Despite the rapid development of the wind power sector in the People's Republic of China ("PRC"), the PRC continues to idle a significant proportion of its overall wind power output due to power-grid constraints. In an effort to curb further the expansion of smaller-scale manufacturers in the wind power equipment manufacturing industry while encouraging the development of larger manufacturers, the Ministry of Industry and Information Technology ("MIIT"), the National Development and Reform Commission ("NDRC") and the National Energy Board ("NEB") have publicised a set of draft Standards for Access into the Wind Power Equipment Manufacturing Industry ("Draft Standards") on 26 March 2010.
Establishment of Wind Power Equipment Manufacturing Enterprise
The Draft Standards set out new criteria for the establishment of wind power equipment manufacturing enterprises ("Manufacturing Enterprises"), some of which are highlighted below:
- an investor shall invest not less than 30% of the total capital in the Manufacturing Enterprise with its own funds;
- the Manufacturing Enterprise shall be capable of producing wind power equipment with a capacity of not less than 2.5 MW per unit and overall annual capacity of not less than 1,000 MW;
- the Manufacturing Enterprise will be permitted to expand its facilities if it can demonstrate an accumulated equipment installation record of 500 MW and above;
- all new Manufacturing Enterprises shall have a minimum of five years' experience in handling large-scale machinery in the electromechanical industry; and
- the Manufacturing Enterprise undergoing an expansion shall have a track record of having 200 or more MW-class wind turbines which have been pre-commissioned for at least 240 hours on a wind farm.
To promote technology development, the Draft Standards require the Manufacturing Enterprises to comply with certain key conditions, including:
- there will be restrictions on the import of any technology concerning wind power turbines with less than 2.5 MW per unit;
- there will be restrictions on the acquisition of production permits concerning wind power turbines with less than 2.5 MW per unit;
- Manufacturing Enterprises shall prioritise the development of wind power turbines with a capacity of 2.5 MW or more per unit in which they hold intellectual property rights;
- Manufacturing Enterprises shall prioritise the development of offshore wind turbines;
- Manufacturing Enterprises shall devote a minimum of 5% of their total sales income on research & development; and
- Manufacturing Enterprises shall form professional research and development units to conduct research on areas such as aerodynamics, structural analysis, mechanics, hydraulics, automation and software development.
Energy Conservation, Environmental Protection and Integrated Resource Utilisation
The Draft Standards also provide for certain key measures on energy conservation, environmental protection and integrated resource utilisation, including:
- the establishment of new or the expansion of existing Manufacturing Enterprises shall comply with the relevant laws on environmental impact assessment;
- the components manufactured by the Manufacturing Enterprises shall meet the national and industry standards on energy efficiency levels and noise levels;
- Manufacturing Enterprises are prohibited from using any outdated machinery, manufacturing techniques or raw materials as specified by the State;
- Manufacturing Enterprises shall ensure that at least 90% of the water used in production is recycled and reused; and
- Manufacturing Enterprises shall recycle and reuse more than 85% of the solid waste materials generated as part of the production process.
Supervision and Management
To facilitate supervision and management, MIIT, NDRC and the NEB will periodically publish a list ("Qualified List") of Manufacturing Enterprises that have complied with the Draft Standards. Existing Manufacturing Enterprises that are not listed in the Qualified List shall address their shortcomings to comply with the Draft Standards within six months of its promulgation. Manufacturing Enterprises unable to comply with the Draft Standards within six months will excluded from the Qualified List. Further, the excluded Manufacturing Enterprises will not enjoy any benefits on such issues as investment, tax, property, environmental protection and financing provided by the State.
The Draft Standards impose a high threshold for Manufacturing Enterprises to enter into and remain in the industry by imposing stringent requirements on wind power capacity and focussing on the development of core wind power technology locally. Such requirements are targeted at minimising the inefficiencies created by the proliferation of small- to mid-sized Manufacturing Enterprises and minimising excessive reliance on foreign technology. Small to mid-sized Manufacturing Enterprises may have considerable difficulty overcoming these hurdles such that consolidation with larger Manufacturing Enterprises may be inevitable.
For inquiries related to this Legal Update, please contact:
Jack Su, Head of Energy, Asia
Xiang Yang Ge, Head of Projects, China