Chinese wind earnings under pressure with fifth of farms idle

China High Speed Transmission Equipment

17/05/2015 22:00

By Sue-Lin Wong and Charlie Zhu 
    SHANGHAI/HONG KONG, May 18 (Reuters) - China's wind farm 
firms are feeling the heat as state grid operators deliberately 
delay hooking them up and cut back on purchases, wasting about a 
fifth of the total wind power output or enough electricity to 
run Beijing for 40 days. 
    China is now the world's top wind power producer thanks to 
policies designed to boost renewable energy use, with an 
installed capacity of over 100 gigawatts - more than a quarter 
of the world's total and almost enough to light up Spain. 
    But capacity has raced far ahead of grid construction, with 
state grid operators reluctant to connect wind farms in remote 
areas as long as their profit margins on renewables lag that of 
coal-generated electricity. 
    Instead, they are resorting to a practice known as 
curtailment, or slowing the connection of wind turbines to their 
grids and limiting the use of wind power. This in turn is 
leading to wasted capacity and lower returns on wind power 
investments. 
    "Considering the huge growth in wind installment we saw last 
year, curtailment is going to be a big problem (for wind power 
producers) ... China is one of the worst countries affected," 
said Shanghai-based Shane Sun with international renewable 
energy consultancy MAKE.     
    In the first three months, curtailment almost doubled from a 
year ago to 10.7 billion kilowatt-hours, nearly a fifth of total 
wind power generated in China, official data showed. That's  
equivalent to output generated with about 3.5 million tonnes of 
coal, or 7 percent of China's first-quarter coal imports.  
     
    BREAKNECK EXPANSION 
    Meanwhile, generating capacity expansion continues at 
breakneck speed. While China still relies on coal for most of 
its power generation, it has more than doubled its installed 
wind power capacity in the past five years, and Beijing wants to 
double it again to 200 GW by 2020 with annual investments of $27 
billion. 
    As if that wasn't incentive enough, state-run power 
producers are also racing to build capacity to lock in current 
prices ahead of an official cut next year. 
    But this expansion coincides with China's economic slowdown 
and a sharp decline in the pace of growth in overall power 
demand, which rose an anaemic 0.8 percent in the first quarter, 
its slowest rate in more than five years, industry data showed.  
     
    INFLATED PRICES 
    While listed wind firms have seen their shares surge 18-38 
percent this year, compared with a 17 percent rise on the 
broader Hang Seng index  .HSI , some industry insiders are 
urging investors to rein in their enthusiasm. 
    "I'm not entirely sure where the optimism came from," said 
an executive at top power producer Datang Power  0991.HK , a 
sister company of wind farm operator Datang Renewable  1798.HK  
and a wind farm owner. 
    "Overall electricity demand is very weak. It is unlikely 
wind power will outshine others." 
    Analysts said wind-related stocks like Datang Renewable have 
risen partly on expectations of higher wind speeds in China this 
year after they were down 8-12 percent in 2014.  
    Even so, all those unused turbines probably won't be 
switched on until ultra-high voltage lines, designed to enable 
long-distance transmission of renewable power from the windy, 
remote north to population and industry hubs in the south and 
east, are completed in 2017. 
    In the meantime, some companies like Huaneng Renewables 
 0958.HK  are building wind farms in the east and south where 
better grid infrastructure offsets low wind speeds and land 
shortages. 
    Some analysts say investors may be in for an earnings 
disappointment this year unless wind speeds improve and the 
government enforces a long-delayed rule requiring grid operators 
to buy certain amounts of power from renewable sources. 
    Wind farm operators are mostly owned by state-run power 
groups like China Guodian and their listed units such as Huaneng 
and Longyuan  0916.HK . 
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GRAPHIC: Chinese wind power   http://link.reuters.com/syf74w     
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 (Editing by Stephen Coates) 
 ((charlie.zhu@thomsonreuters.com; +852 2843 1649; Reuters 
Messaging: charlie.zhu.reuters.com@reuters.net)) 
 
Keywords: CHINA WINDPOWER/