Low prices always low prices is the slogan taken by China’s wind and solar PV panel manufacturers. It describes their global market strategy of flooding the market with equipment, driving down prices as a result of that glut and suctioning up feed in tariffs and other subsidies to help finance China’s export production growth. For a while it was a winning strategy. Then the US and EU players caught onto the game forced to act by rising deficits and rising costs of subsidies rationalizing the subsidy cuts by celebrating that wind and solar were at or near grid parity as a result of falling global prices.
Now we have experience with those low priced Chinese wind turbines in the market. Quality is improving rapidly but like any new manufacturer of complex equipment there are service issues. The other problem for China is that it succeeded in commoditizing the oldest, least efficient wind turbines and solar PV panels driving down their cost to compete in global markets eager for low prices but needing higher efficiencies and larger scale to reach the market penetration rates necessary for sustainability before the subsidies run out.
So the forward focus of the wind industry is now shifting to increasing operating efficiency, improving performance, adding energy storage technology, providing real-time control and cutting maintenance requirements. EU and US wind manufacturers focused on the best new technology and highest efficiency have new opportunities to successfully compete by stripping costs from the balance of system operations, maintenance and support which can also add a few percentage points to technical efficiency gains resulting in a lower levelized cost of electricity.
Why is this important?
Because the grid parity price to beat for natural gas is likely to be low for quite a while as a result of the growth of unconventional shale gas decoupling the price of natural gas in North America. If wind energy manufacturers can improve technology, reduce operating cost, improve performance profitability in America they will be golden in other global markets where natural gas prices are expected to be higher longer until shale gas development reaches critical mass in those markets as well.
The Chinese manufacturers will continue to produce cheap wind turbines and will eventually commoditize more efficient technologies, but unless more of them follow the changing business model of Goldwind and bring their profits to America buying up and operating wind farms themselves as merchant generators, American manufacturers still have a window to build sustainable market share. The bet is that services will never be a good business model for China in US and EU markets for all the reasons you can easily imagine including it does not support exports growth. Competitive grid parity pricing, good service, high efficiency, best technology, best performance, lower balance of system costs—these are the drivers of successful wind energy market share growth in a grid parity market future.
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