Wind Energy in China, an Emerging Market with Great Challenges European Wind Energy Conference & Exhibition 2006 Athens, Greece, February 27 - March 2, 2006

EWEC 2006, Athens, February 27-March 2, 2006 The interesting question about the advent of $50- a-barrel oil is whether it signals a new era in the economics and politics of energy. To sharpen the question: Have we entered a period when, owing to consistently strong demand and chronically scarce supplies, prices have moved permanently higher? We don't know, but the answer could be "yes" for at least one reason: China. -- Washington Post

EWEC 2006, Athens, February 27-March 2, 2006 Wake up in Santa Barbara, Calif., one morning to a sky that looks as though it is painted a shiny white. The morning's newspaper reports that the sunlight is playing tricks on something known as the Asian Brown Cloud, a mass of dust that has drifted over the Pacific from China. The cloud contains particles of loose earth from deforested land mixed with arsenic and other industrial pollutants from the country's factories. -- Yahoo Global Business Outlook

EWEC 2006, Athens, February 27-March 2, 2006 Wind energy development is accelerating in China In 2004, China installed 197 MW new wind power capacity, with 35 percent over In 2004, China installed 197 MW new wind power capacity, with 35 percent growth over increase Near 500 MW wind power capacity was further added in 2005, an even higher increase of 65 percent.

EWEC 2006, Athens, February 27-March 2, 2006

Major forces driving renewable energy development in China Sustained energy demand growth; Growing energy supply security concerns with high oil import dependence; Rapid environment degrading; Relatively untapped large renewable energy resources; New investment and development opportunity.

EWEC 2006, Athens, February 27-March 2, 2006 China is endowed with large wind energy resources (total of 5.3 billion kw, or 1,000 gw developable - 10 meters above the ground plus offshore)

EWEC 2006, Athens, February 27-March 2, 2006 Three key elements in China’s long-term energy strategy Clean coal technologies; Energy conservation and efficiency improvement; Renewable energy development

EWEC 2006, Athens, February 27-March 2, 2006

National Renewable Energy Law was promulgated in February 2005, and went into effect in January 2006 The government lists renewable energy as preferential development and utilization. The government lists renewable energy as preferential development and utilization. The government encourages and supports grid- connected renewable power generation. The government encourages and supports grid- connected renewable power generation. Renewable energy projects listed in the national industrial development guidance catalogue may receive preferential loans and tax benefits. Renewable energy projects listed in the national industrial development guidance catalogue may receive preferential loans and tax benefits.

EWEC 2006, Athens, February 27-March 2, 2006 Grid enterprises shall enter into grid connection agreements with renewable power generation enterprises, buy grid-connected renewable power, and provide grid connecting service to renewable power generation. Grid enterprises shall enter into grid connection agreements with renewable power generation enterprises, buy grid-connected renewable power, and provide grid connecting service to renewable power generation. Grid-connected renewable power prices will be determined by feed-in tariffs or tender. Grid-connected renewable power prices will be determined by feed-in tariffs or tender.

EWEC 2006, Athens, February 27-March 2, 2006 The excess between the expenses that a grid enterprise purchases renewable power and conventional power prices shall be shared in the selling price. The excess between the expenses that a grid enterprise purchases renewable power and conventional power prices shall be shared in the selling price. Grid connection expenses by a grid enterprise for renewable power shall be included into the grid enterprise power transmission cost and recovered from the selling price. Grid connection expenses by a grid enterprise for renewable power shall be included into the grid enterprise power transmission cost and recovered from the selling price.

EWEC 2006, Athens, February 27-March 2, 2006 More recently, two detailed regulations on renewable power cost and expense sharing, and wind farm land use and environmental protection have been issued. Renewable power feed-in price follows government guiding pricing mechanism, and is determined through tender. Renewable power feed-in price follows government guiding pricing mechanism, and is determined through tender. Excess renewable power costs and expenses are shared through price surcharge to end users. Excess renewable power costs and expenses are shared through price surcharge to end users.

EWEC 2006, Athens, February 27-March 2, 2006 Wind farmCapacity MW Round 1 (2003)Phase 1 Rudong, Jiangsu Province100 Shibeishan, Guangdong Province100 Round 2 (2004)Phase 1 Huitenxile, Inner Mongolia100 Tongyu, Jilin Province400 Phase 2 Rudong, Jiangsu Province150 Round 3 (2005)Dongtai, Jiangsu Province200 Anxi, Gansu Province100 Jimo, Shandong Province100 Concession Wind Projects in China

EWEC 2006, Athens, February 27-March 2, 2006 Wind power development in China is, however, confronted with many challenges such as legal regime, government policy, power pricing mechanism, market liberalization, industrial structures, financing vehicles, and etc.

EWEC 2006, Athens, February 27-March 2, 2006 Diversified motives developing wind energy Driven by energy: the East Coast; Driven by energy: the East Coast; Driven by emission: the South; Driven by emission: the South; Driven by economic development needs: the North and the West regions; Driven by economic development needs: the North and the West regions; Driven by opportunity: the other places. Driven by opportunity: the other places.

EWEC 2006, Athens, February 27-March 2, 2006 Taking advantage of globalization vs. protecting domestic enterprises Open to foreign investment, but encouraging domestic manufacturing; Open to foreign investment, but encouraging domestic manufacturing; Imported wind power equipment may not receive tariff benefit. Imported wind power equipment may not receive tariff benefit.

EWEC 2006, Athens, February 27-March 2, 2006 Rationalizing power sector to accommodate wind energy development The power sector remains strictly state control, in spite of years of reform and restructuring; The power sector remains strictly state control, in spite of years of reform and restructuring; Wind power feed-in price tender vs. state controlled electric power pricing. Wind power feed-in price tender vs. state controlled electric power pricing.

EWEC 2006, Athens, February 27-March 2, 2006 Incomplete and insufficient legal framework and government policies Market operation transparency; Market operation transparency; Guidelines vs. executable rules and policies; Guidelines vs. executable rules and policies; Integrated incentives and support; Integrated incentives and support; Regulation implementations. Regulation implementations.

Main Conclusions China’s wind power development is moving into a fast track with huge long-term potentials; The government has established initial legal framework and guidelines, but more supportive and integrated policies / measures are needed; Further energy sector reform and market liberalization are required to allow healthy renewable energy development; China is in an early stage of wind energy development, and may well take advantage of the globalization, borrowing more matured technologies and experience of other developed wind energy markets. EWEC 2006, Athens, February 27-March 2, 2006

3E is the first independent consulting firm set up in China on energy and environment, providing strategic analysis and services for international players interested in the Chinese market, and Chinese enterprises seeking global opportunities. For active international renewable energy players, 3E Keeps updated of market dynamics and insights of Chinese renewable energy Keeps updated of market dynamics and insights of Chinese renewable energy Provides professional analysis and outlooks on industrial trends and policies Provides professional analysis and outlooks on industrial trends and policies Offers assistance in identifying investment opportunities, uncertainties and partners Offers assistance in identifying investment opportunities, uncertainties and partners

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