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The Unsustainable Rise of China’s Wind Turbine Manufacturing Industry

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Presentation on theme: "The Unsustainable Rise of China’s Wind Turbine Manufacturing Industry"— Presentation transcript:

1 The Unsustainable Rise of China’s Wind Turbine Manufacturing Industry
Long Lam Technological Change & Entrepreneurship / EPP Carnegie Mellon Portugal Program Advisors: Prof. Lee Branstetter (Heinz College) & Prof. Inês Azevedo (EPP) Why patents? Why should capacity and patents have correlation? It’s the output and Why said that China is the savior? Back this up

2 Key Messages Production and innovation are thought to go hand in hand
China has emerged as a global player in the wind power industry with more wind capacity than another other country China is poised to win the innovation race? (Thomas Friedman) Patent count indicates few Chinese inventions Patent citation analysis suggests that the wind power industry is relatively mature Conditions for an industry to migrate to and flourish in China, especially with appropriate policies Thomas friedman: allowing china to become the innovation hub and win the renewable energy innovation race Patent: few in large markets (US and Europe) mature;: not complicated to manufg standardized components

3 China is the world’s largest polluter
CO2 emission per capita (tonne) Given the environmental costs associated with conventional (mostly coal-fired) power generation, there has been great focus on wind energy Largest energy consumer 2.4 mil kt of oil equivalent vs US’s 2.2 mil (2010, World Bank) Largest CO2 emitter: ~8715 mil metric ton CO2 emitted (2011) Million tons of CO2 emitted in 2009 1.3 billion people Surpass Germany GDP 2009 Japan 2010 M M M M M M M M Greenhouse gas emission (Thousands of tonnes CO2e) World Bank, AFP/Getty Images

4 China’s Wind Energy Status
point out the scale is the same; use the pointer to show annual and cumulative capacity; China surpassed the U.S. in 2010 to become the country with the most wind power in nameplate capacity Total nameplate capacity: 92GW (2012) cmopared with US 61GW; 4 out of world’s 10 top manufacturers are based in China 2001 numbered little over 400MW 2012: China installed 15.4GW (slowed down) to approx 76GW capacity ; US: 60GW UPDATE WITH US 2011, 2012, Emily Williams Break down: US: even ; JV & Domestic: 17% from 2004 to 90% in 2010 AWEA, Wind Energy Monthly, Shi ( )

5 Breakdown of China’s annual wind turbine installation capacity
17% from 2002 to 90% in 2010 In approx in 10yrs Command significant market share AWEA, Wind Energy Monthly, Shi ( )

6 Sources of Growth 1. Innovation fuels growth 2. Cost and policies
Imitation mode  cooperative innovation  indigenous innovation (Ru et al, 2012) Goldwind as an exemplary case study of innovation (Lewis, 2013) Innovative but facing challenges & problems (Klagge et al., 2012) 2. Cost and policies Cost advantages to manufacture standardized products Special support policies The wind power industry is mature yet Chinese firms hold few patents Historical records of policies & output; Growth of China’s wind power industry began in imitation mode, fueled by cooperative innovation through joint ventures with international firms and sustained by indigenous innovation Goldwind: largest mnf, Sales and historical development data; interviews Klagge: Qualitatively examining links between actors & innovation systems Implementation of special support policies Attributed innovation to the industry’s growth Coupled with Friendly policy environment created the right conditions for the industry’s expansion Several researchers; growth linked to innov Goldwind: started as a wind energy research institute; Jacobs/REPower; first Chinese indigenous megawatt-class turbine design; spent 3% of budget on R&D; doing its own innovation –permanent magnetic direct drive, though VENSYS is the source of original design Low cost to produce standardized prduct in a mature industry : People on the ground know this? !!!!Cost advantages: but we didn’t talk about costs much here!

7 Patent as Innovation Measure
Effective to protect product innovation (Teece, 2000) Related to the inputs of the innovative process (Jaffe & Trajtenberg, 2002) Patent count is simplest and most straightforward Assumes that all patents have equal value Patent citation count Number of times a patent is cited after it is published Inventors have the incentives to not want to overclaim or underclaim Truncation and obsolescence issues Patent citation analysis Trade secrets, secrecy, lead time, complementary manuf, complementary sales, patents, other legal They want to claim as few citations as possible because they want to maximize the breadth of protection for the patents; They want to claim as many as possible to place their patent outside of the legal realm of the cited patents

8 Measuring Innovation: Data
European Patent Office (EPO) is a regional patent office Regional patent office Maintains and publishes all-inclusive Worldwide Patent Statistical Database aka “PATSTAT” (1976 – October 2012) PATSTAT Data from over 100 countries 60 million patent applications; 30 million granted patents, etc. Many application details, including citation information Sample identification: patent classification and abstract keyword search Wind in “F03D” (Johnstone et al, 2009) Abstract search (Nemet, 2009) in EN, DE, FR, & ES Our data come from the EPO, which is a regional patent office; When it grants a patent, the rights of the applicant are protected in all of the member countries that the applicant has designated. When a patent is applied …search report search patents.. gathers standardized patent data from almost all of the world’s patent offices; 170GB; filesize: a few to 33GB

9 Patent Count Results: PATSTAT
13,279 wind patents worldwide Most activities in U.S. and Europe, but China as well Most recent peak began in 1990s Patent Offices When many European countries tried to curb carbon emissions that culminated in the Kyoto Protocol in sent a clear signal to the industry

10 Patent Count Results: EPO
985 EPO patents Geographic location as proxy for nationality German inventors have the most wind power patents (365), then Danish (156) and American (92); two from Chinese inventors Uptick in patenting activities when Chinese firms displace foreign producers and pivot to other major markets EPO’s patent application process can be costly, the EPO data filter out low-value inventions, explaining the smaller no.of patents. Additionally, the EPO’s patent examination process is more mature and robust compared to SIPO. Prior to 2009… Recent uptick in patenting activity is evident, and the final years of the data sample are ones which Chinese firms have displaced foreign rivals in their home markets. Despite the growth in the Chinese production and the inception of Chinese exports of wind power equipment to other major markets, essentially no patents granted to Indigenous Chinese firms. There is a global patenting surge in this domain, but China’s indigenous producers are not participating in it Inventor Nationality

11 Sources of China’s innovation
huawei, china petrochemical corp (sinopec), semiconductor manufacturing international corp Branstetter et al (2013)

12 2005 Renewable Energy Law Renewable Energy Targets Grid Companies
10% RE by 2010, 15% RE by 2020 10GW wind by 2010, 30GW by 2020 Grid Companies Mandatory Grid Connect Mandatory Electricity Purchase RE Customer Surcharge Priority Dispatch & Grid Mgmt Project Developers Mandatory Market Share Req. Tender-based Pricing Tiered FIT (2009) Revised upward: 100GW GW by 2020 RE: Target15% of primary energy consumption to come from renewable energy sources by 2020; power quota for grid companies Cost Sharing and Renewable Energy Development Fund Grid companies are required to exchange their shortfall or surplus of surcharges with grid companies from other regions monthly; pooled fund Beijing price .700 yuan/kwh Renewable electricity GW by 2020 (300 from hydro, 150 from wind, 30 from biomass, and 20 from solar PV) 15% includes nuke 2009: total energy consumption 6% hydro 1% nuke .3 Establish a priority dispatch system, in which renewable generators are given priority in the electricity dispatching sequence to guarantee the requirements of the mandatory connection and purchase policy (Art. 8). Allow the dispatcher to manage the renewable power generator e.g., curtail transmission from a generator) in cases where grid stability is threatened (Art. 8.1). If this occurs, the grid company must promptly notify the renewable generator in writing with an explanation and include an estimation of the non-purchased volume. The grid operator must also report the incident including the reasons for taking action and the corrective measures taken to SERC, which will supervise these measures (Art. 10). Penalty for non-compliance with mandatory connection and purchase policy: the grid company will be held liable and must take corrective action within a time period specified by SERC. If the grid company does not take corrective action within the specified timeframe, SERC has discretion to impose a penalty up to the value of the economic loss to the renewable generator. The triggering activities for the penalty are:   Failing to construct, or not constructing promptly, renewable energy connection facilities.   Refusing to execute, or hindering the execution of, a power purchase agreement or a grid 
connection and dispatch agreement.   Failing to provide, or not providing promptly, grid connection services.   Failing to give renewable generators priority in dispatch.   Any other situation in which the grid company or the dispatch body causes less than the full 
amount of renewable power generated to be purchased. Mandatory connection and purchase policy; Established a priority dispatch system; Allows the dispatcher to manage the renewable power generator Feed-In Tariff System (launched in August 2009) Surcharge on end-users set at RMB 0.001/kWh (2006) and raised gradually; RMB 0.008/kWh (2011) (1USD ~ 6.2yuan) Electricity price set by NDRC, between RMB /MWh (2010) Four different tiers, ranging between 510 to 610 RMB/MWh. WTG Manufacturers R&D Support 70% Local Content Req.

13 NDRC Notice 1504 Local content requirement
“The approval of wind farm construction shall be based on the wind energy development plan… The rate of using domestic equipment in the production of the wind farm must be above 70 percent.” Manufacturers established bases in China Gamesa: constructed local assembly plant, trained local companies Revoked in 2009 Foreign manufacturers already built in-country facilities Worries of excess capacity in the supply chain Revoked in 2009 under trade barrier complaint from the Obama administration Worries of excess capacity in the supply chain Next: Patent as a measure of innovation Flurry of support policies Gamesa 35% of china’s market share in 2005 to 5% in 2009, but their sales doubled Mentality: if we’re not gonna do it, someone else will Found and trained local companies to steel forging and casting, complex electronic controls Gary locke, then commerce secretary European countries have pulled back their financial incentives for green energy, including wind power, as budgetary issues and the Eurocrisis have created resource constraints, even as China has ramped up incentives.

14 Industry Challenges

15 Conclusions & Policy Implications
China is a strong player in the wind power industry, but innovation has little to do with this transition Patent citation analysis shows that later patents are less likely to be cited than earlier patents, a sign of industry’s maturity Yet China has very few patents China is not the source for technological innovation opportunities in wind power China was able to build an industry from scratch but not without great costs Connection (only 80% grid-connected) & curtailment (~20%) issues Consolidation: the majority of manufacturers has closed down In other industries we see a lot of international patents granted to Chinese inventors. In fact there are signs that Chinese wind turbine firms look to international patent office. Presented at NBER!!

16 Acknowledgement Fundação para a Ciência e a Tecnologia
Prof. Inês Azevedo CMU|Portugal Program Prof. Lee Branstetter CMU Scott Energy Institute Nico Doranov (www.datagnostics.net) The Climate and Energy Decision Making Center (CEDM) Matej Drev (Georgia Tech) Namho Kwon (CMU) Carnegie Mellon Electricity Industry Center (CEIC) Prof. Xue Lan (Tsinghua) Guangwei Li (CMU) American Wind Energy Association Prof. Sally Xu (Peking University) Prof. Zhou Yuan (Tsinghua)

17 References Cabellero, R. and Jaffe, A. (1993). “How High are the Giants’ Shoulders: An Empirical Assessment of Knowledge Spillovers and Creative Destruction in a Model of Economic Growth”, NBER Macroeconomics Annual, Vol. 8, pp Cockburn, Iain M., Hall, Bronwyn H. and Trajtenberg, Manuel, National Bureau of Economic Research Patent Database: Data Overview (November 2, 2007) Kauffman Symposium on Entrepreneurship and Innovation Data. Jaffe, A.B. and Trajtenberg, M. (2002). Patents, Citations and Innovations: A Window on the Knowledge Economy. Boston: MIT Press. Jaffe, A.B. and Trajtenberg, M. (1996). “Flows of Knowledge from Universities and Federal Labs: Modeling the Flow of Patent Citations over Time and Across Institutional and Geographic Boundaries.” NBER Working Paper No Johnstone, N., Hascic, I., & Popp, D. (2009). “Renewable Energy Policies and Technological Innovation: Evidence Based on Patent Counts.” Environmental and Resource Economics, 45(1), 133–155. Klagge, B., Liu, Z, Silva, P. (2012).“Constructing China’s Wind Energy Innovation System.” Energy Policy, 50, p Lewis, Joanna. (2013). Green Innovation in China: China's Wind Power Industry and the Global Transition to a Low-Carbon Economy. New York: Columbia University Press. Print. Nemet, G. F (2009). Demand-pull, technology-push, and government-led incentives for nonincremental technical change. Research Policy, 38(5), 700–709. Ru, P, Zhi, Q., Zhang F., Zhong X., Li J., Sun, J. (2012), “Behind the development of technology: The transition of innovation modes in China’s wind turbine manufacturing industry.” Energy Policy, Volume 43, p , ISSN , /j.enpol


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