CHINA'S WIND POWER BOOM: GILDED AGE OR GOLD RUSH?

After years of slow development, China's wind industry is booming. In 2006 additions to China's wind capacity surpassed 1 gigawatt (GW), nearly doubling the installed base. For 2007 government planners foresee another doubling to reach 4.3 GW of installed capacity.

*When viewed in light of China's sizable wind resources, this momentum promises to transform the role of wind within the national energy system. Long-term official plans target 30 GW installed by 2020, which could establish China among the world's leading markets for wind power.

*In the near term, wind projects in China face commercial ambiguities. The best projects appear to generate initial rates of return of 7 percent but presuppose tariff policies and offtake certainty that have yet to be tested.

*Developers face many of the risks typical of Chinese power investments in general, along with several specific to wind: new technologies, uncertainty about the tariff policy, and particularly challenging project economics. These are representative of an industry in its earliest stages and could imply heightened risks for all players as investments accelerate.

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