Nov 21, 2011 03:17 PM

Boom, then Blowdown for Wind Energy's Sinovel

A looming turbine tower half as high as Beijing's tallest skyscraper cast a long shadow over the Sinovel Wind manufacturing plant and a group of local government leaders recently before something went terribly wrong.


Some say the October 10 accident at the Gansu Province plant that killed five people – including three local government officials and two Sinovel workers – was inevitable for a company that's been growing too fast for its own good.

Officials say the arm of the 1,000-ton crane built by Zoomlion Heavy Industries snapped and fell onto the entourage, which had gathered to watch the assembling of the tower with its 5-megawatt turbine and blades 100 meters in diameter.

The dead included Yu Yongding, management committee director for the Jiuquan Industrial Park where the plant is located. Also killed were Yu's his wife, who worked as a city government official, and a Yu subordinate.

The cause of the accident has yet to be determined, and Sinovel Vice President Tao Gang told reporters that it's unclear whether the crane's mechanics or an operator played a role. In his opinion, the crane apparently lost its balance while hoisting the turbine onto the tower.

Tao added that the event had marked the company's first attempt to assemble a 5-megawatt turbine on land. The specially built crane was new as well.

The accident struck a fresh blow at Sinovel's image nine months after three workers were electrocuted in Zhangjiakou, Hebei Province, while trying to debug a faulty wind turbine.

A wind energy industry expert said the latest accident was an embarrassing snafu for the company, which apparently failed to take the necessary precautions for such a major project with high-level guests.

Synonym for Speed

In wind energy circles, Sinovel's rapid rise from obscurity to its current status as a global industry leader has become a modern-day legend. Just two years after its founding in February 2006, the company had become China's largest wind turbine maker.

Moreover, the company ranked as the world's seventh-largest wind turbine manufacturer in 2008, third in 2009 and second in 2010. Its net profit grew nearly 400 percent between 2008 and 2009, and 200 percent the following year.

Sinovel listed on the main board of the Shanghai Stock Exchange in January with a hefty debut price of 90 yuan per share. Since then, though, it's moneymaking potential has drifted.

Sinovel this year was sued by a U.S.-based parts supplier, American Superconductor Corp., for alleged breach of contract. The case was filed in September in a Beijing court.

Moreover, the company recently blamed in part fierce global competition among wind turbine manufacturers for a 50 percent decline in first-half net profit compared to the same period 2010, to 659 million yuan. Its latest financial report said worldwide manufacturers are producing in large quantity, which has forced Sinovel to cut prices to the bone.

Sinovel also reported a 29 percent year-on-year decrease in first-half revenues to 5.33 billion yuan. Revenues from sales of 1.5-megawatt turbines fell 22 percent to 5.28 billion yuan, Sinovel said.

Revenue from the company's 3-megawatt units totaled 43.6 million yuan, down 94 percent from a year earlier.

The company also blamed regulatory foot-dragging in China for the nosedive in demand for its largest turbines.

"Installation of 3-megawatt wind power projects in Gansu and Heilongjiang provinces were pushed back to the second half 2011 due to delays in regulatory approval," according to a company statement.

But Sinovel is not the only sector player facing financial headwinds. "No one in the industry is doing too well," said an investor with stakes in Sinovel suppliers. "In the first half of the year, several big domestic turbine factories were in a semi-shutdown state.

"Sinovel's situation is the worst," he said. "It increased capacity too quickly. If customers knock down orders, there will be high inventory pressure and problems with cash flow.

"In the first half of this year, Sinovel did not purchase a single part from us," the investor said. "Their warehouses were already full."

The company's earliest turbine was a 1.5-megawatt unit based on technology from Germany's Fuhrlander , and it's second was a homegrown 3-megawatt unit.

Last year, the first 5-megawatt units came off the Sinovel assembly line. And last May, the company started offering a 6-megwatt turbine of its own design.

An investor familiar with turbine technology told Caixin that Chinese wind power companies including Sinovel could move quickly into of 1.5-megawatt turbine production because the technology could be bought from established firms in Europe.

But Sinovel moved into 3-megawatt units at a time when the Europeans were merely testing the technology – a move industry insiders say was a mistake.

"Sinovel, up and running only for a few years, can hardly compete with global industrial leaders such as Vestas and Enercon in terms of technologies," the investor said. "But Sinovel's 3-megawatt strategy was more radical than theirs. They were keen to become big, even before building a solid foundation."

Shaky Ground

Sinovel's development pace scared off some customers. A power company in Ontario, Canada, for example, decided it would be foolhardy to buy Sinovel's 3-megawatt units with unproven technology, since in the long run the turbines could require a lot of costly maintenance.

"We didn't dare buy" the 3-megawatt units, said a source close to the Canadian company. "They were too new."

Chinese power companies have raised concerns as well. At an industrial conference in Shanghai in June, Long Yuan Electric Power President Xie Changjun cited problems with Sinovel's turbines at wind farms, and urged the manufacturer to resolve quality issues before launching another expansion project. 

Going too far too fast also apparently contributed to the legal woes with American Semiconductor. Betting on growth, according to the lawsuit, Sinovel ordered electrical components from the supplier but later refused to accept a US$ 56 million shipment.

Sinovel denies it did anything wrong.

Meanwhile, what's now a buyers' market for wind turbines has put Sinovel at a disadvantage when dealing with wind farm operators. The market is such that, MasterLink Securities analyst Zhong Linyang told Caixin, wind farms may be able to push turbine makers to cut prices on as-yet delivered orders.

In addition to the fatal accidents, a short-circuit accident in February at a Jiuquan wind farm in Gansu seems emblematic of Sinovel's struggles.

The mishap knocked 598 turbines, with a combined capacity of 840,000 kilowatts, off the grid. Fluctuating voltage during the incident threatened the entire region's power system, according to the State Electricity Regulatory Commission. The commission called the incident "the gravest accident in China's wind power industry in recent years."

Sinovel's products have been catching the wind at the Jiuquan farm since 2009, when the project won a green light from the National Development & Reform Commission (NDRC), the country's economic planning body. It was China's first wind project with a planned capacity of more than 10 million kilowatts. 

The National Energy Administration, which is an NDRC agency, said in August that any future plans for a wind farm with a capacity of at least 50,000 kilowatts would have to be approved by central government as well as provincial authorities.

One industry insider said the approval process would inevitably extend the time period for processing each project, affecting wind project construction progress as well as turbine procurement.

Even while Sinovel and other companies were ramping up in recent years, Chinese government policymakers were continuing a long debate on whether the nation's industry should pursue large-scale development.

One naysayer is an NDRC official who told Caixin that, in his opinion, wind power is not suited to large-scale projects that rely on long-distance power transmission. Electricity should be generated and used locally, he said, rather than fed into major power grids.

Sinovel officials have so far disagreed with this NDRC official's viewpoint while pushing for rapid business expansion. But this year's business slump, legal troubles and accidental deaths may be giving rise to second thoughts.

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