Wind power boom will benefit China Wind System's expansion ambitions - VP of operations Ryan Hua
Shanghai. May 19. INTERFAX-CHINA - China's wind power sector is the fastest growing in the world, driven by a growing demand for energy resources and strong central support for development. As of the end of 2009, China had a total installed wind power capacity of 25,104 megawatts (MW), ranking third in the world after the United States, which had an capacity of 35,159 MW and Germany, which had a capacity of 25,777 MW.
China's installed wind power capacity has been growing at an annual rate of 131 percent over the past five years. There are currently more than 70 wind turbine manufacturers and hundreds of turbine components makers.
Mr. Ryan Hua, VP of Operations at China Wind Systems, Inc. (CWS), spoke with Interfax about how the company will take advantage of the current boom to expand its current operations.
"The founder of CWS, Wu Jianhua, started a textile printing and dyeing machinery business in 1995. Since early 2007, Mr.Wu and his management team realized the huge business potential of China's wind power industry. The wind turbine and turbine components industry in China still has much room for rapid expansion over the next decade," Mr. Hua said.
CWS entered the wind turbine components manufacturing business in April 2007 and has since become a leading provider of precision forged components for wind turbines in China. The company entered the NASDAQ through a back-door listing in November of 2007.
"CWS is certainly benefiting from China's wind power industry boom," Hua said, adding that CWS predicts that China will invest as much as $200 billion toward wind turbine components and projects through 2020.
According to the company's first quarter earnings report released on May 14, the company boosted its total revenues by 114.2 percent on an annual basis to $16.8 million in the first quarter, which is attributed to strong sales growth in its wind turbine component manufacturing business. Net income surged 201.3 percent year-on-year to $1.9 million during the same period.
"When CWS entered the wind power industry, we had originally planned to manufacture wind turbines, but later found out how costly it was. Subsequently, we decided to enter the precision forged components sector," Hua said.
"Because there are such high entry barriers, forged components manufacturers enjoy high profit margins - sometimes even higher than wind turbine manufacturing," Hua explained.
Among CWS's clients are some of the most well-known wind turbine makers in world, including Vestas Wind Systems, Sinovel Technology Group Co. Ltd., GE Wind and Gamesa.
CWS, which is headquartered in Wuxi City, in China's coastal Jiangsu Province, is able to offer comparatively lower shipping costs and shorter shipping times, due to its proximity to major transportation routes.
CWS's main products are forged components for both 1.5 MW and 3 MW wind turbines, which are currently the most widely-used models in China.
"If the trend is for wind turbines to gradually get bigger, to grow to 5 MW or 8 MW, then we may begin providing forged components for such turbines," Hua said.
"However, wind conditions vary in different countries, and larger wind turbines may not be suitable for China's wind conditions," Hua said.
Traditionally, the cost of forged products are subject to the price fluctuation in steel products. Yet CWS has solved the problem by passing the raw material cost on to its downstream clients.
"More than 80 percent of the cost of a forged component is attributed to steel, so we normally have a clause in our sales contracts stating that the price of our products will be readjusted in line with the cost of raw materials," Hua said.
"This is a very important protective measure for us, given the sharp hike in international iron ore prices over the past few years," Hua said.
As CWS anticipates a promising future for the development of offshore wind power farms in China, the company is preparing to commence production of new forged components for offshore wind power turbines, possibly by the end of 2010.
The National Development and Reform Commission (NDRC), China's state economic planner, will launch the first round of auctions for commercial offshore wind power farms in China this month. Four offshore wind farms that have yet to be built will be auctioned off to conventional power generators, renewable energy developers and wind turbine makers.
"We see the development of offshore wind power farms as a new business opportunity for turbine makers and components manufacturers. The market is huge and despite being in the very early stages of development, China's offshore wind power resources are three times that of its onshore wind resources," Hua said.
"CWS is also considering entering the market of forged equipment components for nuclear power, but that might not happen until next year," Hua said.
Hua said CWS is optimistic about its future development and will continue to ride the wind power boom, which has become part of the country's continued efforts to reduce its reliance on fossil fuel imports and to curb environmental pollution.
CWS expects its wind turbine component business to generate total sales of $35 million in 2010, up 75 percent from last year.