17 February 2020
Wind farm sales account for a tiny fraction of Goldwind's income. Photo: Bloomberg
Wind farm sales account for a tiny fraction of Goldwind's income. Photo: Bloomberg

Wind farms no easy sell, but business potential solid

China is promoting the use of clean energy such as solar and wind to fight the degradation of the environment. As the nation’s leading wind power player, Xinjiang Goldwind Science & Technology (02208.HK) is at the forefront of this campaign.

As a result, Goldwind’s share price has shot up about 160 percent since the start of 2013.

While still relying heavily on its turbine-making business, the company diversified into wind power services and wind farm construction a couple years ago, which enabled it to pull through the industry downturn and subsequently emerged as market leader.

Wind farm sales account for a tiny fraction of its income, but Goldwind stands to realize a hefty disposal gain if it can find buyers for its wind farm portfolio, according to a Haitong International Research report.

The return on its wind turbine investment was just a little more than 1 percent last year while the figure for wind farm construction was 15 percent, the National Business Daily quoted Goldwind president Wang Haibo as saying. Also, profit margin was 10 times higher for wind farms compared with wind turbines, the report says.

But that’s only if the wind farms are sold. The truth is, the company was only able to dispose of about 7 percent of its wind farms in the first half of 2013.

Goldwind reportedly has been trying to sell two wind farms in Inner Mongolia and Jilin since June, but so far no luck.

And if it can’t sell the projects, one option for the company is to run the wind farms on its own. Now, operating a wind farm is very different from building and selling one. The former demands a lot more capital and requires a longer payback period. Heavy financing costs, volatile carbon credit income and rising repair and maintenance expenses will further blur the profit picture.

Last year, leading wind farm operator China Longyuan Power (00916.HK) recorded a 71 percent increase in repair and maintenance costs while its installed capacity only rose 13 percent.

A government official from Gansu province once told media that one has to have considerable financial strength to invest in wind farms as the huge costs could easily drag companies into financial distress.

Some have raised questions about Goldwind’s accounting practices. The 21st Century Business Herald reported last year that the group had a tendency to book gains from wind farm sales by disposing of the projects to joint ventures rather than end-customers.

Turning wind farm construction into a major and steady income source is likely to remain a challenge for Goldwind. Still, the country’s worsening air pollution problem means the government’s green campaign will remain a policy focus for years to come, providing Goldwind with a better operating environment.

Last year, only 3 percent of China’s power came from wind, and wind energy accounted for just 15 percent of the newly installed generation capacity. There’s still so much room for business expansion.

– Contact the writer at [email protected]




EJ Insight writer