A few years back, China’s wind power equipment makers offered generous three-year and even five-year warranties to lure buyers as new entrants piled into the already congested market. The aggressive marketing strategy has come at a cost.
Money retained by turbine buyers as quality guarantee deposit – usually 10-20 percent of the contract’s value – has been eroding the equipment makers’ earnings. Counted as account receivables, Xinjiang Goldwind Science & Tech Co. Ltd.’s (02208.HK, 002202.CN) quality guarantee deposits amounted to 1.8 billion yuan (US$295.43 million) as of September while Sinovel Wind Group Co. Ltd.’s (601558.CN) figure stood at 3.5 billion yuan, equivalent to as much as 30 percent of the companies’ sales revenues, the China Securities Journal reported.
These tied-up funds had to be financed with bank loans, with interest expenses adding to the firms’ burden.
One may reckon that since these quality guarantees, most of which were entered into three years ago, are set to expire by year-end, wind turbine manufacturers will soon recoup their money – reportedly 5-10 billion yuan in total.
But sadly that may not be the case.
First, there do exist some serious quality flaws in these wind turbines. Domestically made equipment was never short of such problems as most producers were all embroiled in a cut-throat tussle for orders. The average price of the device per kilowatt was slashed by half to less than 4,000 yuan, forcing manufacturers to cut corners to hold down the cost.
It has been reported that the core components of 22 of the 33 wind turbines at a wind farm owned by Longyuan Power Group Corp. Ltd. (00916.HK, 300105.CN) had to be replaced within the first three years of operation.
The lack of common standards for quality assessment is another thorny issue. It takes an eternity for the two sides to reach a consensus; wind farm operators lodge complaints about quality issues and refuse to return the deposit in full while the equipment makers cite the operators’ failure to follow prescribed procedures or force majeure factors.
In a bid to avoid unproductive clashes between equipment makers and buyers, the China Wind Energy Association is drafting a set of quality guidelines for wind power equipment.
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