AES taps into China's rush to wind power

By Steven Mufson
Washington Post Staff Writer
Monday, October 26, 2009

HUANGHUA, CHINA -- Along the flat shoreline of the Bohai Sea, 33 new Chinese-made wind turbines jut up into the hazy sky, forming a line more than six miles long amid the shrimp farms here.

In the light breeze, the turbines turn lazily, but the pace of China's wind business is anything but sluggish. China aims to boost wind-generating capacity to more than 120 gigawatts by 2020, about four times the capacity that currently exists in the United States.

In Huanghua, about a three-hour drive southeast from Beijing, the concrete foundations for 30 more turbines have been laid and the project partners are eyeing possible expansion into the shallow waters offshore, where an oil-drilling rig now stands a short distance away.

"They are putting policies in place encouraging this on a grand scale," said Paul Hanrahan, chief executive of AES, an Arlington company that is a partner in this and three other Chinese wind projects.

Like many wind projects in China, this wind farm -- which started generating power last month -- is the product of U.S. and Chinese investment, featuring Chinese-made wind turbines and tapping Chinese subsidies for the electricity sold. Europe will play a role, too. If all goes according to plan, the venture will qualify to sell carbon offsets to traders or directly to European companies that are exceeding their emission quotas under Europe's cap-and-trade system.

China's push into wind energy is part of a broader effort to change its energy mix in an effort to reduce carbon emissions that contribute to climate change. It has set a goal of getting 15 percent of its power from renewable sources by 2020.

The experience of AES -- which generates electricity in 29 countries -- reflects the changing trends in China's energy sector. In the 1990s, AES focused on coal plants in China and it still operates three big ones, whose 2,400 megawatts of output dwarfs the company's Chinese wind farms.

Last year AES sold two inefficient fossil fuel power plants. One, an oil-fired plant, was bought and dismantled by the Chinese government. The other, coal-fired, was bought and may be refurbished by an aluminum maker; for now the plant is operating at only partial capacity.

"The Chinese are very much focused on things we would regard as environmentally sound practices," says Hanrahan, who was based in China for AES during the 1990s. "They are shutting down old [coal] plants and building new plants that are incredibly more efficient."

Joining the crowd

AES has joined the rush to build wind turbines in China, mostly in Inner Mongolia, where the wind blows stronger than it does near the Bohai Sea. The other AES wind projects are in Hulunbeier in northeast China.

The work could reshape AES. Sources say China Investment Corp., China's sovereign wealth fund, has been considering an investment in AES in return for a substantial equity stake. The deal would give AES more capital and greater access in China. The sources commented on the condition of anonymity because the talks have been private.

There are hurdles to overcome. The explosion in the number of wind turbines has created transmission bottlenecks; many turbines stand idle in Inner Mongolia and northeast China awaiting connections to State Grid Corp. of China, the company that owns 80 percent of the country's power grids.

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