Citigroup：中国风力发电行业简报 09.25

25 September 2007 4 pages

China Wind Power Industry

Sexy Growth but Not Risk Free

 A Food-for-Thought Investor Luncheon Event — We hosted the event on 25 Sep
2007 with more than 70 investors discussing China Wind Energy with speakers:
1) Alex Tancock, general manager of a wind power consultant firm Wind
Prospect (HK) with experience in the UK, Australia and China; and 2) Yuchuan
Tian, managing director of Hong Kong Energy (Holdings) Ltd, the renewable
energy arm of Hong Kong Construction (190 HK, NR).
 High growth potential — China is the fifth-largest global wind market with
1,700MW by end-2006. Wind Prospect forecasts this capacity will rise to
30,000MW by 2020, implying a CAGR of 23% pa. Most of the increment would
be in Northeast China with high wind speed and large load.
 Tariffs — Based on Wind Prospect, plants larger than 50MW are of limited
profitability as they are granted on competitive biddings; but, projects smaller
than 50MW each are determined at the local level, offering 5-12% project
return, though PPAs are unlikely in place until after commissioning. Big
projects are often broken up into 49.5MW each to avoid bidding.
 Risks — Key risks are (i) wind mast and data collection are rarely to global
standards, (ii) data in feasibility report could be questionable, (iii) local entity
may choose non-IEC compliant local turbines, (iv) delayed completion, (v)
problems in grid connection and (vi) uncertain tariffs before completion.
 Rewards — Key rewards are (i) projects could be built quickly, (ii) less
uncertainty after getting local government support, (iii) huge market in China,
(iv) possible equipment cost cut once domestic manufacturers are familiar with
them, and (iv) extra profit from CDM and carbon credits.