Investment Highlights

◇ The global wind power industry is experiencing rapid growth. The global wind energy resource totals approximately 2.74×10⁹ MW, of which exploitable wind energy stands at 2×10⁷ MW, ten times the total developable hydropower resources on Earth. By the end of 2006, the global installed wind power capacity reached merely 74,223 MW, implying enormous prospects for wind power development. Over the past decade, the global wind power industry has expanded substantially with an annual growth rate as high as 30%.

◇ China’s wind power industry has entered a phase of sound high-speed development. The Medium and Long-Term Development Plan for Renewable Energy (2004–2020) compiled by the National Development and Reform Commission sets a target of 30 GW of total installed wind turbine capacity in China by 2020, accounting for 2.71% of the country’s total power generation installed capacity. However, by the end of 2006, China’s installed wind turbine capacity was only 2.6 GW, representing a mere 0.42% of the national total installed power capacity. The government has rolled out a package of supportive policies, including feed-in tariff support, tax incentives and electricity price management measures.

◇ Bottlenecks in complete machine manufacturing technology remain to be addressed. At present, China has mastered the production technology for megawatt-class wind turbines. The 1.5 MW power generating unit was developed in 2006. Nevertheless, these domestic megawatt-class units have not yet entered mass production and require field verification. Large overseas manufacturers are already capable of producing 5 MW wind turbines, leaving a substantial technology gap.

◇ Demand for components outpaces supply. China can now independently manufacture parts such as blades, gearboxes and generators, yet it has not mastered the production technology for yaw systems and electric control systems, which constrains domestic localization. Strong market demand for complete turbines far outstrips component output. Therefore, component manufacturers are poised for promising growth.

◇ Industry leading enterprises are worthy of attention. As a complete turbine manufacturer, Goldwind Science & Technology is undoubtedly the sector leader. The upcoming IPO of Goldwind is expected to drive a large number of wind power equipment manufacturers. Listed firms engaged in wind turbine component production, such as Xiangtan Electric Manufacturing Co., Ltd. and Huayi Electric Co., Ltd., are expected to deliver strong performance.

1. Huge Development Potential of Wind Power Industry from a Global Perspective

1.1 Strong Demand: Wind Power Industry Embarks on a Historic Development Period

The Kyoto Protocol officially took effect on 16 February 2005. It stipulates that industrialized nations shall reduce their total greenhouse gas emissions by 5% below the 1990 levels between 2008 and 2012. A total of 140 countries worldwide are seeking renewable energy alternatives to fossil fuels such as coal and oil. Many countries including China have enacted legislation to guarantee renewable energy production. Among renewable energy sources, wind power boasts the highest commercial value for the following reasons: wind power research and technology are relatively mature and have evolved into a booming emerging industry, while biomass and solar power still face technical hurdles and high costs.

1.2 Abundant Global Wind Energy Reserves Underpin Wind Power Industry Development

Around 2% of solar radiation reaching the Earth’s surface is converted into wind energy. The global wind energy resource totals approximately 2.74×10⁹ MW, of which exploitable wind energy stands at 2×10⁷ MW, ten times the total developable hydropower resources on Earth. By the end of 2006, the global installed wind power capacity reached merely 74,223 MW, demonstrating bright prospects for wind power.

Over the past decade, the global wind power industry has achieved remarkable expansion with an annual growth rate as high as 30%. Experts forecast this trend will persist in the foreseeable future. Constrained by manufacturing capacity for wind power equipment, however, the growth rate will moderate, projected at 7.7% in 2008. Should relevant countries adopt more proactive policies to support the wind power sector, the growth outlook could improve further.

1.3 Wind Power Generation in Major Regions Worldwide

1.3.1 Policy Support to Keep the EU at the Forefront of the Global Wind Power Market

The EU hosts the world’s most developed wind power industry. By the end of 2006, its cumulative installed wind capacity hit 48,062 MW, accounting for 65.18% of the global total. In 2007, wind power supplied 3.3% of the EU’s electricity demand; the share is estimated to rise to 25% by 2030. Correspondingly, the EU has the most advanced wind power equipment manufacturing sector, home to major global OEMs including VESTAS, GAMESA, NORDEX and REPOWER. This is closely linked to the EU’s policy support for wind power development.

1. Feed-in Tariff Policy Most EU member states adopt this policy, requiring power utilities to purchase all electricity generated by wind farms at a minimum price, generally higher than the market rate, though specific implementations vary by country:

2. Renewable Portfolio Standard Countries including the United Kingdom, Sweden, Italy, Belgium and Poland have implemented the quota system. For instance, the UK enacted the Renewables Obligation Order in July 1999, mandating electricity suppliers to source a specified proportion of power from renewables. The proportion is determined annually by the government based on renewable energy development targets and market conditions. By 2010, 10% of electricity supply must come from renewable energy to meet the overall national target.

1.3.2 Tax Incentives Fuel Robust Growth of the US Wind Power Industry

The US cumulative installed wind capacity reached 11,603 MW in 2006, with new additions of 2,454 MW, marking two consecutive years of strong growth. This was underpinned by the US Congress’s extension of tax incentives to 2008. Accordingly, the US wind power industry is expected to continue expanding in 2007 and 2008.

1.3.3 India Catches Up to Capture a Share of the Wind Power Market

Driven by a series of tax incentives, India’s wind power industry has achieved tremendous growth in recent years, making it the world’s fourth-largest wind power equipment manufacturer. Its total installed wind capacity stood at 6,300 MW in 2006, an increase of 1,430 MW from 2005. This upward trend is set to continue. The Indian government plans to lift total installed wind capacity to 10,000 MW by 2010, representing a compound annual growth rate of 12.2%. Indian wind turbines can not only satisfy domestic demand but have also begun exporting overseas, with technology reaching internationally advanced levels.

2. Wind Power Equipment to Attract Chinese Investors

As a signatory to the Kyoto Protocol, China is obligated to curb emissions of polluting gases. Against a backdrop of strong energy demand growth, China must develop renewable energy, particularly wind power. The promulgation of the Renewable Energy Law has provided solid policy backing for China’s wind power sector. Nevertheless, compared with China’s exploitable wind energy resources of 700–1200 GW, the total installed capacity of 2.6 GW at the end of 2006 remained low. This gap will be filled by subsequent investment.

2.1 China Boasts Large and Relatively Concentrated Wind Energy Resources

China has a vast territory, with a land border of more than 20,000 km and a coastline of over 18,000 km, plus more than 5,000 islands in marginal seas, endowing the country with abundant wind energy resources. According to the national average wind power density map compiled by the Chinese Academy of Meteorological Sciences, the total wind energy reserve at the 10-metre height above China’s land surface is 3.226 billion kW, with technically exploitable wind resources of 253 million kW. Exploitable offshore wind resources are three times those on land, putting China’s total exploitable wind resources at approximately 1 billion kW. The annual average wind speed at all existing Chinese wind farm sites exceeds 6 m/s.