Why are fans getting cheaper?

Why are wind turbines getting cheaper? Why is there a 2-3 year wind power price war in China? Because I want to issue a report for a client, I have consulted many industry bigwigs, and the conclusions are not the same. Today, the author synthesized the views of the bigwigs and discussed this issue in the shortest possible text.

Demand side: Focus on scale rather than quality

From the perspective of market demand, since the formulation of the dual carbon goal, wind power has ushered in a new stage of large-scale development. From 2019 to 2022, the newly installed capacity of wind power will stabilize at about 50 million kilowatts, which is 1.5-2 times that of the previous one, and in 2023, the new installed capacity will reach 70 million kilowatts, a record high. Behind the rapid growth of the scale of development is the vigorous promotion of development enterprises and local governments.

Development enterprises led by central state-owned enterprises, shouldering the banner of supporting the implementation of the dual carbon development goal, hope to increase their own volume, and it is inevitable that projects that cannot be counted as economic accounts before can be developed through the price reduction of the host. But is the dual carbon development goal really an assessment of installed capacity? Not really. Carbon peaking and carbon neutrality are all about carbon emissions, and behind them is the amount of green power generation. To a certain extent, the scale can increase the power generation of green power, but it also depends on the quality of project development and the capacity of consumption and delivery, which are not the same. Therefore, the dual carbon goal needs to be based on power generation under high-quality development, rather than based on large-scale development of installed capacity.

The real reason for the rapid growth of wind power is obviously not the dual carbon goal, but the personal performance and interest appeal behind the enterprise. The unique five-year warranty system of China's wind power machine has made some leaders of development enterprises fearless about the quality of equipment, after all, they are often in office for less than five years. Of course, central state-owned enterprises have a traceability mechanism, but this does not have an impact on the decision-makers themselves, because most of the units used in the project are determined through formal bidding channels.

Another practical problem is that the current host bidding method is also more inclined to low-cost products. This does not refer to the issue of winning the bid at the lowest price in the bidding process, the most important thing is that the products of the whole machine enterprises in the technical standard part cannot open the gap, resulting in the price bid becoming the decisive link. Behind the inability of technical standards to open the gap is the weakening of the brand value of wind power machines and the homogenization of wind power technology. At the same time, some large-scale central state-owned enterprise developers have also attracted the whole machine to quote low prices through centralized procurement and framework bidding. The reality is a slap in the face, many centralized procurement projects are made up, even the procedures have not been completed, and even the wind has not been measured, and finally a large number of projects cannot be implemented, which is simply a big hole dug by developers to invest in low-priced machine manufacturers.

Like development companies, local governments are also doing scale. In some areas, the development momentum of traditional industries is insufficient, and they hope to promote economic growth through the development of wind power. The provincial authorities have repeatedly ordered and prohibited local governments from charging resource fees, but in fact, most areas either clearly mark the price and charge fees, or require the development and joint investment of the whole machine enterprise. Resource fees have continued to increase in recent years, which has basically filled the cost space freed up by host price reductions. Of course, there are also issues of personal performance and interest appeal behind this.

Supply side: The technical capabilities accumulated over the years have been released

If there is only market demand and no supporting factors, then the wind power price war will not last so long. Therefore, for the price war to continue, some supply-side support capabilities are also indispensable.

In the course of the author's research, a number of experts have put forward a theory, that is, before the price war, China's wind power did not take the initiative to release the technology and management capabilities accumulated over the past ten years. It is not until wind power enters the stage of parity development and is affected by the above-mentioned market environment and demand that equipment suppliers really begin to compete in the market.

For example, in 3-5 years, China's wind power has been affected by the "Three Norths" wind curtailment and power rationing, and has to put the main technical development direction on the low wind speed wind power technology with small capacity + large impeller. On the one hand, focusing on moderate small capacity restricts the development of large-scale cost reduction. On the other hand, the large impeller has improved the level of R&D and industrialization of wind turbine blades in China. After parity, wind power development began to return to the "Three Norths" and "Offshore", which are more suitable for the use of large-capacity units. In addition, large capacity can effectively reduce the cost of the unit kilowatt host, so that the development space of large-scale technology can be quickly released, thus supporting the wind power price war to a certain extent.

It should be emphasized here that the wind power price war is not based on the number of wind turbines, but on the unit of kilowatt quotation. Over the years, the price of a wind turbine has remained basically unchanged, while the quotation per kilowatt has decreased by 2-3 times. To a certain extent, the wind power price war is not a product price reduction in the traditional sense, but a product upgrade.

In addition to the cost reduction driven by technological progress, the host supply chain is also continuing to reduce costs. With most of the onshore wind turbines turning to doubly-fed, and most of the offshore wind turbines turning to medium-speed permanent magnets, the concentration of technical routes has been improved, and the transmission to the supply chain is the improvement of product concentration, which has formed economies of scale to a certain extent. In addition, some machine manufacturers have reduced the cost of various parts through self-research and self-production, and have also cultivated new manufacturers in some key parts and components, forming a competitive development pattern conducive to cost reduction. In order to form competitiveness through cost reduction, component companies strive to optimize the production process, improve their own management capabilities, and promote the reduction of component prices.

Here's the conclusion: the root cause of wind turbines getting cheaper and cheaper, or the continuation of the price war, is that China's wind power pays too much attention to scale rather than high-quality development, and it is supported by a series of factors. From a broader perspective, this is also a stage that many industries in China will inevitably go through. As for how long this phase will last, it may ultimately be determined by the support capacity of policies or various factors.