Cannot sell by the pound anymore! The wind power self-discipline convention reaches its "full moon" and industry chain enterprises see the light of dawn.

After signing the industry self-discipline agreement for one month, what positive changes have occurred in the wind power industry? According to information obtained from interviews by reporters, currently, the consensus in the industry is to "combat internal competition," and actions from all parties are continuous. State-owned enterprises have gradually adjusted their bidding strategies by setting more comprehensive and reasonable evaluation criteria, evaluating the research and development, manufacturing, and quality assurance capabilities of the whole machine manufacturers. Qin Haiyan, Secretary-General of the Wind Energy Professional Committee of the China Renewable Energy Society, told the Financial Union reporter that recently, many of the winning bids in the wind power industry are no longer based solely on the lowest price. This indicates that the industry's efforts to combat internal competition are beginning to show results, and industry associations are further developing detailed rules to solidify the achievements in combating internal competition. A responsible person from a wind power whole machine enterprise told the Financial Union reporter that in terms of industrial development, in recent years, the industry has suffered frequent quality accidents due to low-price competition, ultimately harming the interests of developers and the overall development of the industry. Wind power products, as a major national asset, should not be sold based on weight. The wind power industry needs to focus on the long term and consider the economic benefits generated throughout the entire lifecycle rather than short-term costs. Breaking the ice on internal competition In recent years, China has transitioned from being a follower to a leader in the wind power industry. However, internal competition within the wind power industry has continued to intensify. Despite being considered a "national treasure," wind power products are being sold at bargain prices, and even sold by weight, resulting in significant industry-wide losses. According to Qin Haiyan's estimation, for example, the direct material cost of a 6.25MW model (excluding tower) is approximately 1200 yuan per kilowatt; when considering direct labor costs, logistics costs, and others, the total cost of a unit reaches nearly 1400 yuan per kilowatt without factoring in research and development, marketing, environmental and social responsibility costs. In 2020, the price of wind turbines in China was above 3000 yuan per kilowatt. However, in the first half of this year, according to industry statistics, the average bid price for onshore wind turbines (excluding tower) has dropped to 1400 yuan per kilowatt. The bid prices for wind turbines in some projects have even fallen to 900 yuan per kilowatt. As the overall selling price of whole machine enterprises continues to decrease, the pressure is gradually being transferred to the components sector. The gross margins of components such as castings, main shafts, and even high-tech bearings have all significantly declined, or even resulted in losses. "At present, although the price of forged main shafts has decreased, there is still some profit margin; castings themselves have low profit margins and are being pressured to lower prices under cost reduction pressure, resulting in almost no profitability in the industry, which is extremely unhealthy for the industry's development," said a staff member from the Securities Department of Jinlei Technology (300443.SZ). To steer the wind power industry back onto the right track, on October 16, at the 2024 Beijing International Wind Energy Conference and Exhibition, 12 wind power whole machine manufacturers signed the "Self-Discipline Convention for Maintaining Fair Competition Environment in the Chinese Wind Power Industry," proposing to avoid malicious price competition and slander against competitors. Cao Zhigang, President of Goldwind Science & Technology, believes that in the context of good economic performance and rapid growth in wind power, "high quality" and "high performance" are likely the correct path for the industry to continue its upward spiral. "Industry focus should return to the most optimal whole lifecycle cost of electricity, thereby stabilizing the foundation of the equipment industry." The initial effects of the self-discipline convention Now that it has been a month since the self-discipline convention was signed, what is the effect? "We feel that the effect is quite good. Recently, several tenders were not awarded based on the lowest price, and many developers have begun to modify their bidding terms. In terms of whole machine enterprises, bidding prices are no longer aggressively low," said Qin Haiyan. Financial Union reporters found that recently, several wind power bidding projects were not awarded based on the lowest price. For example, in the Bulgai 1 million kilowatt wind power project, the wind turbine unit (including tower, anchor bolts, etc.) and ancillary services project, the first candidate for the bid was Dongfang Electric Corporation with a bid price of 23.7571 billion yuan, and the second candidate, Goldwind Science & Technology, had a bid price of 23.5028 billion yuan. In fact, in the third quarter before the signing of the self-discipline convention, wind turbine bidding prices showed a trend of stabilization. Sany Renewable Energy (688349.SH), for example, had a comprehensive gross profit margin of 14.85% in the third quarter of 2024, an increase of 3.23 percentage points from the same period last year, and an increase of 0.62 percentage points from the previous quarter. The slowdown of internal competition has also brought hope to component companies. "In general, our negotiations with whole machine manufacturers regarding prices are held annually. This year, the new supply agreement for casting products will definitely involve price increases, and forged products will be priced according to the product situation," said a staff member from the Securities Department of Jinlei Technology. Results still need to be further solidified For the wind power industry, breaking the pattern of internal competition is not easy, and the results still need to be nurtured and further solidified. "After all, the self-discipline convention does not have enforceability, and the subsequent effects will still require further refinements and implementation by various sectors of the industry chain," several responsible persons from wind power whole machine enterprises told Financial Union reporters. In terms of rigid measures, Qin Haiyan revealed that the China Wind Energy Special Committee is currently formulating regulations on penalties and the like. "We plan to convene developers for a meeting soon to jointly establish new standardized bidding terms." Qin Haiyan had previously suggested that during the equipment procurement phase, development enterprises could transition from price-driven decisions to decisions based on the value throughout the whole lifecycle. This could be achieved by setting more comprehensive and reasonable evaluation criteria to evaluate the research and development, manufacturing, and quality assurance capabilities of whole machine manufacturers; increasing the weight of technical evaluation, refining technical evaluation criteria; and using post-project evaluation and operational data as standards for evaluating technical and quality differences. State-owned enterprises with significant decision-making power in the new energy industry have already begun to take action by modifying bidding rules. According to reports from "Global Zero Carbon," in a recent 8.4GW wind turbine group procurement, a large state-owned enterprise modified the bidding rules by no longer using the lowest price as the benchmark for evaluation but instead using the arithmetic average of the bid prices from eligible bidders minus 5% as the evaluation benchmark. This essentially means that the final base price will no longer be based on the lowest bid price but on a discounted average of the actual bids submitted.The establishment of the benchmark price will eliminate quotes that are either too high or too low. According to calculations, under the latest rules of this state-owned enterprise, the overall price of wind turbines will be 96 yuan per kilowatt higher compared to the previous rules, which is good news for machine manufacturers with thin profit margins.Lou Yimin, Senior Vice President of Future Energy and President of the Wind Turbine Product Line, pointed out that the current intense competition in the wind power industry is a "prisoner's dilemma", where the goal is not to win, but to avoid losing. Wind power is a new quality productivity and advanced productivity, and wind turbines are equipment with long lifespan demand and high value investment. The industry must adhere to long-term thinking and focus on the revenue situation of the entire life cycle of 25 to 30 years. China's wind power industry, which once grew rapidly standing on the shoulders of giants, has now entered a "no man's land", where every step forward is a new exploration. This means that wind turbines will transition from "manufacturing" to "creation" stage. "The development of larger and larger new units requires massive cost investment. This includes a considerable amount of investment in full-condition, multi-level testing and verification, which should be reflected in the final product price, rather than basing the price on manufacturing costs, leading to the inability of the market to recognize the value of creation and innovation," Lou Yimin said. This article is reproduced from "Cai Lianshe". Editor: Xu Wenqiang, GMTEight.