A Free-Market Energy Blog

China and Wind: What a Waste

By Kent Hawkins -- January 11, 2011

Setting aside the matter that wind turbines are not an effective means to supply utility-scale electricity, the claims of job creation and 21st century industrial development are equally illusory. A New York Times (NYT) article last month spoke volumes on this.

I have frequently claimed that the recently created wind turbine manufacturing industries in Europe (Denmark, Germany and Spain) are in jeopardy from competition by the emerging giants, China, India and the U.S. The Times article reports that China now controls almost half of the global market, having absorbed billions of dollars in government assistance and consumer subidies.

The wind businesses in these European countries have existed for little more than a decade, and having saturated their domestic markets, have enjoyed a brief, and unsustainable, dominance of global markets. I may have been mistaken in including the U.S. in the emerging giants list, but one cannot realistically exclude it, at least at first glance.

I now suggest it should be added to the same list as the European countries.

By encouraging foreign manufacturers to participate in the lucrative Chinese market in the early stages, China has learned their hard-won knowledge. China then turned the tables by insisting on 70% domestic content for the wind turbines it uses internally. So companies like Spain’s Gamesa have seen their domestic China market share fall from about 35% in 2005 to 3% today. However, because of the size of the Chinese market, this still means that Gamesa sales have increased.

Is this cause for celebration? No, because it represents a small carrot in the carrot and stick game. Like other European manufacturers, it must be satisfied with the “crumbs” because their businesses depend on it. What does this auger for the long term? Substantially diminishing market share is not a healthy sign for a company dependent upon global markets.

When pressed by the U.S. on the domestic content issue, a violation of WTO rules, China agreed to drop it, but the damage had been done and Chinese suppliers have emerged dominant in their own market. What about further growth from the associated crumbs? The Chinese government has slowed new wind plant approvals. The NYT article stated:

The Chinese government is now slowing the approval of new wind farms at home. The pause, whose duration is unclear, is meant to give the national electricity system time to absorb thousands of new turbines that have already been erected and not yet connected to the grid.

Do not be misled by the grid limitation excuse. As reasonable as it may be, I do not believe China will make the same mistake that some western countries appear to be determined to do. The Chinese government will not jeopardize their electricity systems, nor make unaffordable investments in utility-scale wind energy that will endanger their economies. On the economic front, they have the ability to outstay the relatively fragile western world economies in wind turbine installation, much like the U.S. could economically outstay the fragile economy of the former Soviet Union in the arms race. Is China above actions that further encourages the West to continue on this path? We shall see.

The global market for wind turbines promises to be a lucrative one, due to the West’s projected almost insatiable demand, which has been stoked by extensive government support, financial and other, and global warming concerns. The NYT article reports that China plans to dominate it, for example:

“Sinovel is among the Chinese companies now opening sales offices across the United States in preparation for a big export push next year. They are backed by more than $13 billion in low-interest loans issued this past summer by Chinese government-owned banks; billions more are being raised in initial public offerings led mainly by Morgan Stanley this autumn in New York and Hong Kong.”

The energy/electricity story and China has many dimensions and is almost without end. Other examples worthy of discussion are the risks to energy independence related to the supply of rare earth and lithium, previously reported on at MasterResource here, here, and here. Another, and I emphasize this is only one example, is that China is also a leader in clean coal technology as reported in the December 2010 issue of the Atlantic. Coal sceptics must read this dose of reality.

If the West persists with extensive wind plant implementation, this will turn out to be a dead end with substantial consequences in financial, economic and energy leadership terms, while China surges ahead on the real, optimal solutions to our future electricity generation needs.

16 Comments


  1. Charles  

    The really scary thought about this article is that our governments are probably dumb enough to engage in a windmill ‘race’ as indicated here, and given the large amounts of capital that the Chinese government is supporting their manufacturers with, it is obvious they think we are dumb enough to do it too.

    It is embarrassing that we should have come to such a nadir in thinking on issues such as these, and it is now becoming apparent why the Roman Empire fell from the point it did, along with a host of other advanced civilisations over the course of the last 2-3 millenia.

    Why are we such slow learners when we have all these previous examples in front of us?

    Reply

  2. JavalinaTex  

    Almost makes one long for the good old days when we could perseverate about a “Mine Shaft Gap” 😉

    In all seriousness, during the cold war there were all sorts of claims and fears put out by various groups about how we were way behind the Soviets in one weapons system or program or another… To my knowledge it started with JFK’s claiming we had a “Missile Gap”. Later there were all sorts of claims the Soviets tanks were far superior; they had done a better job preparing for chemical and biological war; they could build far more “good enough” planes than our high quality ones; they had a secret ABM program with phased array radar.

    What did we find out? From the IAF experience loss ratios in air were far beyond 80:1; In the Gulf War I US/NATO tank systems and command and control were also tremendously superior to the best Soviet techonolgy.

    Much of the above was driven by weapons manufacturers what Ike called the “Military Industrial (too polite to include Congressional) Complex”.

    Reply

  3. JavalinaTex  

    … forgot my closing… and what do we see here…

    A sort of UtilityGeneratorInvestor / Manufacturer / PoliticalCongressional Complex stoking public fears to finance some very high cost unreliable electricity on the basis that it will create jobs.

    What gets ignored is of the reasons our current energy supply is so cheap is because so few jobs are required to obtain it. It would be interesting to compare current productivity in Electric Power, Heating, Lighting, etc. to 100 years ago.

    Reply

  4. John Droz  

    China is doing a “gesture” regarding wind, to fool gulluble greenologists into thinking that they genuinely support wind energy. To see their true feelings, look no further than this insight:

    “Because wind energy is unstable, it is a pollutant and affects the safety of the power grid.”

    Hu Xueha, the deputy chief engineer of China’s Power Grid Research Institute <>.

    Reply

  5. John Droz  

    Sorry, the link for the prior comment is “http://tinyurl.com/6fxvp7c”.

    Reply

  6. Jon Boone  

    Let me add to these perceptive comments a passage from Dwight D. Eisenhower’s Farewell Address (http://www.americanrhetoric.com/speeches/dwightdeisenhowerfarewell.html) that were, in my view, more cogent than his warnings about the machinations of the military industrial complex:

    “Akin to, and largely responsible for the sweeping changes in our industrial-military posture, has been the technological revolution during recent decades. In this revolution, research has become central; it also becomes more formalized, complex, and costly. A steadily increasing share is conducted for, by, or at the direction of, the Federal government.

    “Today, the solitary inventor, tinkering in his shop, has been overshadowed by task forces of scientists in laboratories and testing fields. In the same fashion, the free university, historically the fountainhead of free ideas and scientific discovery, has experienced a revolution in the conduct of research. Partly because of the huge costs involved, a government contract becomes virtually a substitute for intellectual curiosity. For every old blackboard there are now hundreds of new electronic computers. The prospect of domination of the nation’s scholars by Federal employment, project allocations, and the power of money is ever present — and is gravely to be regarded.

    “Yet, in holding scientific research and discovery in respect, as we should, we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientific-technological elite.

    “It is the task of statesmanship to mold, to balance, and to integrate these and other forces, new and old, within the principles of our democratic system — ever aiming toward the supreme goals of our free society.”

    The juggernaut for the dumb and dim of wind, a defective technology resurrected to sell tax shelters, made in China and assembled by temporary teams of international workers, and justified by American and European “scientists,” engineers, gadgeteers, and an assortment of political wonks from both Republicans and Democrats spawned via federal grants to major universities (Stanford/MIT)–is the very apotheosis of Ike’s concern. And it’s all done, much like the derivative’s trading schemes in housing and banking, to sell subprime energy–at the public’s expense.

    What is especially chilling is the utter absence of the statesmanship Ike had called for to interdict this kind of dystopean policy.

    Reply

  7. Steve C.  

    I’ve always considered China to be practicing a sort of neo-mercantilism. I recently read an article (no I don’t remember where) that struck a chord. The author’s thesis was that China was pursuing a policy similar to Japan’s post war policy. With the added benefit to China that they were “smarter” and would avoid the pitfalls that led to Japan’s stagnation.
    That article had the ring of truth to me. But in thinking about the wind turbine policy, I’m leaning to the idea that the Chinese are also neo-Keynsians to the extent that they have to grow, grow, grow to satisfy their population. From that perspective investing billions in wind energy is no different than Keynes’ idea to build battleships and sink them. With the added benefit that wind turbine sales overseas result in cash into the Chinese economy.
    Ultimately, whether or not these turbines ever connect to the grid is a problem for tomorrow. In the short term they have the production and the jobs.

    Reply

  8. Donald Hertzmark  

    For China it is not a matter of building ships and then sinking them just to maintain employment. Dominance of worldwide wind manufacturing gives China’s vendors access to the tax and ratepayer accounts of other nations. We buy the ships from China, pay for them in full, and then sink the ships.

    So while wind energy may lower the gross world product because it is not economically viable, it increases China’s GDP. It acts exactly like sales of a novelty item (think hula hoops – big ones). This is a very rational line of business for China as long as they can get others to pay for the wind units. When the foreigners tire of wind the factories will find other uses.

    Reply

  9. Jon Boone  

    Precisely, Don. Thanks!

    Reply

  10. Gary Novak  

    The real tragedy of windmills is the massive amounts of concrete, steel and rare earths that are being squandered and ecology being devastated. If the money were used to build yachts, they would be made of wood, and people would get some good from them. Creating jobs by destroying resources, energy and the environment is like hiring someone to burn hundred dollar bills.

    Reply

  11. Recent Energy and Environmental News « PA Pundits – International  

    […] And another <<http://www.masterresource.org/2011/01/china-wind-waste/comment-page-1/>&gt;. And a fascinating story from a reporter on site watching the Chinese mine rare-earth […]

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  12. jam  

    China once again will be the global leader and will install 25% more new capacity than in 2009, when the country set a record with 14,000 new megawatts. The growth in China’s installations is underpinned by record levels of investment, which in Q3 2010 represented just under half of all funds put into new wind projects globally. Approximately one in two wind turbines to go online in 2010 will be in China.

    From that socialist rag, Bloomberg – http://bloom.bg/hnvypH

    couple of points – China *is* half of the global market. Since they control 85% of their own market, that leaves very little to be exported. Thus, the whole ship sinking analogy fails on the facts. Maybe that is what they are planning on doing, but it certainly isn’t what they have done in the past.

    Second, the wind market is slowing in China. Down from something like 40% growth in 2009 to an anemic 25% growth in 2010. Name an industry, any industry, that wouldn’t be absolutely gloriously happy with a 25% growth in this economy.

    I am neither an economist nor an expert on China, but it does seem as if these two bits of information have been overlooked in both the post and the comments.

    Reply

  13. jam  

    In re-reading my comments, I was probably a little too heavy with the sarcasm, so I apologize if I appear too confrontational.

    Reply

  14. Kent Hawkins  

    jam

    I disagree that the effect of the slowing of growth has been overlooked. The following was said.

    “However, because of the size of the Chinese market, this still means that Gamesa sales have increased.

    Is this cause for celebration? No, because it represents a small carrot in the carrot and stick game. Like other European manufacturers, it must be satisfied with the “crumbs” because their businesses depend on it. What does this auger for the long term? Substantially diminishing market share is not a healthy sign for a company dependent upon global markets.”

    Agree or disagree if you like but your assertion that it was overlooked is incorrect.

    I leave the sinking of ships analogy to others to respond to.

    Reply

  15. Donald Hertzmark  

    Jam,
    All of us at MR are impressed at the long lifetime of some of these posts. Thank you for your continuing interest.

    China has an image problem with respect to energy, since an new coal-fired plant is commissioned every other week. Wind is an effective way of greenwashing their image, keeping real limits on carbon off the table for China.

    Given their cost-advantage in production they will inevitably take most market share away in non-protected markets. This is happening also in small PV, where the isolated grid market is going over to low cost, low tech Chinese PV panels.

    The sinking ships analogy works since the wind technology is not cost effective. If willing buyers do not show up to purchase wind and if it can only be installed through the use of bribes (feed-in-tariffs and PTC) or mandates (RPS) and if those are still not sufficient to bring forth investment without higher tariffs overall (Cape Wind), then the technology in question is not economic.

    In economic terms wind is a value subtractor: you take raw materials, fabrication labor, factory space, delivery costs, etc. sum them at full market values; this sum exceeds the value to society of the electricity produced by the assembled wind machines.

    Society can obtain a better product – reliable and controllable electricity and capacity – for less outlay of real resources. Therefore, the wind option subtracts value from the raw materials. The FSU was a master at value subtraction – take $100 of crude oil, subject it to inefficient refining, poor quality control, wasteful transport and storage (including large physical leakage) – the resulting refined products are then worth less than the original crude oil. Wind accomplishes much the same feat. (so does ethanol – ed.)

    Societies can take a bit of value subtraction in stride, especially rich societies such as the US. However, when value subtraction becomes the norm for new technologies, then that society will inevitably decline.

    Reply

  16. Cooler Heads Digest 14 January 2011 | GlobalWarming.org  

    […] China and Wind: What a Waste Kent Hawkins, MasterResource.org, 11 January 2011 […]

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