OWA Industry Watch | "No" to "Maybe", the European financing community's attitude towards Chinese wind turbines has changed

"While China's dominance in solar and batteries has been widely accepted, European offshore wind is still a Western game."

Since the signing of the agreement between Mingyang Intelligent Group and the Italian government, the voice of warning about Chinese wind turbines entering Europe has been constantly coming. "Every week there is new evidence that Chinese wind turbine manufacturers are making inroads into European offshore wind."

The concern in Europe is that the entry of Chinese companies into the European offshore wind market suggests "something of the status quo is being changed", sparking fierce debate about fair competition, protectionism and how to balance industrial development, electricity prices and the fight against climate change.

Clement Weber, founder of Green Giraffe, an energy transition investment advisory firm, commented on the situation that the attitude of the European investment and financing community towards wind turbines from China is shifting from "No" to "Maybe", OWA has learned exclusively. Weber noted that "Chinese Oems such as Mingyang have made great strides in quality and are now bringing their growing commercial clout to the market," adding that "the technological and commercial advances of these companies are more likely to overcome financing barriers."

Green Giraffe has long focused on protectionism and fair competition in the energy transition, providing financing solutions for capital-intensive renewable energy projects.

According to previous research by Green Giraffe, European banks' cautious approach to Chinese wind turbines has put the European market out of reach for Chinese suppliers. The continued dominance of Western suppliers in Europe, such as Siemens Gamesa, Vestas and, to a lesser extent, General Electric, attests to this fact.

However, as Green Giraffe expects Chinese wind turbines to be installed in European waters within 10 years, it believes it is important to assess the financial viability of Chinese wind turbines and gives a positive view:

Results: China, the world's largest offshore wind market, uses only its own suppliers. While banks remain concerned, the lack of experience of Chinese turbine suppliers should no longer be a concern.

Quality: The bank will rely on its technical advisers to assess the quality of the turbines. Nothing has been heard to suggest that the quality problems in Chinese turbines are more serious than the series of defects that have recently appeared on Siemens or GE turbines.

Transparency: This critical financability test is perhaps the biggest challenge, but progress is being made. Chinese suppliers are increasingly recognizing that they will struggle to succeed without sharing more information about their products, manufacturing, and performance. While achieving satisfactory transparency may take some time, there is now a way forward.

Contract terms: Another barrier to market entry is a lack of understanding of financing requirements. In today's market, Western suppliers have more bargaining power and push terms to the limits of what banks can accept. However, Chinese suppliers are learning these financing requirements and are increasingly willing to offer more favorable commercial terms. Although further adjustments are needed to meet the financing criteria, the terms offered by Chinese suppliers are gradually outperforming existing suppliers in the assessment of financing.

At the same time, Green Giraffe has reassessed the entire European offshore wind market, where the sharp rise in capex costs since 2022 has made turbine prices more critical than ever. Economic viability is now not just about balancing supply costs and lease payments, but is directly related to whether a project can be built. In the context of a highly tight supply chain, turbines from the three major European suppliers need to be booked many years in advance and pay large upfront payments, which is good news for suppliers that have experienced a long period of low margins, but also provides opportunities for emerging suppliers that can provide additional capacity and short lead times. At the same time, with more than 100 floating wind technologies on the market, Western turbine suppliers have to choose which direction to invest their engineering time in, which in some cases leaves Chinese suppliers as the only option.

However, Green Giraffe points out that "if banks insist that they do not want to finance projects using Chinese wind turbines at all, then Chinese wind turbines are still excluded from the European market". Its survey of the sector's most active lenders found that some were reticent, while others were open to Chinese wind turbines. Green Giraffe recommends that the latter have the option of undertaking an enhanced due diligence process that covers all relevant concerns and adjusts the terms of the loan. This means that some of the money saved from turbine prices will be used to pay for higher bank spreads.

"Even the most open attitudes remain cautious, but the stance has shifted from outright rejection to acceptance of Chinese wind turbines' possibly under certain conditions. '"

Green Giraffe's final point is that it still does not expect Chinese turbines to flood European offshore wind farms any time soon, "but we can confirm for the first time that there is a potential to be used in some projects in the medium term."