The analysis of the curtailment of wind
energy in China wind market
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Abstract
The China wind energy market has experienced great growth in recent years. Because of air pollution, the wind energy gradually receive more support from the society. However the curtailment of wind energy is also serious. In northwest provinces, around 30% of generated wind power is not allowed to be sold on the market, and it lead to huge loss of money. This issue has become a great barrier for the wind energy industry, both the turbine suppliers and wind farm developers suffers a lot. This thesis give an overall demonstration on the China wind energy market, and the phenomenon of wind power curtailment is analyzed. Under the background, the PEST analysis is performed to illustrate the macro-environment of China wind market, and the 4Cs marketing theory is conducted to identify the current issues of domestic turbine suppliers’ marketing strategies. The corresponding recommendations are provided.
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Content
Abstract ... 2 1. Introduction ... 5 1.1. Research Background ... 5 1.2. Research Objective ... 6 1.3. Research Method ... 6 1.4. Research Outcome ... 7 2. Literature Review ... 82.1. The Marketing Theory of 4Cs ... 8
2.1.1. History of the 4Cs theory ... 8
2.1.2. The Goal of the 4C’s ... 9
2.1.3. The content of 4C’s ... 9
2.2. PEST Analysis ... 12
3. The wind energy marketing environment in China ... 14
3.1. The history development ... 14
3.2. The distribution of installed wind turbines ... 15
3.3. The statistic of offshore wind energy ... 18
3.4. The export of wind turbines ... 19
3.5. The domestic marketing share of turbine suppliers ... 20
4. The curtailment of wind energy in China ... 22
4.1. The statistic of curtailment of wind energy... 22
4.2. The reasons of curtailment of wind energy ... 23
4.2.1. Peak adjustment ... 23
4.2.2. Allocation of power transmission ... 24
4.2.3. The construction of long distance transmission lines ... 24
4.2.4. The market requirements ... 25
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5. Analysis of turbine suppliers’ current marketing ... 27
5.1. PEST analysis of the macro environment of wind market ... 27
5.1.1. Political environment ... 27
5.1.2. Economic environment ... 29
5.1.3. Social environment ... 30
5.1.4. Technology environment ... 31
5.2. 4C analysis of the issues of current marketing strategies ... 32
5.2.1. The customer ... 33
5.2.2. The cost ... 34
5.2.3. The convenience ... 35
5.2.4. The communication ... 36
5.3. The recommendations of marketing strategies ... 37
6. Conclusions ... 39
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1. Introduction
1.1. Research Background
Energy is the foundation of human society. In the past centuries, the conventional energy, like coal, oil and gas, play dominant roles in the development of society, people benefit a lot from it. However the traditional energy is not renewable, the rise of population increases the energy consumption. On the other hand, human suffer a lot from the environment pollution. These factors force people to look for new energy as the supplement or even the replacement, like wind energy, solar energy, tide energy, etc. In China, the high growth-rate of GDP brings great pressure on the energy supply. The wind energy has already been highly accepted around the world. Statistics shows that until 2012, the wind energy has become the third largest power in China (China Wind Association, 2015). As might expect, in 2050, the wind power will exceed the hydropower and become the second largest power in China.
Due to the adjustment of policy, the wind market went down from 2011-2013. From 2014 the market gradually rose again. In 2015, a huge growth is achieved in China wind market. Statistics show that China installed 30.5GW of new wind turbines in 2015, the accumulated capacity grows to 145GW, it increases 26.6% compared to 2014 (China Wind Association, 2015). The accumulated grid-connected capacity reaches 129GW. However the issues behind the prosperity are also quite serious. The biggest issue is the curtailment of wind energy, the grid operator does not allow the wind power generator send its power to the grid. An average of 15% generated power is wasted. In west and north provinces, the rate even reaches 30%~40% (Zhang, 2016, pp. 33-34). It generates a great negative impact on the wind energy industry. Since a large scale of erected turbines are not allowed to operate, the developers cannot gain any profit. As consequences, the developers gradually lose the interests on the development of new
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wind farms. It’s a bad signal for the turbine suppliers, the market is dropping down again. The competitions among these turbine manufactures will become fiercer.
1.2. Research Objective
Under the background, the marketing strategies is really important for the turbine suppliers. How to optimize the present marketing strategies? How to maintain the marketing share in the up-coming downturn period, etc.? These questions need to be considered.
Marketing has been investigated by many researchers, the corresponding theory is relatively mature. However the marketing researches of Chinese wind energy industry are limited. The majority of researcher are mainly focusing on the government policy, and most of them are just qualitative analyses. Also the foreign studies are not suitable for China wind market.
The thesis analyzes the present situation of China wind market, the issues of turbine manufactures’ current marketing strategies are identified, and the potential optimizations are figured out. As might expect, the sub-contractors could obtain some enlightenment from the study.
1.3. Research Method
First, the literature review of marketing theory will be conducted. It will make detail analysis on the 4Cs (Customer、Cost、Convenience、Communication) (Lauterborn, 1990). The importance of marketing strategy will be demonstrated, and it will be the theory support of following study. The PEST theory (Political, Economic, Social, Technological) (Peng & Nunes, 2007) will also be illustrated.
Second, the China wind market development history and present situation will be stated, and the curtailment of wind energy will be analyzed.
Third, the macro-environment of wind energy industry will be analyzed through the following aspects: the political, the economical, the social and the technological
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environment. The 4Cs analysis will be performed to figure out the current issues of the turbine suppliers’ marketing strategy.
Forth, based on the identified issues, the recommendations are demonstrated, and the limitations of this study is pointed out.
1.4. Research Outcome
Based on the identified issues, the optimization of marketing strategies is proposed. It includes the improvements of product qualities, the accelerations of the development of offshore wind turbines, the enhancement of price flexibility, the broadening of the south market, the optimization of operation and maintenance activities, etc. The expected outcome also might provide some enlightenment for sub-contractors.
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2. Literature Review
2.1. The Marketing Theory of 4Cs
2.1.1. History of the 4Cs theory
Traditionally, the marketing mix is business oriented with a combination of 4P’s. The 4P’s mean Product, Price, Place, and Promotion (Roy, 2002). In 1990, Professor Robert Lauterbon proposed a modern version of marketing mix (Lauterborn, 1990) called the Marketing Theory of 4Cs.
Lauterbon started with ‘consumer wants and needs’ which should be the key focus for product-led companies who tend to make customer-undesired products. The second factor was the ‘cost to satisfy’ which is based on the irrelevance of price among many other factors. The third factor was called the ‘convenience to buy’. And the last variable was ‘communication’, which emphasize the communication than manipulative promotions. Conventionally, we say that 4C’s stand for Customer, Cost, Convenience and Communication (Lauterborn, 1990).
The 4C’s classification is more consumer-orientated compared with 4Ps theory (Roy, 2002) and aims more at the niche marketing (Constantinides, 2002). The 4Ps and 4Cs can be seen as two sides of a coin, with one from seller’s perspective and the other from buyers. Considering the marketing mix from a 4C perspective encourages marketers and executives to process their products and value chain from the consumer’s point of view. The structure of 4C theory can be illustrated as Figure 2.1 below.
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Figure 2.1 The structure of 4Cs theory
2.1.2. The Goal of the 4C’s
Distinguished from 4P’s, the 4C’s marketing mix differs from the traditional mass marketing where companies view the customers as a large featureless mass. And the products they sell have no intention to understand and fulfill customers’ truly wants in depth. For the 4C’s, it diverts towards niche marketing instead mass marketing, where the relationship between the firm and the customer is often closer and more efforts are put in understanding who the target customers are and what they actually need.
For niche marketing, it is essential to perform market research in detail to identify proper markets which may not be rife with competition but prove to be profitable. With the identification and understanding of target market, the 4C’s marketing theory can be brought into effect.
2.1.3. The content of 4C’s
Since 4C’s and 4P’s theory are two sides of a coin, it makes sense to view them in comparison for better understanding of 4C’s marketing mix. And for marketers, it is of great interest to view from both costumers’ and enterprises’ perspectives (Wang, Wang, & Yao, 2005). Thus in this part, 4C’s content will be elaborated together with 4P’s. The corresponding relationship between 4C’s and 4P’s is shown in Figure 2.2.
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Figure 2.2 The relationship between 4Csand 4Ps (Roy, 2002) 1) Consumer (Product)
As aforementioned, instead of circling around the product itself, the focus of 4C’s marketing is shifted to what customers specifically want to purchase (Wang, Wang, & Yao, 2005). That means the enterprise has to clearly identify their target customer groups and the marketer has to spend vital time in studying these consumers’ truly wants and needs in depth. Only in this way can allow a company to sell accurate products that the customer would like to buy.
Under that circumstance, the product that enterprise develops has to be something unique and competitive with other products which customers find desirable. And the marketing campaigns should focus on bringing value to customers. One of the most effective way to achieve this is to discover a proper unexploited market, and develop the product for that market instead of fitting a ready-made product into a market.
In short, the target customers are the key element that determines the enterprise’s position in the market. And the product development should be considered in the eyes of the manufacturer as well as in the eyes of the consumer.
2) Cost (Price)
In 4C’s, the variable cost replaces the variable price, which offers more detailed information about customers. Cost reveals the reality of the total amount of ownership. While price is the amount of money that customers are willing to pay for a product or service. Within the total inputs fulfilling a customer need, price becomes one of many
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factors in cost. Other factors could be the cost of time producing the product, the cost for not selecting a competitor’s capability, the cost of changing products and so on (Yaroshevskaya, Polovnyak, & Gurevich, 2001).
There is a common misunderstanding that the price decides a product purchase. However, if a firm relies strictly on price, in the long term, it is vulnerable to competition (Wang, Wang, & Yao, 2005). While a focus on cost to satisfaction means that more information is taken into account than just the purchase price. Focusing on this variable will help the enterprise put efforts in decreasing the cost of fulfilling customers’ wants and needs. 3) Communication (Promotion)
Lauterborn regarded communication as a cooperative activity which is driven more by the product consumer (Lauterborn, 1990).
Promotions is replaced by communication. Communications means a wider focus than
simply promotions. Communications includes advertising, public relations, personal
selling, viral advertising, and any form of communication between the suppliers and the clients. The creativity could make any advertisement "interactive". Through the phone, the web site, etc. it can help you to identify your customers various requirements.
A typical marketing mix uses the promotion as a method to send product information to the customer. The promotion evolve with new roads to reach the customers. Although these promotions remain effective, a niche marketing focus is expected more (Lauterborn, 1990).
Communication moves toward creating a meaningful relationship with the clients by focusing on their specific requirements. The focus has a wider range and a more inclusive of various customers. The mutual communication between buyer and seller is expected. Different ways of communication could help a marketer understand their clients’ requirements better, increase sales and customer loyalty.
4) Convenience (Place)
The popularizations of internet market, credit cards, and mobile phones have facilitated the provision of products to the customers (Wang, Wang, & Yao, 2005). The customers do not need to go to a physical location to satisfy their need. And the marketer could develop different kind of ways to match the customer needs. It means that a marketer should be
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aware of the favor of different customer groups so that the customers could easily enjoy the products and service. However the place of the 4P model mainly take into account the traditional value chain (Lauterborn, 1990), it involves getting a product into a customer’s hand. The convenience considers much more factors.
Due to the rise of internet and hybrid business models, place is no longer important. Convenience focus on the ease of buying products or services. The marketers have to investigate how each potential clients would like to launch consumptions - via the Internet, on the phone, using credit cards, etc.
In summary, the 4C’s marketing has the following features. Firstly, products that customers preferred should be sold instead of what enterprise can produce. Secondly, the companies should put systematic efforts on the reduction of the customers cost. Thirdly, enterprise should pay high attention to the guarantee of customers’ convenience. Finally, communication between marketers and their clients should be highly valued and needs more attention. By grasping the four features, enterprise can obtain more benefits from marketing.
2.2. PEST Analysis
PEST is an analysis framework for macro-environmental factors, which is also referred to as SEPT (Narayanan & Fahey, 1994), STEEP (Voros, 2001), or STEP (Clulow, 2005). PEST represents Political, Economic, Social and Technological. The components of PEST could be referred as macro-environmental points. Its usefulness could draw a conclusion that the success of an organization or management solution cannot be reached without understanding the business macro-environment (Peng & Nunes, 2007). Business environment could be referred as all relevant factors which are outside an organization itself, but it should be comprehensively considered during the decision-making. The PEST analysis characterize the business environment that could influence organization general strategy. Hence, PEST analysis provides a “satellite view” to assess the external environment (Peng & Nunes, 2007).
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PEST has been conventionally used in two different ways: first, to analyze the position of a particular organization or industry sector within a specific business environment (Narayanan & Fahey, 1994); second, to analyze the viability of general management solutions in a business environment (Clulow, 2005). This paper will use PEST to analyze the macro environment of China wind energy industry. The purpose of the PEST analysis proposed is to develop an in-depth understanding the future trends on China wind market. It will point out the general direction of strategy optimization.
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3. The wind energy marketing environment in China
3.1. The history development
The starting period, from 1986 to 2003. In May, 1986, the first onshore wind farm was built in Rongcheng, Shandong Province (Wang & Yang, 2013). The wind farm is made up of three Vestas 55kW wind turbines. In 1990s, Chinese research institutes and organizations started to develop their own wind turbines, some turbine manufactures were founded gradually, like Goldwind. However until 2003, the total installed capacity was less than 600MW (The histroy developement of China wind energy, n.d.).
The developing period, from 2004 to 2007. Due to the fast growth of economy, the consumption of energy and the pollution of environment became critical issues. In the beginning of 2006, the Renewable Energy Law was published. For the grid operator, the transmitted power should include 5% renewable energy (Wang & Yang, 2013). Then under the policy support, the local turbine industry started to growth, more and more turbine manufactures appeared, like Shanghai Electric, Sinovel, Mingyang, etc. 1.5MW, 2MW wind turbines were under design phase. Also the whole supply chain was gradually founded. At the same time, foreign companies like Vestas, GE, Gamesa, etc. began to set up factories or research centers in China.
The fast growth period, from 2008 to 2010. In 2008, China ranked the fourth in the world accumulated installed capacity. From center government to local government, a series of renewable energy policies were published, the wind energy market became much more attractive, an increasing number of investors moved into this market. The number of turbine manufactures even reached around 80, up to 2010, the increasing rate of newly installed capacity was 48.5% (The histroy developement of China wind energy, n.d.), and it ranked the first in the world. However, the unreasonable growth led to market surplus, the competition of domestic market became fiercer, and also the quality issues became more and more obvious. The most important thing, the development of power grid was relatively slow, and this led to the curtailment of wind energy.
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The adjustment period, from 2011 to 2013. This was a dark period for China wind market, the policies were tightened (Wang & Yang, 2013), the demand of market deceased correspondently. Many small or medium companies went bankrupt, and their low-quality products were out of market. However on the other hand, during this period, the government invested more on the development of power grid, these big turbine manufactures focus on upgrading their products, 3MW, 4MW or larger turbine were under design phase. The market gradually returns to normal state.
The booming period, from 2014 to 2015. After the adjustment period, only these giant companies left in the market, like Goldwind, United Power, Envision, etc. Under the excitations of the new policy, the increasing rate reaches a high level in 2015, which is 26.8% (China Wind Association, 2015), Figure 3-1 illustrates the development of China wind energy market.
Figure 3-1 The statistics of China wind market (2005~2015) (China Wind Association, 2015)
3.2. The distribution of installed wind turbines
Up to 2015, the capacity of newly installed turbines reach an amazing level. Except the Taiwan District, the number of newly installed turbine is 16740, and the corresponding capacity is 30753MW, the increased rate is up to 32.6% (China Wind Association, 2015).
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For the accumulated capacity, it reaches 145362MW, the increased rate is 26.8% (China Wind Association, 2015).
For the local distribution, all areas show growing tendency. Table 3-1 is the statistic of distribution of newly installed wind turbines in 2015.
Table 3-1 The distribution of newly installed wind turbines
District Percentage Northwest 38% North China 20% Southwest 14% East China 13% South China 9% Northeast 6%
Compared to 2014, the increasing rate of Southwest is the highest, which reaches 91%. Table 3-2 shows the increasing rate of each area.
Table 3-2 The increasing rate (2015) of different districts
District Increasing Rate (compared to 2014)
Southwest 91% South China 37% Northeast 35% Northwest 27% North China 22% East China 20%
Figure 3-2 shows the tendency of newly installed capacity of different districts. From the figure, we could see that from 2005 to 2010, all districts show growing tendency. From 2010 to 2012, due to the tightening of policy, the growth rate slow down, in Northwest and North China show sharp decrease. From 2012 to 2015, the increasing rate of newly installed capacity start to growth again, especially the Northwest area, there is a
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tremendous growth. The main reason is that, the government gradually decrease the subsidy and the LCoE (levelized cost of energy). If the turbine manufactures want to make a profit, they have to reduce their cost by selling more turbines.
Figure 3-2 The wind market development of different districts (China Wind Association, 2015)
Among these districts, in 2015, the newly installed capacity of the following provinces, Xinjiang, Inner Mongolia, Yunnan, Ningxia and Gansu, take up 53.3% of the whole country. As for the accumulated installed capacity, the occupation of the sum of Inner Mongolia, Xinjiang, Gansu, Hebei and Shandong is 51.7%. Figure 3-3 shows the distribution of the accumulated installed capacity in China. As present in the figure, the whole north of China is the main market of wind industry, the reason is that the wind resource and the space in these provinces are abundant.
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Figure 3-3 The distribution of accumulated installed capacity (China Wind Association, 2015)
3.3. The statistic of offshore wind energy
In 2015, China installed 100 offshore wind turbines, the capacity reaches 360.5MW (China Wind Association, 2015). Compared to the 2014, the increasing rate is 58.4%. Among these offshore wind turbines, 58 turbines are installed at tide zone, the corresponding capacity is 181.5MW. The rest are installed near shore, and the capacity is 179MW. Among these offshore turbines, Shanghai Electric installed the majority, the occupation rate reaches 83.2% (China Wind Association, 2015). The main reason is that Shanghai Electric has got the license of 4MW offshore wind turbine from Siemens, and this product has already been proved in Europe market. While for the other domestic turbine suppliers, most of them are still under developing period, especially for the large volume turbines, more than 5MW.
Until the end of 2015, the accumulated capacity of offshore wind turbine is 1014.68MW (China Wind Association, 2015). Among them, 60.3% are installed at tide zone, and the rest are installed near shore. There are 10 turbine suppliers have ever installed offshore
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wind turbine, Figure is the statistic of newly installed and accumulated capacity of China offshore wind turbine. Only Shanghai Electric, Sinovel, Envision, Goldwind have ever installed more than 100MW offshore wind turbine, their occupation rate reaches 86.6% (China Wind Association, 2015).
Figure 3-4 The development of China offshore wind market (China Wind Association, 2015)
3.4. The export of wind turbines
Up to 2015, Chinese turbine suppliers have export 1085 wind turbines, the accumulated capacity is 2023.75MW (China Wind Association, 2015). Figure illustrates the history development of export capacity.
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Figure 3-5 The statistics of export turbines (China Wind Association, 2015)
For the export market, Goldwind share 47.5%, the accumulated capacity is 968MW. The following companies are the Sinovel of 381MW, the SANY of 245MW, the Mingyang of 121.5MW, etc (China Wind Association, 2015).
The main export target is American, which takes up 19.4%, the corresponding accumulated capacity is 395MW. Then the Panama and the Ethiopia share 13.3% and 10% respectively.
3.5. The domestic marketing share of turbine suppliers
In 2015, 26 turbine suppliers have installed 16740 turbines. Goldwind ranks the first and shares 25.2% of the whole market (China Wind Association, 2015). The capacity Goldwind has installed is almost the sum of the second, the third, and the fourth. Figure illustrates the marketing share of turbine suppliers in 2015.
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Figure 3-6 The marketing share of domestic turbine manufactures (China Wind Association, 2015)
Up to 2015, the accumulated capacity of the whole nation is 145 million kW, five turbine suppliers have installed more than 10 million kW. These five suppliers are Goldwind, Sinovel, United Power, DEC, Ming Yang.
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4. The curtailment of wind energy in China
4.1. The statistic of curtailment of wind energy
Even though the newly installed capacity reach a really high standard in 2015, the curtailment of wind energy also becomes much more serious. In 2015, the curtailment of wind energy of whole nation is 33.9 billion kWh. Compared to 2014, it increases 21.3 billion kWh (Zhang, 2016). Table 4-1 shows the statistic of the curtailment.
Table 4-1 the statistics of the wind energy curtailment (Zhang, 2016) The national
average curtailment rate (%)
The curtailment capacity (billion kWh)
The loss of electric charge (billion RMB) 2011 16.23 12.3 6.6 2012 17.12 20.8 11.2 2013 10.74 16.2 8.8 2014 8 12.6 6.8 2015 15 33.9 18.3 summary 13 95.9 51.8
According to the statistic, the national average curtailment rate in 2012 is the highest. However the curtailment capacity in 2015 is the largest, it lost 18.3 billion RMB (Zhang, 2016). As for the local statistic, the issues in these provinces are much more serious. In Inner Mongolia, the curtailment capacity is 9.8 billion kWh, the curtailment rate is 18%. In Gansu, the curtailment capacity is 8.2 billion kWh, the curtailment rate is 39%. In Xinjiang, the curtailment capacity is 7.1 billion kWh, the curtailment rate is 32%. The sum of these three provinces is 25.1 billion kWh (Zhang, 2016), it takes up almost 75% of the whole country curtailment capacity.
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4.2. The reasons of curtailment of wind energy
The air pollution has become a terrible issue in China. To reduce the pollution, the whole society has reach unanimous consensus that the consumption of coal must be reduced and renewable energy should gradually take the dominant role. Huge investments have been used to build the renewable energy facilities, however the operation is forced to stop. As results, the renewable energy suppliers have to bear huge loss of money. And for the turbine suppliers, the competition becomes fiercer due to the decrease of the market requirements. The reasons behind this phenomenon are quite complex, the main reasons will be demonstrated below.
4.2.1. Peak adjustment
The electricity has a special physic property, its transmission velocity is equal to the speed of light (Qing H. , n.d.). As a result, under current technology, storage of electricity in a large scale is unrealistic. The electric power generation, transmission, distribution, consumption must be accomplished simultaneously, the whole system must keep balance. In order to keep the balance, the power system must have some backup resource in case some emergency happens, peak adjustment will be necessary.
For the wind energy, on the one hand, power generation is influenced by the wind speed, while the wind speed is variable. On the other hand, due to the geography difference within the wind farm, especially for the large volume wind farm, the turbines cannot generate the rate power simultaneously.
So the peak adjustment is always necessary for the wind farm, under the current stage, the coal is the only resource. In this case, for the wind power supplier, accurate weather forecast and stable operation are really important.
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4.2.2. Allocation of power transmission
Normally the capacity of power grid is fixed, for the power transmission, the coal power has the priority since the price is much cheaper than the wind electricity even if the wind electricity get the government subsidy (Xu & Zhu, n.d.).
In China, the coal resource is abundant. In recent years, the coal price is continuously dropping down, so the coal power becomes more and more popular. Also the coal power industry can create lots of employments, it meets the local government expectation. Besides, for the north part of China, during the autumn and winter, the coal power generation also provide thermal power for the heating system, the corresponding income will be double.
The government subsidy of onshore wind power is also continuously reduced in the past few years, under these backgrounds, the wind power almost has no competitiveness compared to coal power. As a result, wind power cannot get any profits in the allocation of power transmission, a large amount of generated power is curtailed.
4.2.3. The construction of long distance transmission lines
The wind resource in Xinjiang, Gansu and Inner Mongolia are tremendous, however the economic and population in these months are limited, the extra generated power must be transferred to other provinces, like east provinces. For example, in Gansu province, in 2015, the consumption of electricity of the whole province is 13000MW, while the newly installed capacity is 17800MW (Xu & Zhu, n.d.).
The national land area is huge, the distance from these Northwest provinces to the east provinces is quite long, around 3000km, so the construction of these kind of long distance transmission lines are expensive and time consuming. Like Gansu province, in 2008, the capacity of planned transmission line is 750kV, it can transfer 3000MW electricity (Xu & Zhu, n.d.). However in 2015, the accumulated installed capacity reaches 12629MW (China Wind Association, 2015), almost 4 times of transmission capacity.
As results, part of erected turbines are not allowed to be connected to the transmission grid, and part of connected turbines are not allowed to generate power.
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4.2.4. The market requirements
The economy growth rate in China gradually slows down. Due to the increasing of labor cost, lots of factories moves out of China. And under the influence of internet, almost all traditional industries are facing reformation. The typical mode of energy consumption is gradually changed, energy saving becomes a trend.
Under the economic reformation stage, the market for the energy consumption is continuously decreased. Both traditional energy suppliers and renewable energy suppliers want a larger share, no one would like to give in. For the provinces who do not have wind energy, to maintain the local GDP and employment, local governments don’t accept the wind energy transferred from these Northwest provinces (Qing H. , n.d.), they prefer to build coal power plant locally.
4.3. The negative impacts of curtailment of wind energy
Huge amount of wind energy is curtailed, and huge amount of investment cannot obtained any profits. The curtailment of wind energy lead to series bad influences on the market. For the energy suppliers, they have to bear the loss of investment, and their interest on the renewable energy investment will continuously decrease (Qing H. , n.d.). As a result, the market left for the turbine suppliers and sub-contractors is more and more limited. In order to survive under the fierce competitions, cutting price will be the first choice. Small companies have less spaces to survive, the giant companies will monopoly the market. This marketing situation has been proved in 2015, the capacity Goldwind has installed is the sum of the second, the third, and the fourth. Correspondently, lower price means lower products quality, this will definitely influences the operation status when turbine is erected. In the end, the protection of air condition and reduce the pollution are just slogans, no any real improvements will happen, people will still suffer from the illness caused by the air pollutions.
According to the government new policy (Xu & Zhu, n.d.), in 2016, the provinces which have high wind power curtailment rate, like Xinjiang, Gansu, Inner Mongolia, etc., except the previous planned wind farms, no any new wind farm projects will be approved. For the
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provinces which have lower curtailment rate, increasing the number of wind farms is encouraged. However the wind resources in these provinces is relatively poor, the year average wind speed is just 5~6m/s. In total, the onshore wind market will not have any big growth, the competition among these turbine suppliers will be fiercer.
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5.
Analysis of turbine suppliers’ current marketing
5.1. PEST analysis of the macro environment of wind market
The wind energy market is a policy oriented market, from the approval of wind farm, to the allocation of resource, to the connection to the power grid, to the subsidy of energy price, etc., all these critical parts depend on the government policy (Shi, 2011). If the policy is positive, the market will be prosperous. On the contrary, companies will suffer a lot. These have been reflected from the history of China wind market.
However if without the government intervention, in the free market, at present, the wind power will not have any price advantages when it is compared with the conventional energy. Almost no space for its development. Even if the wind energy has positive influence on the society, like the renewable characteristic, the protection of environment, In this chapter, PEST analysis will be conducted to identify the current macro environment of the wind energy market. From politics, economy, society, and technology these four aspects, combined the wind power curtailment to evaluate the marketing trends for the turbine suppliers.
5.1.1. Political environment
The development of wind farm is a complex systematic work. From preparation to development, to operation, to decommission, the government organizations will involve in all stages. The corresponding policies will generate huge influence on the wind energy market.
Reviewing the national twelfth five-year plan, the government original goal is that the consumption of renewable energy should reach 11.4% by the end of 2015 (Wang & Yang, 2013). In reality, at the end of 2010, the capacity that connected to the power grid was just 31.07 million kW, the generated power was just 50.1 billion kWh (China Wind Association, 2015). However, by the end of 2015, the accumulated connected power was more than
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110 million kW (China Wind Association, 2015). Combined with the other renewable energy, the consumption of renewable energy reached 12% of total energy consumption. From 2016, the government thirteenth five-year plan is start. According to the government plan, the percentage of renewable energy consumption should reach 15% by the end of 2020. Among it, the power generated by wind should reach 250 million kW (China Wind Energy News, 2016).
According to the history achievements, the wind energy market has already benefited a lot from the government policies. So there is no doubt that, under the new target, the market will continuously grow in the following five years. The macro environment of the wind energy market will be optimistic.
However the curtailment of wind power is still the biggest obstacle for the market. The central government has made the goal and the Renewable Energy Law has already been published, while the local government will have their own consideration, especially the conflict between the coal power and wind power. For the local government, GDP and local employment will still be the first choice, the partial replacement of traditional energy is really difficult. Under this dilemma, the local government policies are more critical to the market. Especially for Xinjiang, Gansu, Inner Mongolia, etc., these provinces have huge wind resources, however the curtailment rates are rally high. Some local government has stopped the approval of planning new wind farm, and the issues could not be solved within a short period. Thus for the turbine suppliers, the market focusing point should be removed to the other districts gradually.
For the turbine suppliers, the attention should be paid both on the central government policies and local government policies. Especially for these high curtailment rate districts. Like the Northwest area, before the new long distance transmission line is planning to be built, the expectation on the compromise of coal power is not realistic. The market of east developed provinces and the offshore districts will be more attractive for the investors, even though the developing of wind farm in these areas will be more difficult, the CAPEX and OPEX are much higher. At least, in these districts, the consumption of generated wind power will not be a problem. And with support of the price subsidy and tax reduction, profit can be expected.
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5.1.2. Economic environment
Though the wind energy market is a policy oriented market, the national economic environment also influences the market.
At present, in China, the cost of coal power is 0.3~ 0.4 RMB/kWh, the cost of onshore wind power is around 0.5~0.6 RMB/kWh, the cost of solar power is 0.8~0.9RMB/kWh, the cost of water power is around 0.3 RMB/kWh, and the cost of offshore wind power is 1.0~1.2 RMB/kWh (Shi, 2011). According to the comparison of these costs, the onshore wind power has strong competitiveness even if the government subsidy is continuously reduced.
Another good signal is that the smog issues continuously puts pressure on the coal power. Especially in winter, in the North of China, residents suffer a lot from the smog issue, the respiratory diseases become prevalent. The coal power plants are forced to pay more attention on the treatments of pollution, like advanced exhaust filter. In this case, the cost of coal power increases.
For onshore wind farms, the turbine cost takes up around 70% of the whole investment. Under the development of technology, there are still large spaces for the optimization and improvements. The reduction of onshore wind power cost still has great potential. It can be expected that in near future, on the energy sales market, the price of coal power and onshore wind power will reach the same level, the competitiveness of onshore wind power will be more sufficient.
However, the negative aspect is that the development of local economy is unbalanced. The GDP and the population have great differences between developed provinces and Northwest provinces, and table 5-1 is an example of comparison.
Table 5-1 GDP and population (2015) in Northwest provinces and developed provinces
Province GDP (Billion RMB) Population (million)
Northwest Xinjiang 330.5 22.32 Gansu 249.4 25.82 Inner Mongolia 614.0 24.98 Developed Provinces Jiangsu 2473.8 79.39 Guangdong 2986.3 106.44 Shanghai 1165.8 24.15
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Shandong 2532.6 95.79
From the table, it can be find out that, the differences are quite large. Higher GDP and larger population mean more energy consumption. In these developed districts, the conditions of power grid are much better, and the market requirements of power consumption is quite high, but they don’t have good wind resources and spaces. While the Northwest provinces are the main wind power suppliers since they have abundant wind resources, but the market requirements for the power consumption is quite low.
The generated wind power cannot be consumed locally in these northwest provinces, as a result, the long distance transmission line is the only available method. However the capacity of current transmission line could not match with the generated capacity. And the construction of new transmission lines need huge investment and resources, the local economy don’t have the capability to support these kind of projects. Thus the power curtailment caused by the oversupply is still a tough issues, especially the economic downturn period is coming. For the turbine suppliers, only though the reduction of turbine cost will take little effects, the development of new markets will be a better choice, like the developed provinces which have lower wind speed, the offshore area, and the foreign market.
5.1.3. Social environment
In the past decades, the China economy has experienced a series huge growth, and many great achievements have been made. However, the sacrifice of environment is quite serious. Especially in recent years, the smog issues have caused a lot of trouble to our daily life. In winter, almost everyone wears a specialized mask on the street, and the invisibility is quite poor. Inside the buildings and rooms, the air purifiers can be found everywhere. Even sometimes the schools have to cancel the classes. Also the respiratory diseases become much more common.
Under these situations, the social appealing for the cleaning renewable energy is much stronger. Wind energy, as a cleaning renewable energy, has already been commercialized in several years. Compared to the other renewable energy, the technology is more mature
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and the price is much cheaper. Thus the expending of wind energy in a large scale is imperative.
For the turbine suppliers, it is a good opportunity to cooperate with wind power operators to propagate the advantages of wind power. Through the social appealing on the environmental protection, the wind power operators are able to gain more share of energy market. As consequences, the wind power operators will maintain the willingness of investments, the turbine suppliers will have more space to develop.
Another positive factor is that, in these Northwest provinces, there are huge land areas left for the development. However due to the population, economy, and some other restrictions, the development of wind farm is the most suitable choice. It can not only generate economic value but also make use of the land resources.
5.1.4. Technology environment
The history of China wind energy market is quite short. Though great achievements have been created during the past decades, the technology of local turbine suppliers are still far behind the foreign turbine manufactures, like Vestas, Siemens. For the majority domestic suppliers, the occupation of market is the most important task, they prefer short-term profits. Thus during their development, the similar technology is imported directly, and different kind of copies are generated (Wang & Yang, 2013). As a result, some products are quite similar, cutting turbine price take a dominant role in the market competition. There was a period, the price of a turbine decreased to around 3500 RMB (Qing Y. , 2012). The consequences induced by the quality issue are terrible and cause great damage on the wind market. In 2011, in Gansu provinces, hundreds of turbines lost the connection with the power grid which lead to huge economy losses (Qing Y. , 2012). In some wind farms, the turbines failure rates are really high, which cause the consistently growth of the operation and maintenance cost
After the policy adjustment and downturn period, the technology has been valued by the top-ranking companies gradually. The price of turbine goes back to a reasonable level. Some self-developed products have got the acceptance from the markets and been
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widely used in China. And some good products are exported to foreign market, like Goldwind, SANY. However compared to the industry leading companies, like Siemens, Vestas, in these areas, like the patent of upstream, the design ability and the downstream service, the domestic suppliers are still lack of core competence. Suppose without the protection of government policy, the domestic turbine suppliers will not be able to share such great percentage of domestic market.
For the next national five-year plan, under the policy protection, it is a good opportunity to improve the technology. Especially in order to get rid of wind power curtailment, more attention on the low wind speed market and offshore wind market means the higher requirements on the turbine technology. For the next generation, higher tower (120m~140m), bigger blade, stronger environmental adaptability, single blade installation, directive-driving technology, etc. More and more advanced technologies need to be developed.
Besides the turbine technology, the improvements on the operation and maintenance services are also quite importance. Especially in recent years, the wind power developers want the turbine suppliers to provide whole life-time operation and maintenance service. Under this trend, a growing number of factors should be taken into account in the initial design phase since the operation and maintenance cost is also quite high. Sometime the turbine supplies save money in the products design stage, while later high operation and maintenance fee has to be paid.
5.2. 4C analysis of the issues of current marketing strategies
According to the statistic of newly installed turbines and the accumulated installed turbines in 2015, the sales performance of domestic turbine suppliers is really excellent. Especially the Goldwind who has taken up 25.2% of whole the market (China Wind Association, 2015), the quality, diversity, and service of its products have been highly recognized by the investor.
However a critical point should be taken a note, the government protectionism has set great limitations on the foreign turbine suppliers. If without the policy protections, it is
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impossible for the domestic suppliers to make such a good achievement. This has been proven in the global market, the domestic turbine suppliers are still lack of competitiveness in products quality, selling strategies, post services, etc.
For the domestic turbine suppliers, if they want to maintain its position in the domestic market and move a step forward in the global market, the current marketing strategy issues must be improved. Especially in nowadays, the turbine suppliers are not just selling turbines, they are requested to offer an overall solution of a wind farm.
In the 4C theory, the suppliers are requested to focus on the customer requirements, the cost of money, time, and various resources, the convenience of client, and the communication with client. These critical points are highly match with wind marketing strategies.
5.2.1. The customer
In China wind market, the wind farm developers are all national companies. A critical characteristic of these client is that they are not lack of money. For them, the reliability of wind turbine is the most important thing, which means the high requirements of turbine quality.
Though the quality of domestic turbine has some improvements, the reliability is still a critical issue. A common phenomenon is that during the operation stage, the turbine failure rate is quite high. As a result, the average downtime is quite long which leads to the loss of power generation (Qing Y. , 2012).
The reason behind the phenomenon is that in the past few years, almost all turbine suppliers pay much more attention on the marketing share instead of the products quality. In order to obtain more market share, cutting price becomes the main strategy. As consequences, the quality issues start to appear during the second, the third year of its operation.
For these developer, especially some new investors, even though they save some money in the developing phase, the operation and maintenance cost are extremely high, also the revenue loss of power generation is quite high. After a series of incidents which induced
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by the quality issues, the developer gradually care more about the reliability of the wind turbine. After all, the revenue is generated by the turbine operation, higher reliability means higher revenue.
SINOVEL is a good lesson, from 2011~2013, the downturn period of wind market, SINOVEL continuously expanded the market. It once ranked the first in the market (Wang & Yang, 2013), however, just two years later, due to the series qualities issues and its own financial problems, the SINOVEL drops out of top 10 in 2015 (China Wind Association, 2015).
Under the wind power curtailment, the developer will pay more attention on the low wind speed districts and offshore area, and the operation environment will be more complex in these areas. So for the turbine suppliers, in order to meet the customer requirements on the reliability, more efforts on the products quality should be paid.
5.2.2. The cost
Since 2008, the China wind market went into a fast growing period. During that years, an increasing number of turbine suppliers appeared and joined the competition. In order to obtain a larger share, cutting turbine price became the first choice, and it led to vicious competition. In 2008, the price was around 6500 RMB/kW. In 2009, it dropped to 5400 RMB/kW. In 2011, it was even lower than 3500 RMB/kW (Qing Y. , 2012). The price was nearly equal to the cost of turbine, almost no any profit left for the turbine suppliers, and the turbine suppliers even did not have right to discuss the price with investors.
In this irrational competition, in order to survive, turbine suppliers continuously tried to reduce the cost. Correspondently, the turbine quality became lower and lower. As results, many accidents happened during the operation phase. Within the warranty, the turbine suppliers suffered a lot from the consistently increased operation and maintenance cost, and the wind power investors experienced great revenue loss of power generation. The whole wind energy industry received plenty of suspicions from the society, people began to doubt the stability, the reliability, and the feasibility of wind power, and these brought many negative influences to the market.
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According to these lessons, the investors begin to realize that the wind farm is a systematic and long-term project. Even though the cost of turbines take up a big part in the investment, the reduction on the turbines cost sometimes will not save the investment. On the contrary, it causes the increasing of operation and maintenance cost and revenue loss. Also the investors have to spend more time, more people, and some other resources in the operation period.
Now due to the curtailment of wind power, the market size will reduce, and more attention will be focused on the low wind speed market and offshore market. Correspondently, the difficulties of technology, the diversities of environment, the requirements of operation and maintenance will come to a higher level.
For the turbine suppliers, to acquire larger occupation of the market, the reduction of cost should be viewed from an upper level, it should be the whole wind farm instead of the turbines. For example, in the lower wind speed districts, usually the humidity and the temperature are much higher, to increase the turbine environmental adaptability, like the anti-corrosion and the temperature-control, some additional apparatus and devices should be designed, and it can be sold as optional parts. There are still lots of potential points need to be developed, turbine suppliers should increase their products diversity. In this case, the investors will have more choices under different environmental conditions, and the cost saving will be considered systematically.
5.2.3. The convenience
Though a huge number of turbines have been installed, for majority turbine suppliers, the building of service team is quite slow. As results, it bring lots of inconvenience to the customers during the operation phase. Especially for some small companies who do not have enough human resources to support the operation and maintenance service, their customers have to hire the third parties which are founded by some other big turbine suppliers to perform these tasks (Qing Y. , 2012).
Since the installed capacity has reached a new level in 2015, the requirements on the operation and maintenance service will increase a lot. While it’s a good opportunity for the
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turbine suppliers to consolidate its positions on the market, especially within the warranty years. A comprehensive good service will bring lots of convenience to their clients during the operation, it will reduce the downtime and increase the revenue of power generation (Wang & Yang, 2013). In return, the clients may sign long term service contract with turbine suppliers. Also in future, the supplier who could provide better operation and maintenance service will have more chance to win the bid.
Under the wind power curtailment background, the turbine suppliers should not just focus on the selling of turbines, they should think more about how to provide more additional service which could enhance the operation convenience. Especially for the offshore wind market, the clients also want to sign a long term service contract in the initial bid. Because the complexity and the difficulty of offshore operation and maintenance service are much higher than the onshore service, it is a really tough task for the client to building their own service team.
5.2.4. The communication
At present, the majority communication between the turbine suppliers and the wind farm developer take place during the sales stage (Qing Y. , 2012). The topic of the communication mainly focus on the turbine. This kind of communication is inefficient, especially at the end of warranty, in order to extend the warranty and reduce the operation cost, the developer always make various excuse. As consequences, the turbine suppliers have to spend more money and more human resource to offer extra free services. For the developer, as stated in previous chapter, most of developers are lack of general knowledge of wind energy, they only care about the profit. For the turbine suppliers, during the warranty years, to reduce the downtime, their service team put a lot of human resource on the operation and maintenance to increase the turbine availability, especially for the wind farm which is made up of turbines from different suppliers. In this case, the turbine suppliers do not want the developers to know their service details. In the end, the turbine suppliers have to take extra tasks which are out of their duties.
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Under the curtailment of wind energy, the turbine suppliers should conduct more communications with the developers in different stages. A critical idea should be kept in mind, the wind farm is a long-term systematic work, and the turbine suppliers are not just selling turbines, the operation and maintenance service is also important. Instead of giving promises to different unreasonable requirements and taking various extra responsibilities, the turbine suppliers should let their clients know the difficulties and teach them the corresponding knowledge. In the end, both side should take responsibilities and share the risks.
The communication between the turbine suppliers and the indirect consumer – citizens is also quite poor. Especially in nowadays, the citizens have already suffer a lot from the air pollutions. Even though, the price of wind power is more expensive than the coal power, it is a good opportunity to propagate the cleaning energy, spending more money on the body health. The turbine suppliers should create more communication with ordinary people. For example, some public service advertisements, some exhibitions, some public speech, etc. In this way, more and more people will realize the importance of cleaning energy and have the willingness to pay for it.
5.3. The recommendations of marketing strategies
According to the analysis of wind market macro-environment and the current issues of domestic turbine manufactures’ marketing strategy. The recommendations of marketing strategies are put forward.
1. The turbine suppliers should pay attention to the South market in China.
2. The environment conditions are far more complex in the South market, special designs should be developed to strengthen the turbine adaptability
3. Instead of just selling turbines, when developing a wind farm, the turbine suppliers should improve the ability of providing the overall solutions.
4. To consolidate the current marketing share, more attention should be paid on the quality instead of the quantity.
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5. When selling turbines, instead of a fixed price, additional configurations and services can be added. The increasing of product diversity will give clients more choices. 6. The offshore wind market should be valued. Though the risk is quite high, the
government policy is advantageous. The turbine suppliers should accelerate the design of offshore wind turbines.
7. An increasing number of clients want to sign the long-term O&M service contract after the warranty years. The acceleration on the maintenance team building should be paid attention.
8. The turbine suppliers should increase their communications with their clients. Instead of taking all responsibilities and risks, suppliers should let their clients share with them. Otherwise suppliers have to deal with many unreasonable requirements, these are great burdens.
9. The turbine suppliers should conduct more communication with the public. Articles on the smog issues can be made to demonstrate the importance of wind energy. In this case, the wind energy will gain more support from the public, and the pressure will be pushed to the relevant organizations. Some advantageous policies can be expected.
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6. Conclusions
The thesis gives an overall illustration of China wind market, the curtailment of wind energy is analyzed. Based on the identified marketing issues, some recommendations are demonstrated. The main idea behind these recommendations is that, the curtailment of wind power cannot be solved immediately, it will last for a long term period. Thus the turbine suppliers must make adjustments on themselves. Especially the business model, instead of just selling the turbines, the turbine suppliers should be able to provide overall systematic solutions of building a wind farm. From the developing phase to the operation stage. In this case, the cost and the risks could be reduced systematically.
However, there are some limitations of this study, it neglect the huge cost and required resource behind the new business model. Though this new business model is gradually accepted by more and more developers, at present, only these top-ranking suppliers have the ability and resource to conduct these. Under the wind power curtailment, to maintain the current marketing share, cutting turbine price will still be the first choice for these small and medium suppliers. A new round price competitions could be happened.
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