Global demand for wind towers is huge
According to the forecast of the Global Wind Energy Council (GWEC), without considering the conservative outlook of China's subsequent local subsidy policies, relying on strong demand in Europe, global offshore wind power will maintain rapid growth from 2020 to 2024; at the same time, the new addition of global onshore wind power will also stabilize between 55-70GW. It is expected that by 2024, based on conservative estimates of China's offshore wind power demand, the total global demand for wind towers (including offshore pipe piles and jackets) is expected to be close to 10.67 million tons, an average annual compound growth rate of 13% compared with 6.61 million tons in 2018. The penetration rate of the top four domestic wind tower companies in the global market will gradually increase from about 13% in 2018 to 32%.
In terms of steel consumption, the steel consumption per ton of offshore wind power is much higher than that of onshore wind power, and the water depth and offshore distance of European offshore wind power are getting farther and farther. Due to the trend of large-scale units, the steel consumption of wind towers per GW is expected to be 450,000-500,000 tons. With the application of high towers, the average steel consumption of onshore wind power has a relatively gentle downward trend, gradually declining from 100,000 tons per GW to 80,000 tons. It is expected that by 2024, based on conservative estimates of domestic offshore wind power demand, global demand for wind towers (including offshore pipe piles and jackets) is expected to total close to 11 million tons, with an average annual compound growth rate of 13% compared with 2018. (Estimation source: Guosen Securities)
Demand for wind power installations increases during domestic rush installation period
In 2018, the newly installed capacity of domestic wind power was 21.14 million kilowatts, a year-on-year increase of 7.5%. The cumulative installed capacity nationwide was 124,000 units. The cumulative domestic wind power installed capacity was 210 million kilowatts, a year-on-year increase of 11.2%, maintaining a stable growth trend. Among them, the development of offshore wind power accelerated, with 436 newly installed units in 2018, and the newly installed capacity reached 1.65 million kilowatts, a year-on-year increase of 42.7%; the cumulative installed capacity reached 4.44 million kilowatts, a year-on-year increase of 59.1%. (Data source: National Energy Administration)
In May 2019, the "Notice of the National Development and Reform Commission on Improving the Wind Power On-grid Pricing Policy" further improved the wind power on-grid tariff policy: for onshore wind power, if it is approved before the end of 2018 and has not been connected to the grid by the end of 2020, the national The state will no longer subsidize; for projects approved between January 1, 2019 and the end of 2020, but not completed before the end of 2021, the state will no longer subsidize; for projects newly approved starting from January 1, 2021, the state will no longer subsidize. For offshore wind power, for projects that have been approved before the end of 2018, if all units are connected to the grid before the end of 2021, the on-grid electricity price at the time of approval will be applied; if all units are connected to the grid in 2022 and later, the guide price for the year of grid connection will be applied. Therefore, under the guidance of policies, onshore wind power and offshore wind power have entered a period of intensive installation this year and next, and the industry's prosperity continues to increase.
Leading companies have entered a period of rapid production expansion, and industry concentration has increased significantly
There are currently four listed companies in the domestic wind tower industry, three of which have been listed for nearly 10 years. Although they have obtained financing channels from the capital market very early, due to product homogeneity, downstream dispersion, uneven industry standards, land transportation radius and other reasons in the wind tower industry, industry concentration has not been effectively strengthened. In 2017, the domestic market share of the four companies was only 27%. This period was a competitive market.
Entering 2019, due to structural changes such as the rapid increase in offshore penetration in the wind power industry and the rise of affordable large-scale base projects in the north, leading wind tower companies have been promoted from the bottom up to expand production. As a result, industry concentration has increased. The four leading companies (CR4) are expected to reach 46% in 2021, reaching the oligopoly standard. Since 2019, Tianshun Wind Energy took the lead in expanding its original factory production capacity. Later, Tianneng Heavy Industries and Daikin Heavy Industries began to follow the needs of large base projects and set up new factories in many areas of Inner Mongolia; since 2020, Taisheng, Daikin, Tianneng, and Tianshun have expanded supporting production capacity of offshore wind power wind towers along the coast. Four companies have entered the "arms race" in the maritime, overseas and Three-North markets.
In the first half of 2020, faced with the strong demand for domestic wind power installations, and the traditional export market Europe, there is the risk of increased tariffs due to the anti-dumping review process. Three wind tower companies with export qualifications took the initiative to reduce export orders, and their domestic share briefly increased to 54%. As a standard industrial enterprise, when domestic wind tower enterprises enter an oligopoly pattern with CR4 higher than 40%, they have a high market position. By setting up entry barriers, they can stabilize the profitability of unit products.
The main raw materials required for the tower are steel plates, flanges, paint, welding materials and other spare parts. Among them, steel plates account for the highest proportion of the cost of finished products; followed by labor and energy consumption. Since the price trends of plate and flange are relatively volatile, the cost structure of wind towers is also undergoing dynamic changes. With the increase in production, there will be certain scale effects such as depreciation of equipment and factory buildings, labor and paint accessories. The management costs per ton of wind tower companies have also gradually declined with the expansion of output. Among the top four companies, Taisheng Wind Energy and Daikin Heavy Industries, which only focus on wind tower manufacturing, have a more obvious cost-sharing effect. However, Tianshun Wind Energy and Tianneng Heavy Industries, which are engaged in industry-related diversification, are involved in new energy operations, blade manufacturing (Tianshun) and other businesses, so they spend more on management and research and development expenses, and the sharing effect is relatively weak. Judging from historical data, cities with larger net profits per ton of steel have larger capacity utilization rates: Tianneng Heavy Industry, Taisheng Wind Energy and Daikin Heavy Industry. Daikin Heavy Industries has increased its production scale in Penglai from 50,000 tons year by year to 300,000 tons in 2020 and 500,000 tons in 2021, becoming the largest single-scale wind tower production capacity in Asia.
