China is trying hard to restructure its domestic economy and in the process it may produce overcapacity in new areas if the infrastructure of delivering and using these alternative energy sources are not in place in time (reports WSJ):
Beijing has big plans for wind power as a renewable energy of the future, but China may already have too much of a good thing.
At home, China's power-transmission infrastructure can't handle the intermittent electricity supply already being generated from wind. It is estimated that 30% of last year's wind-power supply went unused.
Despite that bottleneck, Beijing wants more. The government hopes to see 100 gigawatts of wind-power capacity installed in China by 2020, a more-than-eightfold increase from 2008, making wind the third most important source of power in China behind coal and hydroelectric. Even by next year, the amount of wind-power equipment being made will be twice what the nation can install, according to the central government.
That has implications abroad. Foreign rivals are raising concerns that Chinese producers will export their excess capacity at cheap prices. Wind power was one of the industries cited last week by the European Chamber of Commerce in China as likely to stir trade tensions.
The Chinese companies have already proven to be formidable competitors. Domestic producers have seen their Chinese market share blossom to nearly 60% collectively. That's largely at the expense of foreign players like Vestas Wind Systems, Gamesa and General Electric, which were dominant there just five years ago.
Critics suggest an implicit "Buy China" policy has helped the domestic players, but it's clear, too, that they have competed strongly on price. Data from analysts IHS CERA show Chinese equipment suppliers sell their turbines for almost two-thirds of the price of foreign competitors.
Not surprisingly, the number of players in the wind-power equipment sector has mushroomed, drawn to the sector by talk of greater reliance on renewable energy. Four companies accounted for more than 90% of the wind-turbine-manufacturing market in 2004. Now, 12 industry leaders account for about the same proportion, according to IHS CERA. Around 70 smaller firms are also active.
As local players duke it out, consolidation is likely in the near term. That will likely benefit the domestic industry leaders: Sinovel Wind, Xinjiang Goldwind Science & Technology and Dongfang Electric.
All this is happening in a market that is already uncertain as governments debate climate-change initiatives. Potential problems have already marred a United Nations wind-power credit program, for example.
The world may want China to commit to a greener future, but it's rapidly finding out that the push can come with some unwanted side effects.