Chinese firms pile into wind turbine sector

BEIJING, Apr 2 (Reuters) Chinese firms are piling into technically complex wind turbine manufacturing, creating a supply glut and causing quality problems that may temporarily complicate Beijing's push towards cleaner energy, industry executives said.

More than 30 Chinese firms are offering wind-power generating equipment, creating competition that should eventually push down global prices and turn Chinese firms into export powerhouses to match national solar and electronics champions.

But few of the new contenders have experience in the high-tech engineering of modern windmills -- blades and a vast gear box that have to endure decades of shaking and extreme temperatures perched on top of a tower dozens of metres high.

Instead, enticed by the lucrative success of other renewable energy pioneers such as U.S.-listed Suntech Power Holdings Co. Ltd.

, they are adapting other types of turbines, or buying licenses from overseas firms that have decided not to venture into the market themselves, and cranking up production.

''There is no need now for foreign suppliers in China, because the local companies are building up capacity which can take care of growth in the market on their own,'' said Paulo Fernando Soares, China head of Indian firm Suzlon Energy Ltd. .

''Either we will have a price war, or companies will become insolvent or foreigners will just use China as a basis for export for their international business, or maybe all three at the same time,'' he said at a Renewable Energy Finance Forum in Beijing.

But turbines require precision production and a specialist knowledge that firms cannot buy along with the blueprints.

''(In China) the industry bottleneck right now is the supply chain, as well as experienced wind engineers,'' said Weiping Pan, China head for leading industry consultants Garrad Hassan.

Although current market leaders, including Vestas Wind Systems , Spain's Gamesa and Suzlon, spent years building up from small 100 kilowatt (KW) machines to the giants they produce now, many Chinese firms ratcheted up the pressure on their engineers by jumping straight to making 1.5 MW machines.

QUALITY CONCERNS The ambitious production plans are partly to meet booming demand.

More than 1.3 gigawatts (GW) of new turbines went up last year alone and Beijing plans by 2020 to reach 30 GW, over a third of Britain's total generating capacity.

Domestic firms are gaining ground over foreign competitors, taking 40 percent of orders last year compared with just 20 percent in 2004, and some plan to increase production up to tenfold in the next couple of years, said Suzlon's Soares.

They are supported by government policies that require at least 70 percent of new machines to be made at home, and a power pricing system that trims margins to razor-thin levels.

But quality remains a challenge. Although Suzlon's machines cost up to 15 percent more than domestic competitors, with repairs and time lost through breakdowns there is little pricing difference for foreign developers weighing up long-term profits.

''There is no way that we would consider Chinese turbines unless foreign ones get 30 to 40 percent more expensive,'' said one who asked not to be named.

''If we did, we would only go for the oldest ones with proven track records because you are already hearing about so many quality problems. They just aren't working,'' he added.

Consolidation -- which should resolve quality challenges -- is still someway off, although there is an established leader already some way ahead of more recent contenders.

Goldwind Science and Technology Co. Ltd., which hopes to bring in 4 billion yuan (7.5 million) in revenue next year and is eyeing a U.S. listing, accounts for around 35 percent of the market, said Garrad Hassan's Pan.

''We may see consolidation down the road, but at the moment there are all kinds of incentives to support the industry. We will see several years of a chaos situation in China,'' he added.

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