In recent years, the wind energy sector in China has experienced significant fluctuations due to various policies and external factors, resulting in peaks in installed capacity at the conclusion of each five-year planThe industry has primarily been driven by electricity price subsidies and the ability to consume wind energy prior to the new normal of cost parity in energy pricingAs we approach 2025, which marks the end of the 14th Five-Year Plan, anticipation builds around a possible new wave of installations, often referred to as the “installation rush,” that could dramatically reshape the market dynamics.

Bidding patterns serve as a forward-looking indicator of the performance potential for wind energy manufacturersHistorical data shows significant gaps between the quantities obtained through bidding and the actual installations connected to the grid, particularly as the industry braces for expected surplus bidding in 2024 that could translate into fruitful operational results in 2025 and 2026. Moreover, ongoing offshore wind projects, currently in various stages of development, may face challenges that are anticipated to ease by 2024, paving the way for a robust year for offshore wind installations in 2025. Historical precedents suggest that this final year of the Five-Year Plan will trigger the next round of the installation frenzy, with projections estimating an addition of approximately 110 gigawatts (GW) to installed capacities, including about 95 GW from onshore and 15 GW from offshore wind.

In contrast to recent years, where bidding prices for wind turbines have exhibited some volatility, the previous year witnessed a stabilization in prices

The fierce price competition that characterized the domestic wind turbine market has subsided, and bids favoring non-lowest price selections are gaining traction, resulting in a positive trend for the entire value chainAfter experiencing intense competition, the recovery of profitability for enterprises in the supply chain appears plausibleFurthermore, as demand for wind energy grows on several international fronts, the robust overseas market is expected to enhance the profitability outlook for the domestic wind equipment manufacturing sector.

By the end of the third quarter of 2024, the contract liabilities reported by listed companies had reached an all-time high and are showing a sequential growth trend, which indicates that the downstream demand for wind equipment remains strong and is forecasted to significantly improve in 2025.

The concept of wind energy installation rushes is not unfamiliar

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Historical data tells us about the first installation rush that occurred between 2014 and 2015, coinciding with the first reduced subsidies in benchmark electricity prices in 2014. In 2015, as policies clearly indicated a reduction in electricity prices with the increase in installation scale, companies accelerated their project construction to capture revenues before subsidy policies changedThis scenario led to a rapid surge in onshore wind power installations, amounting to a remarkable 30.8 GW.

A second notable rush can be identified in 2020 for onshore wind and in 2021 for offshore windThe bidding requirements for onshore projects mandated that installations must be grid-connected by the end of 2020, resulting in an impressive addition of 68.6 GW of newly installed capacityBeginning in 2021, the wind energy sector officially entered a new phase of cost-parity, widening the gap between peak and low valley electricity prices, and accelerating the integration of renewable energy sources into the grid

Furthermore, with 2021 marking the final year for offshore wind subsidies, companies rushed to complete their projects before we moved into the parity of grid prices.

In 2022, while substantial offshore wind turbine contracts were signed, several projects saw delays in development, with turbines not being delivered on scheduleIn contrast, the years 2022 and 2023 brought about a more subdued offshore wind installation rate, achieving 5.16 GW and 7.18 GW, respectively, still with many existing projects yet to be deliveredThe easing of restrictive factors affecting offshore wind projects in provinces like Jiangsu and Guangdong in 2024 has already begun to spark an accelerated pace of approvals and bidding in the latter half of the yearThe outlook for 2025 points to a significant focus on existing capacity projects in offshore wind.

Notably, bidding has historically provided a clear insight into the future performance growth of wind turbine manufacturers, but in recent years, the vast data gap between bidding and grid connection has been striking

In 2022, the total volume of offshore wind turbine contracts tallied up to 17.9 GW, with numbers dropping to 5.2 GW in 2023, yet reaching 10 GW from January to November of 2024. More than 43 GW of offshore wind projects are currently in the approval stage, with further bidding anticipated to roll out through December of 2024 and into 2025. Projections suggest that offshore wind installations could reach 10 GW, 15 GW, and 20 GW in the subsequent years from 2024 to 2026, respectivelyA notable benchmark was reached in 2024, where the bidding for domestic turbine manufacturers reached a staggering 162.8 GW, laying the groundwork for substantial growth in installation sizes.

Historical analysis by various financial institutions suggests that the initial motivations driving past installation rushes were directly linked to the timing of subsidy policy expirations, which necessitated that projects connect to the grid within a specified time frame to benefit from subsidy prices

Observing that the urge to rush for subsidies has now dissipated with all wind projects already achieving grid price parity, the anticipated installation growth will draw on historical trends in land-based wind growth and bidding activityThis projects expected additions of around 95 GW for onshore and an additional 15 GW for offshore regions, suggesting that 2025 is positioned for yet another significant installation rush.

Turning our attention to pricing trends, an evident decrease in turbine prices has been notable in recent years, with average bids for onshore turbines dipping from 3081 yuan per kilowatt in January 2021 to an impressive 1475 yuan by September 2024— a remarkable 52% decline, though at a diminishing rateThe ongoing fierce industry competition, in conjunction with lower bidding prices, has yielded a decline in gross margins for turbine manufacturers in 2023, although signs of an upward recovery are apparent for the first half of 2024.

In October 2024, a collective of over a dozen wind turbine manufacturers signed a self-regulatory agreement aimed at maintaining a fair competitive environment in the market and opposing price wars

In November, State Power Investment Corporation's large-scale bidding for 7.2 GW of turbines adopted a new pricing benchmark based on the arithmetic average price with a downward adjustment of 5%, contrasting with previous practices that favored the lowest bidder, resulting in a notable increase in turbine contract prices.

Over 23 GW of projects employing 10 MW turbines are already progressing in China, which represents about 17% of the total onshore wind market bidding volumeAdditionally, technological advancement has significantly improved offshore wind turbine sizes, with the largest units installed in 2023 increasing from 11 MW to 16.5 MW, aligning average offshore turbine capacities with those in EuropeNumerous domestic brands have developed turbines achieving 16-20 MW capacities.

However, rapid technological iterations for larger turbines have not significantly improved profitability at the main equipment production stage

Wind energy companies face challenges stemming from inconsistent quality and increased operational costs associated with large-scale turbinesWhile onshore turbine sizes can challenge transportation limits and project costs, until a stable and scaled production capacity is achieved, the high investment in research and development continues to inflate costs.

By November 2024, the average price for onshore wind turbines is expected to recover to over 1500 yuan per kilowatt, driven largely by the increasing share of 5-7 MW models in the market—a reflection of shifting business strategies among manufacturersMoreover, domestic wind turbines continue to maintain a competitive edge against foreign products due to lower pricingWith soaring export volumes and accumulated sales reaching 1.1 billion US dollars by the end of 2024—a staggering 75% increase from the previous year—Chinese turbine manufacturers are poised to broaden their market presence abroad, where profitability trends tend to fare better than in the domestic arena.

A turning point for profitability may be on the horizon

Since the shift to cost parity for turbines, bid prices have continued to decline, impacting internal component costs accordinglyAs of April 2023, the top five domestic manufacturers had only just finalized their models for the 10 MW and above category, indicating a pressing need for supply chain adjustments to keep pace with rapid market changesThe refinement of large cast parts like spindle and hub requires adequate time for capacity enhancements and cost reductions in production.

With less than two years since the creation of large megawatt turbine models, the timeline for supply chain adjustments has been quite constrainedExpected deliveries of large megawatt turbine models in the second half of 2024 will intensify pressure on the upstream supply chain, signaling potential shortages for crucial parts like castings and blades, as well as main shafts

In 2025, should manufacturing capacities remain stagnant, the framework agreements for these components will likely provide a foundation for price increasesThe need for rapid updates in blade molds indicates shortages on the horizon, and an expectation of growing demands coupled with stable prices may translate to improved profitability.

Wind energy casting and forging represent a clear example of a cost-competitive industry, where domestic companies excel in material costs, labor, and energy expensesMore than 80% of wind energy casting production capacity is concentrated in China, with projections suggesting that domestic production capacity could reach approximately 289,000 tons by 2025, while demand is anticipated at around 381,000 tons, highlighting a potential supply shortfall.

Moreover, large megawatt projects impose higher expectations on components, which has resulted in a low profitability scenario after sustained price drops in previous years

As noted by Zhaoshang Securities, the segments that are lagging in asset weight and showing slower expansions may soon experience demand pressures, presenting opportunities for price adjustments.

Forecasts indicate significant growth for offshore wind installations in Europe between 2024 and 2028, with projections of 5.0 GW, 6.7 GW, 8.2 GW, 8.4 GW, and 10.4 GW, respectively, totaling over 30% growth in 2025 aloneMarket demands for single-pile products needed for offshore wind infrastructures are expected to claim over 80% of market share, while local supply inadequacies in Europe will likely extend delivery timelines, leading to opportunities for Chinese suppliers in terms of towers, tower sections, and components.

Recently, Taisheng Wind Power's capital augmentation proposal was approved, with aims to raise funds no greater than 1.186 billion yuan to enhance liquidity

However, substantial pressures have emerged for major tower manufacturers due to the fierce price competition in onshore towers and the smaller scale of offshore products stretching operational costs, with profit margins sinking to historic lowsThe net return on equity for tower components and casting enterprises has dropped below 4%. Nevertheless, the outlook remains optimistic given strong growth in end-user demand and expectations of eased price competition across the board, suggesting that all segments could yield positive improvements.

Financial reports from five notable companies in the wind sector—Tianshun Wind Power, Dajin Heavy Industry, Haili Wind Power, Taisheng Wind Power, and Tianneng Heavy Industry—revealed a combined contract liability total of 57.1 billion yuan by the end of the third quarter in 2024, a 30% year-on-year increase and a 17% sequential rise