Can China Catch a Cool Breeze? (Page 2)

Research support for this article was provided by the Puffin Foundation Investigative Fund at The Nation Institute.

China built its first wind farm in 1986, after some engineers visited the United States, saw West Coast wind farms and bought a few turbines. For the next decade and a half, wind development moved very slowly, but the pace picked up during the tenth Five-Year Plan, which began in 2001. By 2005, China had built fifty-nine wind farms, with an installed capacity of 1.2 gigawatts, making it the world's eighth-largest producer of wind power.

Today China is the fourth-largest producer of wind power, its installed capacity having increased by more than 800 percent in four years. Capacity is expected to double again, to 20 gigawatts, in two years. The government's goal for 2020 is to meet 15 percent of its energy needs with renewables, and wind will be a big part of that. But a recent Greenpeace study was even more optimistic, arguing that China could build 122 gigawatts of wind capacity by 2020. That would be the equivalent of five Three Gorges Dams or a score of nuke plants.

How has China achieved this rapid growth of its wind sector? In many ways the story follows the classic trajectory of East Asia's dirigist--that is, state-directed--hothouse industrialization. Far from letting the market do its thing, the state has worked diligently to protect and discipline private businesses involved in the wind sector. Government economic planners view the wind sector as an opportunity to build up high-value-added domestic manufacturing.

China's industrial policies are particularly instructive for those of us in the United States who would like to see our own renewable energy sector grow more robustly. Until very recently the US model, or lack of a model, for wind development has been to leave the work to the private sector. There are no national "portfolio standards," or mandates, requiring utilities to supply a specific amount of energy from carbon-neutral sources; and until the passage of the American Recovery and Reinvestment Act of 2009 there was very little subsidized financing for green energy projects or even a robust use of eminent domain to force wind projects through over the objections of NIMBY landlords.

The main form of government support has been an anemic production tax credit of 1.9 cents per kilowatt-hour. But even this support has been allowed to expire and has been renewed for only one or two years at a time. As a result, our renewable energy sector is hostage to the panicky gyrations of bubble-and-bust cycles of speculation. And with the current downturn, alternative energy projects are starved for capital.

China, on the other hand, has used all the powers at its disposal--regulations, mandates, tax and tariff reductions, and direct subsidies--to nurture and incubate its wind sector. At the heart of the process is the National Development and Reform Commission, China's central government planning body. Most Chinese wind farms start with NDRC research, which locates the asset--namely, the windy land to be developed. The government then portions out pieces of this windy terrain to Chinese firms, some of which are partnered with foreign companies.

Officially, the contracting process uses competitive bidding, but in reality the process is often opaque and not always governed by formal rules. Rather, it is guanxi--connections, networks and solidarity--that determines who gets what.

One common loophole has to do with the size of a wind farm. Those farms below 50 megawatts do not require any competitive bidding and can be developed by local governments. "It is pretty common to sees lots of wind farms of 49 megawatts stacked to three and four next to each other," says Joanna Lewis, an assistant professor at Georgetown University and a specialist on the Chinese wind industry.

Once developed, the wind farms are usually sold to local utilities to operate them. Chinese law requires regional utilities to buy all renewable energy at favorable above-market prices. Turbines and generators, the most complicated parts of the wind industry, are increasingly supplied by Chinese firms. China jump-started its turbine production by purchasing technology licenses from European firms. In the early years the government mandated that 40 percent of wind farm components be locally manufactured. That requirement has risen to 70 percent. This forces the best turbine manufacturers--like Denmark's Vestas, Germany's Nordex, Spain's Gamesa and US-based General Electric--to build high-tech factories in China or face exclusion from the booming Chinese market.

"We have seven factories in China," says Lars Andersen president of Vestas China. "We're going to open a turbine factory in Inner Mongolia because of the huge wind resources there. The biggest challenge we face now is keeping up with demand."

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