Source: Caixin.
Author: Xiao Lianghua

What positive changes have occurred in the wind power industry one month after signing the industry self-discipline convention? According to information gathered from journalist interviews, it is currently a consensus in the industry to combat internal competition, with continuous actions from various parties. Some central enterprises have gradually adjusted their tendering strategies by setting more comprehensive and reasonable evaluation indicators to comprehensively assess the capabilities of complete machine manufacturers in research and development, manufacturing, quality assurance, and more.

Qin Haiyan, Secretary-General of the Wind Energy Professional Committee of the China Renewable Energy Society, told reporters from Caixin that recently, multiple bids in the wind power industry have been won without being the lowest price, indicating that the effect of breaking internal competition in the industry is beginning to show. The industry association is further developing detailed rules to strengthen the results of breaking internal competition.

A leader from a wind power equipment company informed Caixin reporters that from an industry development perspective, the industry has seen frequent quality accidents in recent years due to low-price competition, ultimately harming the interests of developers and the overall development of the entire industry. Wind power products, as key national equipment, cannot be 'sold by weight'; the wind power industry needs to focus on the long term, considering the economic benefits generated over the entire life cycle rather than short-term costs.

"Countering internal competition" breaks the ice.

In recent years, China has transformed from a follower to a leader in the wind power industry; at the same time, internal competition within the wind power industry chain has intensified, with 'key national equipment' being sold at rock-bottom prices, even by weight, leading to significant overall losses in the industry.

According to calculations by Qin Haiyan, taking a 6.25 MW model (excluding the tower) as an example, its direct material cost is approximately 1,200 yuan per kilowatt; adding direct labor costs, logistics costs, etc., about 200 yuan per kilowatt, under the assumption that research and development, marketing, environmental and social responsibility costs are not considered, the cost of the unit is close to 1,400 yuan per kilowatt.

In 2020, the price of wind turbines in china was above 3,000 yuan per kilowatt, but in the first half of this year, according to industry statistics, the weighted average bid price for onshore wind turbines (excluding the tower) has dropped to 1,400 yuan per kilowatt. In some projects, the bidding price for wind turbines even reached 900 yuan per kilowatt.

With the continuous decline in selling prices, complete machine companies have been transmitting pressure year by year to the components segment, resulting in a significant decline in gross margins or even losses in segments such as castings, main shafts, and even bearings with the highest technological content.

Currently, although the price of forged main shafts has declined, there is still a certain gross margin space, while castings themselves have lower gross margins and are being reduced in price under cost-cutting pressure. The industry is almost not making any profit, which is very unhealthy for the development of the industry itself, stated a staff member from the securities department of jinlei technology (300443.SZ).

To return the wind power industry to the correct development track, on October 16, at the 2024 Peking International Wind Energy Conference and Exhibition, 12 wind turbine manufacturers signed the "Self-Discipline Convention for Maintaining a Fair Competitive Environment in China's Wind Power Industry," proposing not to engage in malicious low-price competition or maliciously slander peers.

Cao Zhigang, president of goldwind science& technology, believes that against the backdrop of good economic efficiency and rapid growth of wind power, as an equipment industry, "high quality" and "high performance" may be the correct path to maintaining a spiral ascent in the industry. "The industry's focus should return to optimizing the cost of electricity per unit over the entire life cycle, thus stabilizing the foundation of the equipment industry."

The effect of the industry self-discipline convention has begun to show.

Now, a month has passed since the signing of the industry self-discipline convention; what is the effect?

We feel that there are still good results. In recent tenders, the lowest price did not win the bid, and several developers have begun to modify the bidding terms. On the complete machine enterprises side, bid prices are no longer aggressively pushed lower. Qin Haiyan stated.

A reporter from Caixin found that in recent times, there have indeed been multiple wind power bidding projects where the lowest price did not win the bid. For example, in the Buerjin 1 million kilowatt wind power project for wind generator units (including towers, anchor bolts, etc.) and ancillary service projects, the first bidder candidate was dongfang electric corporation, with a bid quote of 2.37571 billion yuan, while the second bidder, goldwind science& technology, had a bid quote of 2.35028 billion yuan.

In fact, just before the signing of the self-discipline convention in the third quarter, the bidding prices for wind turbines showed a trend of stabilization. Among them, SANY Renewable Energy (688349.SH) had a comprehensive gross margin of 14.85% in the third quarter of 2024, an increase of 3.23 percentage points compared to the same period last year, and a quarter-on-quarter increase of 0.62 percentage points.

The slowdown in competition has also allowed component enterprises to see a glimmer of hope.

Our price negotiations with complete machine manufacturers generally take place annually. This year, the new supply agreement for casting products will definitely involve a price increase, while the prices for forging products will be determined based on the product situation, said a staff member from the securities department of jinlei technology.

Results still need to be solidified by various parties.

For the wind power industry, breaking the competition is not easy, and the results still need to be nurtured and further solidified.

The self-discipline convention is not mandatory, and the subsequent effects still require each link in the industry chain to be further refined and implemented, several relevant persons in charge of wind power complete machine enterprises told Caixin reporters.

Regarding rigid measures, Qin Haiyan revealed that recently, the China Wind Energy Special Committee is formulating rules on how to impose penalties, among other aspects. "Recently, we also plan to convene a meeting with developers to strive for the joint introduction of new standardized bidding terms."

Qin Haiyan previously suggested that during the equipment procurement phase, development enterprises could shift from price-led decisions to decisions dominated by the entire life cycle value. By setting more comprehensive and reasonable evaluation indicators, a comprehensive assessment of the capabilities in research and development, manufacturing, and quality assurance of the whole machine suppliers can be conducted; the weight of technical scores should be increased, and the scoring of technical indicators should be detailed; project post-evaluation and operational data should be used as evaluation criteria for technical and quality differences.

State-owned enterprises that hold important voices in the bidding of the new energy industry have begun to take action and modify bidding rules.

According to "Global Zero Carbon", in a recent centralized procurement of 8.4GW wind turbines, a large state-owned enterprise modified the bidding rules. In the scoring criteria, the lowest price is no longer used as the base price for evaluation, but instead, the arithmetic average of the bid prices of valid bidders is used, with a 5% deduction applied as the base price for evaluation.

This actually means that the establishment of the final base price will exclude bids that are too high or too low. According to calculations, compared to previous rules, the overall price of wind turbines under the latest rules of this state-owned enterprise is expected to be higher by 96 yuan/kW, which is bullish for manufacturers with thin profits.

Liu Yimin, senior vice president of Envision Energy and president of the wind turbine product line, pointed out that the current competition in the wind energy industry is a "prisoner's dilemma"; it's not a matter of who can win, but rather who won't lose. Wind energy is a new productive force and advanced productive capability, and wind turbines are equipment that requires long life and high-value investment. The industry must adhere to long-termism and pay attention to the return situation over the 25 to 30-year entire life cycle.

China's wind power, which once grew rapidly by standing on the shoulders of giants, has now entered an "unmanned area". Every step forward from here will be a brand new exploration, which means that wind turbines will transition from the "manufacturing" stage to the "creation" stage. "The development of larger new units requires massive cost investment, and substantial investments, including full conditions and multi-level testing and verification, should be reflected in the terminal product price, rather than treating manufacturing costs as price guidance, which leads to the value of creation and innovation not being recognized by the market," Liu Yimin said.

Editor/Jeffy