During President Hu Jintao’s state visit to the US， UPC Management and China Guodian signed 10 billion wind power deals on January 18， according to which the two parties will join together to develop， construct and operate 7 wind power project with the total installment capacity exceeding 1075 mega watts.China and the US have been committed to the cooperation in the clean and new energy field. And the practical cooperation is actually done mostly by the companies. Many US companies have invested the wind power industry in China， and Chinese companies also started their investment in the US. How do the US companies measure up the wind power industry and market in China? How should Chinese companies and the US companies have better cooperation in the field? Concerning those questions， the journalist of China’s Foreign Trade made an exclusive interview with Brian Caffyn， CEO of the UPC Renewables， who， as an entrepreneur and expert in this industry owing to more than 20 years of experience in the field， shared his insight into those questions with us.Q: China’s wind turbine output is said to be No.1 in the world. And there have been voices that the wind turbines were overproduced in China. What’s your view on this? What do you think are the major problems or challenges in the development of the wind power industry in China? How should China cope with these challenges?A: As for Manufacturers in China have worked very hard and been very competitive for driving down the cost. Ultimately， by driving down the cost， they make the wind energy more competitive and achieve the reduction of the price for wind electricity all over the world. That’s great thing for the industry over all. It may hurt the individual manufacturers， but it doesn’t hurt the industry and doesn’t hurt the developers. The developers also benefit from the reduction of the cost. So on average it is a very good thing.Integrating large amounts of wind into the grid system is the biggest challenge as it has been in every country which has attempted it. Grid operators are cautious by nature as they are responsible for reliable power supply. It takes some time for them to understand how wind operates and how best to integrate it into the overall power supply at different times of the day and week. The lowest energy consumption/generation periods are the most difficult (weekend late evenings and early morning hours) when the wind is blowing strong as the percentage of wind in these hours could be much higher than its average generation percentage.China has done a commendable job of creating the right carrot (reliable long term tariff rates set at reasonable levels， must purchase laws， income and VAT tax incentives and enabling CER revenues to be obtained) and stick (penalties if Grid companies do not buy sufficient renewable energy， minimum renewable generation requirements for large utilities) approach to the market to assure maximum motivation of the power companies to generate wind energy and the Grid companies to purchase. China has done is now moving very quickly to have the Grid companies expand the electrical grid into areas with good wind resources and to unblock constrained power lines to allow sustained growth on a reliable path. A remaining challenge will be how to create a substitute carbon trading scheme if， as seems likely， there is not an extension of the Kyoto accord.Q: UPC has operated wind farms in China for 4 years and must have much contact and deals with Chinese wind equipment manufacturing compa- nies. What do you think of the quality of wind equipment produced by Chinese companies? What do you think will be the challenge for the Chinese companies to remain their leading position in this industry in the world?A: There are of course a great many manufacturers of wind turbines in China however there are really only about 10 which are making any significant production. I therefore address my comments to those producers. Having been involved in turbine review and selection from the inception of the modern wind turbine 20 years ago， I am confident to say that Chinese turbines currently being produced are of industry average to above average quality. We intend to only use Chinese turbines to the more favorable economics they provide but we would only be able to make this choice where the quality is acceptable or better than acceptable and I am convinced that the top Chinese producers meet this threshold.China will be the largest market in the world for wind turbines for the foreseeable future. Therefore having a large share of this market will allow Chinese turbine manufacturers to remain as large producers measured world wide. Chinese manufacturers are more aggressive than their international counterparts at implementing new technology and striving for lower cost so I expect Chinese manufacturers to have an ever increasing share of the international market. This will take some time as international investors and banks have to become comfortable with the quality of the companies and they develop sales and support teams in local markets. Trade barriers in various forms will slow down this process but eventually quality turbines which yield lower generating costs per kwhr will win through.Q: According to the report issued by China’s State electricity Regulatory Commision， at present， the wind farms in China run difficult in general and some even took a loss. And 1/3 of the wind power generators stayed idle. I learned from UPC ‘s website， now UPC has one project in operation， and two in construction. How do UPC’s projects run? What do you think are the major problems or difficulties in running and developing wind farms in China?A: UPC Renewables China has entered into partnering arrangements for some of its projects with several Guodian subsidiaries for both UPCC and Guodian developed projects. Guodian is one of the“BIG-5” utilities in China and UPCC is working to expand its relationship with Guodian in developing additional project opportunities.The approval process is the major problem for us. It takes some time. For a foreign company， the officials are more cautious about giving approvals than those state-owned companies. There are some challenges of getting these approvals. But you know we will get it. It does take time longer for us to get these approvals than it does for those state-owned companies.Q: How do you think the prospect of China’s wind power market in the next 5 years?A: It’s great. The wind market in China will grow. And I believe China will remain the largest market in next 20 years in the world in the wind industry. You know， China has great infrastructure system， strong political support for new energy and for domestic generation of power， good understanding of benefit of wind energy and etc.Q: UPC Management and China Guodian signed 10 billion wind power deals. What do you think is the significance of the deal?A: Under the agreement， the two companies will develop， construct and operate the projects. UPC will provide US$735 million out of the total investment of US$1.5 billion. The projects will be built across four Chinese provinces in total. For UPC， the deal will help UPC to further expand operations in China.In a broader sense， the world only has got changed in the last generation， and the cooperation between China and the US is very very important now. It is demonstration that the real economic and business cooperation has been done between the two countries. And it is also very important indicators to measure the business cooperation of the two counties. We can work together to solve the problems we have.Q: UPC is the founder of the ECP. As we all know， China and the US have reached agreement that the two countries should strengthen cooperation in the clean and new energy field. Are there any barriers or problems for the cooperation between Chinese companies and the US companies in the field? How do you think should companies from China and the US have a better cooperation?A: The challenge is that there are a lot of US companies that don’t understand China and don’t understand how to do business in China. There should be an education process for them to learn the laws， the rules for doing business in China. For example they often encountered the intellectual property problems. Of course， for the issue， China also should enforce the protection of intellectual property right.Q: UPC has operated wind farms successfully for 4 years. And now UPC is still keeping expanding its business in China. Would you share some of your precious experience in running business in China? What’s your advice for foreign companies which plan to run business in wind industry in China?A: You have to be aggressive and willing to move quickly. Actually， being aggressive and moving quickly is UPC’s tradition. Normally things will take a little bit longer in China for us.The legal work required in a foreign country is usually very expensive， but in China， it is much less. The legal system is there， but the way you document is what you must deal with. A company should get used to the way of doing business in a different way in foreign countries. Going forward with short document， being straightforward and not complicated， and relying on the government to do the right thing contributed to our efficiency and success of running business in China. Besides， we hire good Chinese people to help us and cooperate with Chinese companies which are really helpful for us to expand our business.There are two types of foreign companies involved in China， one is the manufacturers of turbines and turbine components and the other is developers/power generators like ourselves at UPC and my advice is different for each.For manufacturers: Become as Chinese as possible. Use all Chinese components and get aggressive at driving costs down. Having lost most of their initial advantage many foreign manufacturers are using China as a manufacturing base for exports. This is a bit of a dirty secret in the industry as these manufacturers do not want to advertise that they are building in China for export. My suggestions is they gear up and do a lot more of it since our industry can only continue to grow if we drive our costs down and too many international manufacturers forgot this over the last few years when supply was tight and they raise instead of lowered prices. For power producers: Become as Chinese as possible. Be aggressive and look for strong local managers， employees and partners. The time has passed for the Chinese to need developers to come to show the Chinese how to do business. The Chinese are open for business but they are not waiting around for anyone. If you want to participate in this market commit to it and be prepared to accelerate your decision making process. The world moves fast over here!
