(June 15, 2009) China’s global dam building business has its roots in the massive Three Gorges project, which is now almost fully operational and was built mainly using Western technology and construction know-how.

China’s leading turbine manufacturers, Dongfang Electrical Machinery and Harbin Power Equipment, learned the trade after working with global players during Three Gorges’ construction, and then went on to equip domestic hydro projects and a growing number of overseas projects, China International Business magazine reported earlier this year.

Construction firms, Sinohydro and Gezhouba, both worked on Three Gorges before going global, and have since signed dam-building contracts across Africa and Southeast Asia.

Sinohydro uses turbines manufactured by Dongfang and Harbin in its overseas projects, as well as Toshiba turbines manufactured by a joint venture between Sinohydro and the Japanese firm in Hangzhou.

Meanwhile, the top three global players — Alstom (France), Siemens (Germany), and General Electric (US) — moved their turbine manufacturing base to China after supplying equipment and expertsie to state owned Three Gorges Corporation. Alstom now produces hydro generators and turbines in Tianjin, GE builds in Hangzhou, while Siemens-Voith manufactures its hydro equipment in Shanghai.

China International Business quotes a recent study of China’s hydropower sector, which concludes that future growth within the hydro divisions of Dongfang and Harbin Electric would depend heavily on export sales.

Despite having acquired the capacity to build Three Gorges-scale dams, the magazine reports, China’s forte continues to be smaller scale hydro projects in the 40 to 100 MW range. Most of the overseas projects awarded to Sinohydro to date are for projects much smaller than Three Gorges, such as Cambodia’s 192-MW Kamchay dam and the 120-MW Nam Ting dam in Laos.

A global  hydro power
Mark Godrey
March 6, 2009 

The bosses at Sinohydro have racked up some serious air miles of late. Three Gorges dam building industry steps onto the global stage

China’s global dam building business has its roots in the massive Three Gorges project, which is now almost fully operational and was built mainly using Western technology and construction know-how.
 
China’s leading turbine manufacturers, Dongfang Electrical Machinery and Harbin Power Equipment, learned the trade after working with global players during Three Gorges’ construction, and then went on to equip domestic hydro projects and a growing number of overseas projects, China International Business magazine reported earlier this year. 

Construction firms, Sinohydro and Gezhouba, both worked on Three Gorges before going global, and have since signed dam-building contracts across Africa and Southeast Asia.
 
Sinohydro uses turbines manufactured by Dongfang and Harbin in its overseas projects, as well as Toshiba turbines manufactured by a joint venture between Sinohydro and the Japanese firm in Hangzhou.
 
Meanwhile, the top three global players — Alstom (France), Siemens (Germany), and General Electric (US) — moved their turbine manufacturing base to China after supplying equipment and expertsie to state owned Three Gorges Corporation. Alstom now produces hydro generators and turbines in Tianjin, GE builds in Hangzhou, while Siemens-Voith manufactures its hydro equipment in Shanghai.
 
China International Business quotes a recent study of China’s hydropower sector, which concludes that future growth within the hydro divisions of Dongfang and Harbin Electric would depend heavily on export sales.
 
Despite having acquired the capacity to build Three Gorges-scale dams, the magazine reports, China’s forte continues to be smaller scale hydro projects in the 40 to 100 MW range. Most of the overseas projects awarded to Sinohydro to date are for projects much smaller than Three Gorges, such as Cambodia’s 192-MW Kamchay dam. [link to last article on Kamchay on MUW page] and the 120-MW Nam Ting dam in Laos. 

Sinohydro has business interests scattered across China, Africa, Southeast Asia and lately a growing number in Central Asia – the state-owned company is currently working on a 150 megawatt (MW) hydropower station in Tajikistan, using part of a USD 200 million loan the Chinese government extended to Tajikistan’s main utilities firm, along with projects in Myanmar and Laos.

Sinohydro’s success is part of a wider trend across China’s hydropower sector, along with many of the nation’s other technology sectors.

Where once China was reliant on foreign technological imports and knowledge to operate its power stations, construct its dams and build its modern factories, the country now has a small but growing number of companies with the knowledge and expertise to supply its domestic needs, and increasingly those of other nations around the world as well.

TESTING THE WATERS

After relying heavily on foreign imports from global players like France’s Alstom and America’s General Electric — both of which were building hydro power stations long before Chinese firms got in on the act — China is slowly becoming self-sufficient in the design and production of the turbines and equipment needed to build hydro power stations.

While German company Siemens supplied the turbines for China’s first hydro power station back in 1909, Chinese firms are now building 19 of the 24 largest hydropower plants currently under construction worldwide, as ranked by the International Hydropower Association. The 12,600 MW Xiluodu dam, being built by state-owned Gezhouba Water and Power Group, will be the country’s second-largest after the Three Gorges project, with a 22,500 MW maximum output when it comes online in 2015.

The growth of China’s hydropower industry has been one of the key reasons why power generation equipment has risen to become the country’s second-highest export earner – as well as its second-highest import earner.

In 2007, the last year for which there are complete statistics, China’s General Administration of Customs recorded USD 228 billion in exports of power-generation equipment, while imports in the same category totaled USD 124 billion. Only electrical appliances accounted for more in China’s import and export sectors.

Aside from multinational corporations manufacturing generator machinery in China, two of the country’s home-grown manufacturers, Dongfang Electrical Machinery and Harbin Power Equipment, have been producing turbines and generators used in hydropower dams for decades.

Harbin Power Equipment, which has 18,000 employees, rang up RMB 27 billion (USD 3.95 billion) in sales in 2007, while the slightly smaller 15,000-employee Dongfang chalked up RMB 24 billion (USD 3.51 billion) in revenues.

In fact, China now leads the world in installed hydropower capacity, with 150 gigawatts (GW) of capacity according to the International Hydropower Association, and a possible future level of 700 GW, according to the Chinese government.

FROM STUDENT TO MASTER

The scope of these two firms’ operations has grown drastically in recent years. In a now-familiar Chinese approach, these local equipment manufacturers learned on the job, working alongside multinational companies commissioned to construct and equip the country’s hydro power stations. Following these collaborations, the firms explored and adapted the imported technology, coming up with their own, lower-cost products.

The manufacturing capacities of Dongfang and Harbin Electric “have improved greatly,” says Dr. Lai Xide, a lecturer in the School of Engineering and the Environment at Xihua University in Chengdu, a city located close to many of China’s largest hydropower projects, including the Three Gorges Dam.

“The quality of their turbines is now up to international standards,” he says. Lai does, however, believe that Chinese firms have a long way to go in terms of producing more complex pump and tubular turbines. “They still have a lot to do on research and development [for those technologies],” Lai adds.

As such, China’s forte continues to be small-spec hydro power stations – 40 MW to 100 MW power plants account for 45% of China’s total hydropower electricity generation, according to the China Hydro Statistics Yearbook 2007. Indeed, the majority of projects awarded to Sinohydro have involved small turbines, says Yan Zhiyang, general manager of China Hydropower Energy Consulting, who has advised on several small-scale hydro projects in Jiangxi and Hubei provinces.

THE THREE GORGES

These small-scale projects pale in comparison to China’s — and the world’s — largest and most high-profile hydropower project, the Three Gorges Dam, which has been fitted with 26 turbines, each approximately 700 MW in capacity.
 
Now almost fully operational, the dam was largely built using Western technology, but Chinese turbine makers learned much from the project.

In the deal agreed between the Chinese government and the foreign constructors, Dongfang worked alongside a consortium led by Voith, Siemens (which has since acquired Voith) and GE, while Harbin Electric Machinery collaborated with a group led by Alstom. Harbin Electric Machinery then went on to produce the first fully Chinese-made 700 MW turbines, which were put into service at the Three Gorges Dam in 2007.

This process of Chinese firms mastering hydro technology through collaboration with foreign partners is by no means new. As China raced to find a means of supplying enough power to fuel its rapid industrial growth in the 1990s, foreign firms began to enter the domestic market.

In 1991, China opened the bidding for a hydro power station — the 3,300 MW Ertan hydro power station in Sichuan Province, to interntional firms. GE was awarded the contract, the terms of which stipulated that GE would manufacture the first two turbines alone, but that the third and fourth were to be built in a joint venture between GE and two local partners — Harbin Electric and Dongfang. The plant’s fifth and sixth turbines were then to be built by the two Chinese firms independently, without GE’s assistance.

Subsequent joint-ventures with Austria-based power equipment specialist Andritz have helped Dongfang and Harbin further their expertise in producing components like the nozzle and runner – the pipe that drives water into the turbine and the rotating aspect of the turbine that converts the energy of falling water into mechanical energy respectively.

LOOKING ACROSS THE WATER

China’s rapidly growing energy needs have provided home-grown hydropower equipment manufacturers and constructors with ready made domestic demand. But hydropower firms are now increasingly looking to exports to provide continued growth.

Asia-focused investment bank CLSA, in a recent study of the sector, concluded that future growth within the hydro divisions of Dongfang and Harbin Electric would depend heavily on export sales. Earnings at Harbin Electric peaked in 2007 at RMB 27 billion (USD 3.95 billion) and will drop in 2008-2009, according to CLSA analyst Manop Sangiambut. Harbin Electric almost doubled its output from 3,500 to 6,300 MW between 2006 and 2007, but it is expected to drop from 7,300 MW in 2008 to 6,800 MW this year.

So far it is a different story at Dongfang, where output has risen continually since 2005, and is set to rise from 7,000 MW in 2008 to 9,000 MW in 2009. But according to Sangiambut, it is unlikely to keep rising at the same rate without turning more towards export markets.

Sinohydro’s increasing success in winning overseas contracts should help boost Chinese hydropower equipment manufacturers. It has so far used turbines manufactured by Dongfang and Harbin in overseas projects, as well as Toshiba turbines manufactured by a joint-venture between Sinohydro and the Japanese firm in Hangzhou.

It is currently engaged in a number of large foreign projects. Sinohydro will install a 192 MW turbine in the Kamchay plant in Cambodia. Similarly, the USD 200 million plant on the Nam Ting River in Laos will be fitted with two 60 MW turbines by Sinohydro and its local partner, Dongsay. It is also working on a dam across the Thanlwin River in Myanmar which, when completed, will employ 10 711-MW turbines.

Gezhouba, one of Sinohydro’s  partners on the Thanlwin River project,  worked on the structural aspects of the Three Gorges Dam before going global, and has since signed contracts across western Africa.

The company, which also offers road and ship-building services, began work on a 200 MW hydroelectric power plant in Nigeria in 2007 and has also bid for projects in Ethiopia, Equatorial Guinea and Algeria. “Naturally, we will use Chinese-made equipment since it is of high quality,” said a Gezhouba spokesman who, like representatives of Sinohydro, declined to be interviewed further.

According to Wang Mingna, director of the China Institute of Water Resources and Hydropower Research, the more active Chinese hydropower firms become overseas, the more receptive foreign projects may be to using Chinese-made technology. “The success of Chinese hydropower companies abroad will increase the acceptance of Chinese hydropower equipment [worldwide],” he says.

FOREIGN BENEFITS

Foreign firms may also benefit from this growth. “Since multinational companies now have manufacturing facilities in China, it’s likely that [more of] their equipment will be made in China,” says Wang. This would make their products cheaper and therefore more attractive to Chinese developers overseeing foreign projects, as well as, of course, positioning themselves better for the domestic market.

All three of the big global players now manufacture in China. Alstom produces turbines in Tianjin; GE builds hydro generators and turbines in Hangzhou; while Siemens-Voith produces its locally-sold equipment in Shanghai.

Indeed, to gain increased access to local contracts, Toshiba invited Sinohydro to take a 20% stake in a USD 25 million turbine and generator plant in Hangzhou in 2005. The 1,000-staff plant has so far picked up orders for 80 generators and turbines, according to Toshiba, including a contract to supply four turbines for the 178.6 MW Dayingjian project in Sichuan. Turbines made by the joint-venture have also been used on overseas projects by Sinohydro.

WELL-POSITIONED

Investment bank CLSA predicts that over the next 15 years China and India will between them need to add 1,400 GW of electricity capacity to their current level.

China’s Renewable Energy Law stipulates that by 2020, 21% of its electricity should come from renewable sources, including large hydropower projects. This should provide major opportunities, both for construction and engineering firms.

And as Chinese firms such as Dongfang and Harbin Electrical develop larger and technologically more advanced hydropower equipment, they are well-positioned to challenge the so-called big-three manufacturers not just in developing markets, but in developed markets as well.

Grainne Ryder, Probe International, June 15, 2009