Wind power: Technology, industry and industrial chain

1, wind power technology principle

The principle of wind power generation is to use the wind to drive the fan blade rotation, when the wind blows to the blade to drive the wind wheel rotation, wind energy into kinetic energy, and then to promote the generator to generate electricity.

The process of wind power generation is similar to that of thermal power and hydropower, which are driven by other energies to generate electricity from generators. The physical principle of the generator is the law of electromagnetic induction we learned in junior high school, that is, when the conductor cuts the motion of the magnetic inductance line in the magnetic field, current will be generated in the conductor. In wind power generation, the kinetic energy generated by the wind blowing the blade drives the conductor to move. In thermal power generation, coal burning turns water into steam and drives the motor to generate electricity. In hydropower, it is the kinetic energy of the flow of water that makes the electric motor produce electricity.

Photovoltaic power generation is not the same, photovoltaic power generation is based on the photoelectric effect, in 1954 Bell Laboratories successfully developed the first practical value of silicon solar cells, and as early as the 19th century generators have been put into use, human from the steam era into the electrical age. Compared with photovoltaic, wind power is the core technology is relatively mature traditional industry, in the investment market, photovoltaic attention is also higher than wind power, the valuation is of course higher.

New energy power generation is facing the test of cost reduction and efficiency increase, photovoltaic in recent years with the rapid development of conversion efficiency and cost reduction, and wind power generation has a Betz limit law, that is, no matter how to design the turbine, the fan can only extract 59% of the energy in the wind, and the conversion efficiency limit can be achieved by the wind turbine in operation today is about 40%. Therefore, there is not much room for improvement in the core technology of wind power generation, and basically there is only one way to reduce the cost.

Relative to the photovoltaic PERC, TOPCon, HJT, the technical path of wind power is very simple, but in the rapid development of sustainable energy today, wind power and photovoltaic are an indispensable part, as long as the demand is large enough, even if the technology is mature, it is also an industry worth our research and learning.

Before we briefly introduced the principle of wind power generation, now let's look at how an actual wind turbine is composed.

The wind turbine has many parts, and the core can be simplified into three parts: wind turbine, generator and tower barrel.

A wind wheel is generally composed of three blades. When the wind blows towards the blades, it drives the wind wheel, and the wind energy is converted into mechanical energy. The material of the blade requires high strength and light weight, and is made of glass fiber or other composite materials (such as carbon fiber). Due to the variable wind speed, the wind wheel speed is unstable, and before driving the generator, it is necessary to attach the gear gearbox that increases the speed to the rated speed of the generator, and then add a speed regulating structure to keep the speed stable, and then connect to the generator. In order to ensure that the wind wheel is always aligned with the wind direction to obtain maximum power, a tail rudder (yaw system) similar to a wind vane is installed behind the wind wheel.

The function of a generator is a machine that converts kinetic energy into electrical energy.

The tower barrel is the frame that supports the wind wheel, the tail rudder and the generator, and it is generally built relatively high in order to obtain a larger and more uniform wind force, but also to have enough strength. The height of the tower depends on the influence of the ground obstacles on the wind speed, as well as the diameter of the wind wheel, and can now do more than 100 meters.

We said earlier that there is not much room for efficiency gains in wind power, so the focus is on cost reduction. A typical trend is that the fan capacity is getting larger and larger. The average single-unit capacity of onshore wind turbines in China increased from 1.5MW in 2011 to 3.1MW in 2021, and the average single-unit capacity of offshore wind turbines increased from 1.9MW in 2013 to 5.6MW in 2021.

If the total installed capacity of a wind farm is fixed, the number of fans required now is half of that of 10 years ago, and the corresponding land, construction, operation and maintenance costs are reduced. At the same time, the blades are getting longer and longer, increasing the sweep area, the tower barrel is getting higher and higher, and the higher the wind speed is, so that even if the conversion efficiency does not increase, the captured wind energy increases, the power generation will increase, and the cost of KWH will also decrease.

The impact of large-scale fan application on cost reduction is also very significant, according to Goldwind Technology statistics, the average bidding price of 4S fan from 2020Q3 more than 3,000 yuan /kw to 2021Q4 about 2,300 yuan /kw.

Continuous cost reduction is a key factor for wind power to move away from policy subsidies to parity, according to IRENA data, benefiting from the scale effect of parts and installation and maintenance costs fell, in 2020 onshore wind has become the world's lowest cost renewable energy.

2. Development of wind power industry

The development history of China's wind power industry has been accompanied by several fluctuations in subsidies and power grid absorption capacity.

Before 2010, under the continuous promotion of the policy, the wind power industry grew rapidly. In 2010, the newly installed capacity reached 18.9GW, an increase of 37.1% year-on-year, reaching the peak of the first stage. However, wind farms were mostly built in the three northern regions, far away from the southeast coastal areas with large power consumption. In addition, the supporting energy storage and UHV were not perfect at that time, so there was a serious phenomenon of wind abandonment, and the wind farm was built with money, but it was useless. So the policy is certainly tightened, since the construction is not put into use, it is not encouraged to build, after the decline in new installed capacity, the abandonment rate has improved, coupled with the factor of the decline in the cost of fans, the installed capacity has begun to rise again.

With subsidies and wind abandonment, the development of China's wind power industry shows the characteristics of cyclical fluctuations: subsidies to stimulate the outbreak of installed capacity - insufficient consumption capacity - policy restrictions on installed capacity - consumption improvement - recovery of new installed capacity - subsidy decline - grab installation outbreak. Until the complete withdrawal of onshore wind power subsidies in 2021, China's onshore wind power has achieved parity online, and wind power investment has gradually entered the stage of market-oriented development.

Although onshore wind power has come out, offshore wind power is still moving forward on the road to cost reduction, although in 2022 offshore wind power subsidies are also completely withdrawn, but local subsidies began to take over, Guangdong, Shandong and other places introduced local subsidy policies to support the development of offshore wind power industry.

Compared with onshore wind power, offshore wind power has significant natural advantages. First of all, the wind speed at sea is generally large, and the wind speed is stable, and the fan utilization rate is high; Secondly, we mentioned above that under the trend of large-scale fan, the longer the blades are, the higher the tower barrel is, the more difficult it is to transport land transportation, and the sea transportation restrictions are less, so the single capacity of offshore wind power should be larger; Finally, offshore wind power is close to the southeastern coastal power areas, which is easy to consume energy. There is also an ecological factor that cannot be quantified, the ecological problem of wind power generation is that it may disturb birds, and the row of fans on the land may accidentally injure birds. Some countries in Europe take this problem seriously, reducing the installed amount of wind power, but offshore wind power can alleviate the impact on birds.

However, due to the complex environment at sea, maintenance costs and other restrictions, unit design needs to consider salt spray corrosion, wave load, typhoons and other constraints, installation and maintenance costs are higher than on land, but also consider the impact of shipping, military management, the current global offshore wind power development is still in its infancy. But the more the initial stage represents the greater the potential, the key is to be able to develop, do not be cool in the initial stage, anyway, we are still very optimistic about the development prospects of offshore wind power.

According to GWEC forecast, the next five years (2022-2026) global wind power installed capacity of 557GW, a compound annual growth rate of 6.6%. Among them, the growth rate of offshore wind power was 28.12%, accounting for less than 10% of the new installed capacity of wind power increased to 24%, if you only look at offshore wind power, it is a high-growth industry worthy of attention.

China's wind power industry started later than Europe, in terms of cost, especially technology is not dominant, overall, China's wind power manufacturing enterprises mainly from the domestic market, foreign market share is very limited, overseas market demand is mainly met by European wind power manufacturers. Therefore, the demand of China's wind power market is more worthy of attention than the global demand, and the forecast figures are of course a little false, we look at a relatively realistic policy.

On March 1, 2022, China's coastal areas offshore wind power planning and support policies have been introduced, the "14th Five-Year Plan" period of major provinces offshore wind power installed capacity reached 73.45GW, about 8 times the "13th Five-Year Plan" period, China's offshore wind power installed capacity accounted for half of the world, the growth rate is expected to be higher.

3. Introduction of wind power industry chain

After talking about wind power technology and this industry, let's take a look at the investment opportunities in the wind power industry chain.

First, let's understand the upstream and downstream of the industrial chain:

Upstream raw materials: including glass fiber, carbon fiber, steel and other materials.

Midstream parts and whole machine manufacturing: According to the previously mentioned fan structure, parts mainly include blades, spindle, castings, bearings, etc., fan manufacturers assemble and integrate these parts into fan machines, and then sell them to wind power plant operators, while tower barrels, cables and other parts are generally purchased directly by wind power operators.

Downstream wind power plant operation investment: the main participants are mainly state-owned enterprises and central enterprises that have obtained wind farm investment and construction qualifications.

After understanding the upstream and downstream of the wind power industry chain, we want to know who has the strongest voice in the industry chain, usually we will look at the gross profit margin, and find that the gross profit margin of the wind power industry chain presents a trend of high on both sides and low in the middle, the gross profit margin of upstream raw materials and downstream operations is relatively high, and the middle parts are only the spindle, bearings and cables. In the later analysis, we will also find out why the gross profit margin of these links is higher.

In the wind power industry chain, the operation is the highest gross profit margin, after all, people are Party A, and of course, after the cancellation of subsidies to crazy press machine manufacturers. But the high gross margin does not necessarily mean that the investment value is high, because the investment in wind power construction is also very large, unlike photovoltaic to find a vacant roof can be installed.

When investing in a company, we often look at the return on investment, such as ROE, ROIC and other indicators, which is simply the proportion of annual income in the company's invested capital, ROE only looks at equity invested capital, ROIC in addition to looking at equity investment, but also add debt invested capital, because wind power operators also have a lot of liabilities, in order to unified comparison, Let's look at the ROIC of each link of the wind power industry chain, this time the return on investment of the operation link is very low, so the wind power operator is similar to the financial nature, to keep expanding capital to invest, somewhat similar to utilities such as hydropower, but not so stable, if really seek stability, it is better to buy hydropower stocks, Therefore, the operators of the wind power industry chain will not be introduced in detail later.

By observing the ROIC, we found that the ROIC of the bearings, submarine cables, mainshafts and glass fibers of upstream raw materials with higher gross profit margin in the components is still very high, so it is worth focusing on the analysis of each link of the industrial chain in the latter, and then we will learn several main links of the wind power industry chain together.

1. Upstream raw materials

The main raw materials of wind power blades include reinforcement materials (girder), sandwich materials, matrix materials, surface coatings and so on. The cost of matrix materials accounted for 36%, and the main use of wind power is epoxy resin, but the resin is a traditional chemical product, overseas companies are stronger, and the market share of domestic companies is not high.

Followed by reinforced fiber, the material cost accounted for 28%, mainly glass fiber and carbon fiber two, of which glass fiber price is lower, and carbon fiber quality is higher.

Carbon fiber is mainly used in aerospace, wind power blades, sports and leisure fields, 2021 wind power blade carbon fiber demand accounted for 27.97% of the global total demand, but compared to other industries need carbon fiber quality and price are the lowest, the total market demand accounted for 16.29% of the world, wind power blade is not currently the most important market for carbon fiber. It is expected that with the growth of wind power installed capacity, the proportion of demand will gradually increase.

Glass fiber is an important reinforcement material, and the glass fiber used in the field of wind power is called "wind power yarn". In 2018, in the Chinese wind power yarn market, China Boulder ranked first with a 37% share, but even so, in 2020, wind power yarn products only accounted for 20% of the company's total glass fiber products.

Steel and copper are used a lot in tower barrels, castings, cables and other parts, but I don't need to tell you that wind power is not the main market for these metals.

That is to say, most of the raw material companies in the market are not very pure wind power companies, and the performance of the relevant targets has little to do with wind power, even if it rises with wind power, it is largely in the speculation valuation, because the demand of the wind power industry does not play a leading role in their performance.

2. Blades

Wind turbine blades are the core components of wind turbines, and the blades account for the highest proportion of wind turbine costs, reaching 24%.

The raw material cost of the blade accounts for 80% of the cost of the blade, so the production cost is greatly affected by the price of raw materials, and the gross profit rate of the industry fluctuates greatly, basically maintaining between 10% and 30%.

The concentration of the blade industry is more dispersed, and the CR3 of the industry is 34%, and the competition is more fierce. In addition to traditional blade manufacturers, some OMs such as Mingyang Intelligent, Sany heavy energy have established their own blade factories, while other parts are also cut into the blade link, such as tower drum manufacturers Tianshun wind Energy, simple blade manufacturers are not high barriers.

3. Gear box

The gearbox is second only to the blade in the cost of the wind turbine, and the variable speed device is realized through the combination of large and small gears.

Because the speed of the wind wheel is very low, it is usually necessary to rely on the gearbox to increase the speed, but the failure rate is high, if the quality problem of the fan gearbox occurs, the replacement and maintenance involve hoisting and transportation, which is a huge project and high cost, and the replacement and maintenance cost is even higher than the value of the gearbox itself. The fan has three technical routes, among which the gearbox is the core component of the double-fed fan, and the direct drive fan does not use the gearbox, and the failure rate is lower.

The wind power gearbox industry has a high concentration, and the three major gearbox suppliers, Nangao Gear (China high-speed transmission), ZF and Yongnengjie, have accounted for nearly 70% of the global gearbox market share.

Although the gearbox industry concentration is high, but the professional gear manufacturers in the industry chain discourse power is not strong, because the performance of the gearbox quality is very important for the fan, the whole machine factory tends to independently develop the structure of the gearbox, and then external gear, bearings and other accessories for independent assembly, the industry market share of the first China high-speed transmission (Nangao tooth) gross profit margin is only 15.8%, The lowest among wind power components.

4. Spindle

The wind power spindle is used in the wind power machine to connect the hub of the wind blade and the gearbox, and transfer the kinetic energy generated by blade rotation to the gearbox. The service life of the wind power spindle is about 20 years, the replacement cost is high and the replacement is difficult, and the cost of the wind power spindle is relatively low in the cost of the fan, so the wind power machine manufacturers are very strict in their quality requirements, and the price sensitivity of their products is much lower than that of other wind power parts with higher costs.

The wind power spindle realized localization earlier in the fan parts, and the industry formed a duopoly competition pattern. Domestic wind power spindle industry duopoly enterprises are Jinlei Shares and Tongyu Heavy Industry, in 2021, the two together accounted for more than 50% of the global wind power spindle market share, in wind power parts of the spindle of the highest degree of localization.

Wind power spindle production process is complex, the need for manual operation of more processes, can not be fully automated production, which makes the domestic wind power spindle manufacturers have more advantages in labor costs, export hope is greater than other parts.

The stable duopoly competition pattern of the main axis of wind power, coupled with the technical barriers of the production process, makes its profitability in the industrial chain at the leading level.

5. Bearing

Bearings are an important precision parts in modern machinery and equipment, which can be divided into wind power bearings, automobile bearings, construction machinery bearings, shield bearings and other categories according to the different downstream application fields. The bearing of the fan is mainly used to support the rotation of the fan impeller, reduce the friction coefficient during the rotation process, and ensure the rotation accuracy and smoothness.

China's bearing industry is large but not strong, domestic high-end bearing products mainly rely on the import market, and export bearings are mostly low-end products. In 2020, the industries with the highest proportion of bearing applications in China are automobiles, household appliances, motors and wind power, accounting for 37.4%, 12.4%, 10.6%, 5.8%, respectively, and the application proportion of wind power industry is relatively low.

Wind power bearing is the lowest degree of localization of wind power components, bearing market is highly monopolized by overseas manufacturers, Germany Schaeffler, Sweden SKF, Japan NTN, Japan KOYO, the United States Timken these five bearing groups accounted for 83% of the global market share, domestic enterprises market share of less than 10%. China's wind power bearing industry leading tile shaft, shaft are state-owned enterprises, private enterprises on behalf of the new strong union to take the lead in 3MW spindle bearing import replacement, at present, the company is developing 5MW offshore wind turbine main bearings, 6MW offshore wind turbine propeller and yaw bearings, is expected to take the lead in domestic replacement.

According to the statistics of the Central Axis Association, in 2020, the installed capacity of wind turbines in the country is 20401, and a total of 479,424 sets of bearings are needed. Domestic bearing enterprises will produce and sell 77,975 sets of wind power bearings in 2020, accounting for 16.3%, the gap between domestic supply and demand of wind power bearings is large, and domestic self-produced bearings are mostly yaw and variable pitch bearings with low value, and the biggest point of the wind power bearing industry is the domestic alternative market space.

6. Castings

Casting is a metal forming object obtained by various casting methods, which is to say that it is blacksmithing. The smelted liquid metal is poured into the pre-prepared mold, the metal obtained after cooling and grinding, and the raw materials are mainly pig iron and scrap steel.

Wind power castings mainly include hub, base, shaft and bearing seat, beam, gear box components (mainly including gear box, torque arm, planetary frame) and other "iron knot".

Castings this industry technical content is not high, it is difficult to be subverted by new technology, cost is the most important factor of competition, without considering the price of raw materials, cost reduction mainly relies on the level of technology and capacity scale, the largest production capacity of the leading enterprise is Riyue shares. Under the premise of sufficient demand and money, leading companies can earn money by expanding production continuously, but they must also pay attention to the expansion progress of their peers to prevent the risk of overcapacity.

7. Fan

After learning the main parts, they are assembled to get the fan.

China's fan industry started late, the early foreign brand market share is relatively high, and then many machine companies from Europe to introduce technology, and then absorb research and development, to build independent fan brand, such as Goldwind technology direct drive technology is in 2004 and Germany Vensys joint development, Mingyang intelligent from 2008 began to cooperate with the European fan company Aerodyn. After the gradual development of our fan enterprises, the market share of foreign brands gradually declined, and the share was given to Chinese manufacturers, but foreign fan technology is not worse than ours, and Chinese fan manufacturers are difficult to go to sea, and the share is difficult to further enhance in the global scope.

So from the perspective of the global fan competition pattern is relatively scattered, the top five Vestas, Goldwind, GE, Vision, Siemens Gamesa market share of 15%, 13%, 11%, 10% and 8%, CR5 is 57%.

China's wind power machine factory competition is fierce, CR3 in the subsidy is coming to an end in the installation market decline sharply, second-line manufacturers through low prices to seize the share of the head manufacturers, indicating that the fan moat is not deep enough.

After wind power enters the era of parity, the competitiveness of products lies in high quality and low price, and the cost reduction pressure of fans is greater. At present, there are three main ideas to improve the profitability of wind power plant: first, the fan large-scale spread single watt cost; Second, optimize supplier management; Third, other high margin business for profit improvement, mainly wind farm development and operation business, in recent years, machine manufacturers have sunk layout in the field of wind farm construction. As for whether the final head manufacturer can maintain its position, it is difficult to say who can rise to seize the market of second-tier manufacturers.

8. Tower barrel

Wind power tower barrel is the tower pole of wind power generation, which mainly plays a supporting role in wind power generation units and absorbs unit vibration at the same time.

The wind power tower is simply a steel column, the direct material accounted for 82% of the cost composition, the freight accounted for 7%, the labor cost was about 6%, the manufacturing cost was about 5%, and the raw materials dominated the price impact of the wind power tower barrel.

The bidding of wind power tower drum is usually separated from the host bidding, using the cost plus model, and the unit price is the price of medium and thick plate steel at the time of signing the contract plus a stable single ton gross profit, so the rise and fall of steel price can be smoothly transmitted to downstream customers, profitability is relatively stable, and profit growth mainly depends on capacity growth.

Due to the large weight and volume of the tower, high transportation costs, and the existence of transportation radius restrictions, the industry competition pattern has been relatively dispersed. In terms of shipments, the company with the highest shipments in 2021 is Tianshun Wind Energy, with a global market share of 12.4%.

According to the production capacity layout, Tianshun wind energy onshore production capacity advantages are obvious, 22 years of global market share of about 17%. Daikin Heavy Industry offshore tower + basic capacity advantage is significant, 22 years of global market share of about 24%, Daikin Heavy Industry production base in Penglai, Shandong Province, and in the local own dedicated dock, Marine tower transport costs are lower, competitors only Taisheng wind energy and Haili wind Power have a dock, and the conditions of the dock is worse than Daikin Heavy Industry.

And when we're done talking about towers, we have to mention flanges. Taking into account the transportation problem, the ideal length of a single section of the tower is not more than 30 meters, and now the height of the wind turbine is more than 100 meters, so several sections of the tower are connected together, and the part used to connect is the flange.

Wind power flange has tended to mature, the overall concentration of the industry is not high, the market share of the first company Hengrun shares in China's wind power flange market market is only about 10%, but the company is more competitive in the offshore wind power market. Compared with land, the offshore environment is windy and the installed capacity is larger, so the process quality requirements for connecting several sections of the tower cylinder are more stringent. Taking the procurement of Haili wind power as an example, the company accounted for 43% of the purchase amount of Haili wind power flanges in 2020, and the company's market competitiveness can be seen.

9. Cables

Cable is wire, the role do not need me to say, according to the different use of products, wire and cable can be divided into power cables, bare wires, electrical equipment with cables, winding wire and communication cables, optical cables and other five categories.

The number of wire and cable enterprises in China is large, the general scale is small, the industry market concentration is low, and the market share of Baosheng, the largest market share of wire and cable in China, is only 3.14% in 2020, and the industry CR10 is only 11.11%.

Power cables can be divided into land and sea cables according to the use of different environments, land cable downstream is very wide, including power systems, rail transit, and also very popular with investors like UHV, and the largest application of sea cable is offshore wind power.

Submarine cable is necessary for the transmission process of offshore wind power. Because the submarine cable is laid at the bottom of the sea, it needs to withstand seawater corrosion, ocean currents and Marine biological impact for a long time, which is technically more complex than the land cable, and the mechanical strength, corrosion resistance and water resistance requirements are extremely high. At the same time, it is very difficult to maintain and repair the submarine cable after laying in the seabed, so the reliability of the submarine cable is very high.

In fact, the demand growth of submarine cables will be higher than the growth of offshore wind power installed capacity, because the offshore wind power is built farther and farther, from the tide to the offshore, and is currently developing toward the far sea, the offshore distance of offshore wind farms currently in operation is mostly within 30km, but there have been projects to reach 50km, corresponding to the length of submarine cables will be longer and longer.

Submarine cables can be divided into two categories according to the use of links, the array of submarine cables used to connect between fans, and the delivery of submarine cables to the land, currently 35kV array submarine cables and 220kV submarine cable combination, as the offshore wind farm is built further and further, there will be a higher voltage submarine cable demand such as 330kV/500kV.

The market concentration of submarine cable should be the best in the wind power industry chain, according to the data of the China Business Information Network, the submarine cable industry CR3 reached 87%. The submarine cable and the fan have the same local protection, Zhejiang, Putian project is Oriental cable, Guangdong, Shanwei project is Zhongtian technology.

The introduction of the industry chain content is so much, we simply make a summary:

Steel accounts for a large proportion of the raw materials in the wind power industry chain, and the price rise of steel and other raw materials will affect the profitability of the industry chain.

After Landwind parity entered the market competition, the cost reduction pressure of the whole machine factory is larger, the fiercely competitive links in the industrial chain such as blades have greater cost reduction pressure, and the independent bidding tower cylinder is relatively small.

In the context of the integration of the industrial chain, the discourse power of some professional midstream parts is not high, such as gear boxes, blades and other links.

The profitability of the spindle and submarine cable links with high industry concentration is in the leading position in the industrial chain.

The wind power bearing industry has the lowest degree of localization, and the domestic substitution space is larger.

Sea breeze technology content is higher, the competition and profit is relatively ideal than land wind, sea breeze business accounted for a high proportion of the company's profitability is better.