Under overcapacity, Chinese wind power companies are fighting a price war, while accounting for less than 20% of overseas markets

text xu peiyu

On the contrary to the photovoltaic companies that have made a lot of money, wind power companies, which are also the main new energy sources, have fallen into a dilemma of declining profits.

in the first three quarters of 2023, the net profits of the five wind power manufacturers of jinfeng technology (002202.SZ), mingyang intelligence (601615.SH), yunda shares (300772.SZ), electric wind power (688660. SH) and trinity energy (688349. SH) fell across the board, and one company even suffered losses.

The decline in the performance of wind turbine manufacturers began in 2021. Leader Jinfeng Technology's revenue fell for two consecutive years in 2021 and 2022; starting in 2022, the division's net profit also fell, with net profit falling 36.1 percent year-on-year.

this is mainly due to the two major reasons: the decline in the growth rate of wind power installed capacity and the price war between the whole machine manufacturers. In 2021 and 2022 two years, China's newly installed wind power capacity decreased by 33.6 and 21% respectively. Over the same period, fan prices continue to decline, the current winning price is less than half of two years ago.

Europe and the United States wind turbine manufacturers more difficult days. Due to supply chain constraints and rising costs caused by inflation, as well as quality problems, European and American wind power giants generally lose money.

China's wind power manufacturing industry has an overall overcapacity and accounts for less than 20% of overseas markets. At present, the gross profit margin of the overseas wind power market is two or three times that of the Chinese wind power market. Compared with their European and American counterparts, Chinese wind power companies have obvious advantages in cost and technology, and are actively planning to go global.

But risks are also growing in overseas markets. Many countries are brewing supply chain localization policies, or set up trade barriers.

Collective Decline in Profits of Wind Power Enterprises

After the cancellation of state subsidies for wind power, the profitability of wind power companies began to decline. From 2020, onshore wind power subsidies will be canceled; from 2021, offshore wind power subsidies will be canceled. In 2020, China's new wind power installation reached the highest point: 71.67GW; in 2021 and 2022, it dropped to 47.57GW and 37.63GW respectively.

At the same time, wind turbine manufacturers have started a price war. According to statistics from the Wind Energy Professional Committee of the China Renewable Energy Society and other institutions, the average bidding price of land-based wind turbines has dropped from 3100 yuan/kW in January 2021 to about 1700 yuan/kW in December 2022. At present, the bidding price is still at a low level of about 1500 yuan/kilowatt. The price of offshore wind turbines has dropped from about 7000 yuan/kilowatt to about 3500 yuan/kilowatt at present.

The price war is not supported by the decline in the cost of the wind power industry, but by the profits of the whole machine manufacturer.

On the basis of the decline in net profit in 2022, in the first three quarters of 2023, the profitability of wind turbine manufacturers further declined: the net profit of Jinfeng Technology, Mingyang Intelligence, Yunda shares and Sany Heavy Energy decreased by 46.7, 65.6, 45.4 and 1.21 percent, respectively.

Except for a few wind turbines that have initiated a price war, most other companies are complaining. Jiang Yong, chief technology officer of Shanghai Electric Wind Power Group and dean of the Institute of Engineering and Technology, said at the 2023 Beijing Wind Energy Exhibition that the current prices of the entire wind power industry continue to be low, making everyone pay attention to the initial price and ignore the entire life. Cycle cost. This phenomenon is not conducive to the healthy development of the industry. It must be the quality and reliability of the wind turbine that determines how far the wind turbine manufacturers can go.

The industry believes that there is no room for fan prices to continue to fall. Tian Qingjun, senior vice president of Vision Group, which ranks second in China's wind turbine market share, told Caijing Eleven that the price war has been going on for more than two years, and it is believed that soon the wind power industry will pay more attention to improving quality and prices will tend to be stable.

The China Wind Energy Association expects 70-80GW of new wind power installations across the country in 2023, almost double that of 2022. New installations will grow slowly in 2024 and 2025, which are expected to be 75-85GW and 80-90GW respectively.

The growth rate of global wind power installations has also declined in the past two years. According to Bloomberg New Energy Finance statistics, among the world's top ten complete machine manufacturers, Chinese companies account for six seats and European and American companies account for four seats. In 2022, the new installed capacity of global wind power will be 85.7GW, down 15% from 2021. Among them, onshore wind power installed 76.6GW, down 9% YoY; offshore wind power installed 9.1GW, down 46% YoY.

European and American wind power companies are worse off than Chinese companies. Europe's largest wind turbine maker, Vestas, saw its net profit fall by 38.53 per cent in 2021 and a loss of € 1.572 billion in 2022, with gross margins falling from 10 per cent to 0.8 per cent. Siemens Gamesa, another European wind turbine giant, performed even worse, losing 0.918 billion euros, 0.627 billion euros and 0.94 billion euros respectively from fiscal year 2020 to fiscal year 2022. The division will lose billions of euros due to fan quality problems.

General Electric (GE), the largest wind turbine manufacturer in the United States, recently announced that due to rising costs in the offshore wind industry, the company's offshore wind power business has lost $1 billion in the most recent fiscal year. In 2022, GE's renewable energy business lost $2.2 billion. Onshore wind is GE's largest renewable energy business.

Oliver Metcalfe, head of global wind power research at Bloomberg New Energy Finance, said in a speech at the 2023 Beijing Wind Energy Show that due to rising raw material prices and inflation, basically all European machine manufacturers are losing money. The situation in the United States is similar. At present, half of the offshore wind power projects in the United States are renegotiated or intend to cancel the project contract.

China's wind power enterprises must go out

The global wind power supply chain is concentrated in China and Europe. According to a report by the Global Wind Energy Council (GWEC), by the end of 2022, the global wind power mainframe manufacturing capacity was 163GW, with China accounting for 60%, three times that of Europe. After Europe, the production capacity from large to small is the United States, India, Brazil. In 2023, China's offshore wind power capacity is expected to reach 16GW, and the offshore wind power capacity excluding China is expected to be 11.4GW, mainly concentrated in European countries.

China's wind power capacity has been significantly surplus compared to domestic demand, but in Europe and other places, carbon neutral targets have greatly boosted wind power demand, while local wind power capacity has not increased.

Feng Zhao, director of strategy at the Global Wind Energy Council, said the global wind manufacturing supply chain is likely to stop flowing due to geopolitical conflicts and trade barriers. With the exception of China, there will be a shortage of wind power supply around the world by 2026. The EU is expanding its wind power installation target almost every month, but the actual capacity and investment and financing are not in place. Using the surplus capacity of Chinese wind power companies to the world will help ensure the security of the global wind power supply chain.

From the perspective of cost and technology, Chinese wind power companies have gradually transformed from catching up to leaders, which has laid the foundation for going global.

China's wind power manufacturing costs are the lowest in the world. Tian Qingjun said that the gross profit margin of the international wind power market is generally much higher than that in China, and the gross profit in some regions can reach 2% to 30. When bidding overseas, the prospective offer is 20% lower than the cost price of European and American companies, which is still the offer on the basis of better profit margin. European and American wind power companies have no way to compete with Chinese companies in terms of cost.

Unlike domestic price wars, Chinese wind power companies go out to sea for the purpose of making money. "It is absolutely not at all costs in order to seize a customer or a regional market. Vision will definitely not do business at a loss overseas." Tian Qingjun said.

Goldwind's overseas market share is the largest among Chinese wind power companies. According to Bloomberg New Energy Finance statistics, Jinfeng Technology will replace Vestas in 2022, topping the list of new lifting capacity for wind turbine manufacturers. According to Jinfeng's annual report, orders from overseas markets accounted for 16.5 percent of the company's total orders in 2022.

Goldwind plans to build its first overseas manufacturing base in Brazil. Xue Naichuan, vice president of Goldwind Technology Group and general manager of Wind Power Industry Group, told Caijing Eleven that Brazil is only the first step, and Goldwind has a longer-term consideration of the layout of overseas markets. Jinfeng's going out will not take all the domestic supply chain out, but will make good use of the existing resources locally. In Brazil, wind power services and parts supply have formed a system, and the local customer demand and the government's low-carbon power goals are also very clear.

International wind power giants such as Vestas are pioneers in wind power technology and have been ahead of Chinese companies in the history of wind power industry development for more than 40 years. Today, China's wind power companies have gradually tied or even surpassed international giants in technology.

In recent years, Chinese wind power companies have increased their technology research and development, and the localization of core technologies and key components and the proportion of their own intellectual property rights have increased. Take the fan model as an example, the level of R & D and innovation of Chinese enterprises is already the world's leading. The largest single-machine capacity in the world is in China, and offshore fans are basically synchronized with international giants.

In the case of profit decline, wind power manufacturers of R & D investment is still a substantial increase. Jinfeng Technology invested 1.037 billion yuan in research and development in the first three quarters of 2023, up 46.7 percent year-on-year.

Technology research and development drives down costs. Chen Qiuhua, vice president of Jinfeng Technology, told Caijing Eleven that Jinfeng's new fans have been localized in key core components such as control systems, transformers, gearboxes, and main bearings. In the process of localization, the cost is also controlled. For example, after the localization of the main bearing, the cost of the original imported bearing has dropped by about 50%.

In the case of cost and technology advantages, going out to explore overseas markets will become a priority for Chinese wind power companies. Tian Qingjun said that the internationalization strategy of vision is unwavering. Of course, there are many unknown risks in overseas markets, and how to control them is the company's most concern. There is still a long way to go to explore overseas markets, and it has just begun.

Supply Chain Challenges: From Localization to Globalization

The growth of China's wind power companies has benefited from the globalization of the wind power industry chain. At the beginning of development, almost all Chinese wind power manufacturers imported parts from abroad and introduced a large number of foreign advanced technologies. Now the situation is reversed.

According to the Global Wind Energy Council (GWEC), Chinese companies account for more than half of the world's production capacity in wind power hosts, core components and offshore wind power facilities. In terms of wind turbine raw materials, China's supply chain has a greater global impact: steel plate production capacity accounts for more than 52%, castings account for 82%, permanent magnet mineral materials account for 68%, and permanent magnet raw materials account for 94% after processing.

However, the wind power industry has emerged against the trend of globalization. The European Union is brewing a countervailing investigation into Chinese wind power companies, and the United States has introduced a bill to subsidize the localization of the new energy industry chain.

At the 2023 Beijing Wind Energy Conference, more than 100 wind power companies signed and issued the Global Wind Power Industry Chain Supply Chain Security Declaration, announcing their commitment to building a safe, stable, smooth, efficient, open, inclusive, mutually beneficial and win-win global wind power industry chain supply chain system. ButYes, only a handful of overseas companies have signed.

Zhao Feng said that to achieve the temperature control goals of the "Paris Agreement", the global wind power industry investment needs to be tripled. But at present, by 2026, except for China, wind power capacity in other parts of the world will have bottlenecks to varying degrees. It takes time to build a new industrial base. It took 15 years for China to establish a complete wind power industry chain and 10 years for Brazil. Two years after the implementation of the US subsidy act, there is no fan that meets the localization conditions. Therefore, the role of Chinese wind power enterprises in the global industrial chain should not be ignored.

Chinese wind power companies are ready to face possible trade barriers in the global wind power industry. Tian Qingjun said that overseas markets are not simply selling things, but establishing strategic partnerships with local supply chains, partners, and customers. For example, Vision has not only a main engine factory in India, but also a blade factory. The local government will regard the company as half a local enterprise.

Goldwind's overseas strategy is similar. Xue Naichuan said that Goldwind has five localization strategies for overseas markets, namely, market localization, capital localization, talent localization, management localization and technology localization. After the wind power enterprises go out, only by fully integrating local resources can the local people treat outsiders like their own enterprises.

In fact, while Chinese wind power companies reduce costs through localization, they also aim to reduce their dependence on global supply chains. China's wind power industry can now achieve 100% localization, including chips. Basalwood (the substrate of fan blades), which previously relied heavily on imports, can now be replaced by other materials.

Chen Qiuhua said that localization is to avoid being "stuck" and let the company live safely. This is the core reason for localization, but it is not the ultimate goal. The company and many European and American companies will continue to cooperate. "When I was doing research in Europe, local companies asked me if I could use local parts in Europe, and I said no problem. We want to integrate into the world wind power industry chain.