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Wind turbines in Zhoushan, China. The country has been the world’s largest market for onshore wind since 2011 and the largest for offshore wind as of 2021. |
Recent price hikes by major western wind turbine manufacturers have sparked renewed chatter about increasing competition from China, where local manufacturers are selling turbines at consistently cheaper prices, but have been doing so to repeat their domestic success abroad.
According to analysts, it remains difficult for Chinese suppliers to gain a foothold in the mature markets of the US or Western Europe and to dethrone incumbent manufacturers such as Vestas Wind Systems A/S, Siemens Gamesa Renewable Energy SA and General Electric Co.
The US and western Europe have “well-established local players and local manufacturers,” said Indra Mukherjee, senior analyst for clean energy technologies and renewable energy at S&P Global Commodity Insights. “Relationships between [turbine-makers] and major customers have also been established for years.”
The fact that Chinese turbines now cost less than half the global average enables suppliers to expand into less established wind markets such as Latin America and Eastern Europe.
Companies like Xinjiang Goldwind Science & Technology Co.Ltd. and Mingyang Smart Energy Group Ltd. are likely to expand their international portfolios in those regions in the coming years, analysts said, and typically work with smaller developers or supply turbines for projects involving Chinese investors.
“Race Down”
Goldwind, Mingyang and Envision Energy Ltd. – China’s top three suppliers – received orders for new turbines worth over 23 GW in the first half of 2022, according to an analysis by Commodity Insights. This is offset by 8.7 GW from western providers.
Chinese manufacturers appear to be “completely decoupled”. [from] the global commodity inflation”, said Shashi Barla, director and head of research at consulting firm Brinckmann, in an email. Chinese turbine prices “continue to fall,” Barla said. “These companies are racing down.”
In contrast, Western manufacturers have raised prices to multi-year highs in 2022, driven by inflated raw material costs and supply chain bottlenecks that have pushed companies into the red.
Analysts point out that China’s margins have held up far better than their western counterparts, but caution their ability to do so reproducing these margins in foreign markets remains a great unknown.
“China has the most efficient, concentrated and cost-effective turbine supply chain [manufacturers] in the world, and many western companies source parts from Chinese suppliers,” said Norman Waite, energy finance analyst at the Institute of Energy Economics and Financial Analysis.
That supply chain is fed by the world’s largest steel industry, where prices “have barely moved” compared to those in the US or Europe, Waite said in an email. The price of resin used in turbine blades has also “fallen significantly” in China and is far below western prices, the analyst added.
Mingyang and Envision did not respond to emailed questions, while a Goldwind spokesperson merely referred to the company’s investor reports and presentation materials.
Expansion Challenges
gold wind, Mingyang and Envision have amassed nearly 10 GW of installations outside of China, according to Aaron Barr, global head of onshore wind energy research at consultancy Wood Mackenzie.
“Our analysis shows that Western Europe and the US are not as attractive for overseas expansion as other parts of Asia, the Middle East, Africa and Latin America,” Barr said in an email.
Data from Goldwind supports this claim. The company’s overseas order backlog was more than 2.7 GW at the end of June, including 1.1 GW in Asian markets outside of China, 628 MW in South America and 450 MW in Australia. The company already has 452 MW in operation outside of China and 581 MW under construction.
In contrast, the company’s European backlog was 168 MW compared to just 4 MW in the US
“In the short term we do not see that the EU wind market will be [seeing] lots of activity [from] Chinese manufacturer,” a spokesman for German turbine manufacturer Nordex SE said in an email, adding that the same applies to the US
Wind developers in Europe pointed to several reasons why Chinese suppliers have struggled to be relevant in mature wind markets.
A spokesman for ABO Wind AG referred to the high European standards for technology, quality specifications and grid compatibility. Meanwhile, a spokesman for PNE AG said that Chinese turbines “mostly one to two development cycles older” than those of Western manufacturers.
In certain cases, however, Chinese companies are technologically ahead. Mingyang, for example, will soon launch the world’s largest offshore wind turbine – a 16MW behemoth that puts it ahead of its European and US competitors in terms of product size.
‘Lots of business’ at home
Analysts point to another reason for Chinese manufacturers’ lack of activity overseas: They simply didn’t need to look beyond their home market, which was it It is the world’s largest for onshore wind as of 2011, and the largest for offshore wind as of 2021, according to Waite.
The country added 16.9 GW of new offshore wind capacity in 2021, Bloomberg News reported in January — more than installed in the entire EU.
“There was a lot of business for them at home, so I don’t think expanding abroad was a priority,” Waite said.
While China’s big three suppliers have historically dominated the local wind market, an installation rush in 2020 has “revived” second- and third-tier manufacturers, who now account for about 50% of installations, according to Mukherjee.
“This has changed the competitive dynamics in the Chinese mainland market and could potentially force more established local players to be more aggressive in their international expansion,” the analyst added.
Mingyang has already signed a memorandum of understanding with the British government to build a blade manufacturing factory in the country. The company was previously the first Chinese manufacturer to deliver turbines to a European offshore wind farm and delivered 10 3MW machines to a project in Italy.
Conditions in the Chinese market, combined with the well-documented financial and organizational difficulties of their Western competitors, may eventually lead to more overseas activity by Chinese turbine manufacturers, according to Waite, especially if Chinese companies invest in local manufacturing capacity.
“If there was ever a time for that [them] to break into global markets, it is now,” Waite said.
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