Subsidy cuts could halve profits of Chinese wind OEMs


Revenue for Chinese wind turbine OEMs could be slashed in half because of the government’s termination of subsidy cuts, according to analysts at energy consultancy Wood Mackenzie.

Due to the end of wind energy subsidies, Wood Mackenzie says China’s onshore wind sector is expected to reduce installations by more than 16% to 19 GW by next year, which will kick-start a 27% drop in wind turbine prices over the next five years.

Wood Mackenzie consultant Kevin Han said: “Top Chinese wind turbine OEMs are adopting new strategies to stay competitive as turbine prices drop in a subsidy-free era. These include efficiency improvements through development of bigger and better turbines, taking control of procurement costs, as well as diversification into non-wind businesses.”

New turbine models with larger rotors and ratings are helping OEMs to improve capacity factors.

For example, Goldwind and Envision have launched 3.X megawatt (MW) platforms with rotor diameters of 150 to 156 metres, outperforming existing capacity factor by 3%-6%.

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Han added: “Mainstream turbine models are transitioning from the 2.5-3 MW segment to 3-5 MW segment after 2021.”

He said a strong procurement strategy is key to cost control, while in-house supply and build-to-print models are critical to reducing costs over the next five years.

With in-house produced components, Wood Mackenzie says top turbine OEMs can achieve economies of scale, backed by large annual installations. “Captive supply can help cushion against price shocks, especially when third-party supply is limited. Build-to-print models enable OEMs to leverage third-party scale and production expertise, even if the supplier is not wind-focused. This could remove R&D costs.”

Han said: “Component costs can be reduced by up to 20% with a cost-down procurement strategy.”

And to protect revenue, he highlighted how leading Chinese turbine OEMs have started to diversify into non-wind businesses. Goldwind’s water treatment and financing lease businesses realised a net profit margin of 12.6% and 41.3% respectively in 2019, while Envision is accelerating its electric vehicle (EV) battery and storage business by acquiring Automotive Energy Supply Corporation.

Mingyang’s solar and financing lease business is expected to support the company’s long-term growth, generating revenue of more than 290 million RMB in 2019.

Han said: “Goldwind’s leading R&D capability among Chinese turbine OEMs is central to its long-term success, while Envision will strengthen its second position in the short term with its focus on onshore wind product development and effective cost control strategy.

“However, it loses share in the medium- to long-term as it turns its towards its investments in the EV battery and storage business.

“Internal blade design and supply will enable Mingyang to not only strengthen its products with larger rotors, but also guarantee lower costs, allowing the firm to catch up with Envision by the end of the decade.”

Han added: “China’s turbine OEMs are finding ways to move ahead in the industry. We expect the top three turbine OEMs to increase onshore market share from 63.5% in 2020 to 69% in 2029.”