projects, the 1350 MW Generadora Eolica Argentina del Sur project in Argentina, will receive a US$3 billion loan from China Development Bank Corp and be built with Chinese wind turbines by Beijing Construction Engineering Group.
‘South American economies are seeing growth in recent years, and with economic growth comes increased demand for power. With this new demand comes an ideal opportunity to integrate sources of renewable power generation,’ Rosenzweig said. ‘Many countries in South America are capitalising on that opportunity, and Goldwind has already experienced success there with three projects in Chile and Ecuador. We are well-positioned for continued growth throughout the region.’
The Long View
Meanwhile, Goldwind and other Chinese wind developers and manufacturers continue to build their presence in the US despite uncertainty in that market. The US’ primary wind power incentive, the federal Production Tax Credit, is set to expire at the end of 2012. While industry observers expect Congress to extend the credit, it is unclear when this will happen and what form the new credit may take, as it becomes embroiled in election-year politics. The uncertainty may slow what has otherwise been a robust market for wind energy in the US.
‘We’re hitting a crunch period in the third and fourth quarters, where orders for turbines for 2013 should have been placed, or need to be placed now,’ said Elizabeth Salerno, director of industry data & analysis for the American Wind Energy Association. ‘We are starting to see layoffs for sure; people are beginning the process of diversifying into other markets.’
But the temporary slowdown does not appear to be deterring Chinese companies from the US market, which has been adding wind power at a 33% growth rate annually over the last five years. And while the market may stumble now, the country’s voracious appetite for electricity, and push for green energy, signals a promising wind power market for several years to come.
‘Our needs are very significant in the US. We have more light bulbs per capita in the US than does the rest of the world,’ said Roger Rosendahl, a partner in DLA Piper’s Corporate and Finance practice.
So the Chinese appear willing to wait it out.
‘I think they are concerned about these short-term depressions in the global markets, but they do take a very long-term approach,’ added BDO’s Dewhurst. ‘They are painting a very broad brush approach to energy, and they are determined to meet domestic energy needs for internal political and commercial stability. But they are also on a mission to position China as a global leader. They see that wind, in particular, has very good medium term growth potential.’
Those partnering with the Chinese on their own turf are also taking the long view. The deals help the Chinese companies expand into the Americas, Europe, Africa and Australia, but also help the partners and vendors make inroads into China’s enormous domestic wind market, which represented 43% of the global market in 2011, according to GWEC.
Andrews noted that China is the biggest market in the world for ultracapacitors, but also that his company, IOXUS, has seen a slowdown in orders in 2011. ‘We we’re not seeing the reorders at the same rate we did even a year ago.
But like other companies that serve the domestic Chinese market, IOXUS expects the lull to be temporary. Andrews predicts a correction in six to 12 months. Business will be back on and the US-based company will be ready to fill the orders.
So China is increasingly selling into other countries, and international wind companies are selling into China. These ‘co-opetition’ partnerships may soon shift our perceptions of foreign and domestically made wind power. Buying local may mean buying from a Chinese company. And the wind component with a ‘Made in China’ sticker may have a North American or European manufacturer’s name behind it.
Elisa Wood is a US correspondent for Renewable Energy World magazine.