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The Unsustainable Rise of Chinas Wind Turbine Manufacturing Industry Long Lam Technological Change & Entrepreneurship / EPP Carnegie Mellon Portugal Program Advisors: Prof. Lee Branstetter (Heinz College) & Prof. Ins Azevedo (EPP)

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Key Messages Production and innovation are thought to go hand in hand China has emerged as a global player in the wind power industry with more wind capacity than another other country China is poised to win the innovation race? (Thomas Friedman) Patent count indicates few Chinese inventions Patent citation analysis suggests that the wind power industry is relatively mature Conditions for an industry to migrate to and flourish in China, especially with appropriate policies 2

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China is the worlds largest polluter 3 World Bank, AFP/Getty Images 0 1M 2M 3M 4M 5M 6M 7M 8M Greenhouse gas emission (Thousands of tonnes CO2e) CO2 emission per capita (tonne) 0 10 20 30 40

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AWEA, Wind Energy Monthly, Shi (2004-2007) 4 Chinas Wind Energy Status

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Breakdown of Chinas annual wind turbine installation capacity 5 AWEA, Wind Energy Monthly, Shi (2004-2007)

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Sources of Growth 1. Innovation fuels growth Imitation mode cooperative innovation indigenous innovation (Ru et al, 2012) Goldwind as an exemplary case study of innovation (Lewis, 2013) Innovative but facing challenges & problems (Klagge et al., 2012) 2. Cost and policies Cost advantages to manufacture standardized products Special support policies The wind power industry is mature yet Chinese firms hold few patents 6

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Patent as Innovation Measure Effective to protect product innovation (Teece, 2000) Related to the inputs of the innovative process (Jaffe & Trajtenberg, 2002) Patent count is simplest and most straightforward Assumes that all patents have equal value Patent citation count Number of times a patent is cited after it is published Inventors have the incentives to not want to overclaim or underclaim Truncation and obsolescence issues Patent citation analysis 7

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Measuring Innovation: Data 8 European Patent Office (EPO) is a regional patent office Regional patent office Maintains and publishes all-inclusive Worldwide Patent Statistical Database aka PATSTAT (1976 October 2012) PATSTAT Data from over 100 countries 60 million patent applications; 30 million granted patents, etc. Many application details, including citation information Sample identification: patent classification and abstract keyword search Wind in F03D (Johnstone et al, 2009) Abstract search (Nemet, 2009) in EN, DE, FR, & ES

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Patent Count Results: PATSTAT 13,279 wind patents worldwide Most activities in U.S. and Europe, but China as well Most recent peak began in 1990s 9 Patent Offices

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Patent Count Results: EPO 985 EPO patents Geographic location as proxy for nationality German inventors have the most wind power patents (365), then Danish (156) and American (92); two from Chinese inventors Uptick in patenting activities when Chinese firms displace foreign producers and pivot to other major markets Inventor Nationality 10

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Sources of Chinas innovation Branstetter et al (2013)

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2005 Renewable Energy Law 12 Renewable Energy Targets 10% RE by 2010, 15% RE by 2020 10GW wind by 2010, 30GW by 2020 Project Developers Mandatory Market Share Req. Tender- based Pricing Tiered FIT (2009) WTG Manufacturers R&D Support 70% Local Content Req. Grid Companies Mandatory Grid Connect Mandatory Electricity Purchase RE Customer Surcharge Priority Dispatch & Grid Mgmt

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Local content requirement The approval of wind farm construction shall be based on the wind energy development plan The rate of using domestic equipment in the production of the wind farm must be above 70 percent. Manufacturers established bases in China Gamesa: constructed local assembly plant, trained local companies Revoked in 2009 Foreign manufacturers already built in-country facilities Worries of excess capacity in the supply chain 13 NDRC Notice 1504

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Industry Challenges

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Conclusions & Policy Implications China is a strong player in the wind power industry, but innovation has little to do with this transition Patent citation analysis shows that later patents are less likely to be cited than earlier patents, a sign of industrys maturity Yet China has very few patents China is not the source for technological innovation opportunities in wind power China was able to build an industry from scratch but not without great costs Connection (only 80% grid-connected) & curtailment (~20%) issues Consolidation: the majority of manufacturers has closed down 15

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Acknowledgement Fundao para a Cincia e a Tecnologia CMU|Portugal Program CMU Scott Energy Institute The Climate and Energy Decision Making Center (CEDM) Carnegie Mellon Electricity Industry Center (CEIC) American Wind Energy Association Prof. Ins Azevedo Prof. Lee Branstetter Nico Doranov (www.datagnostics.net) Matej Drev (Georgia Tech) Namho Kwon (CMU) Prof. Xue Lan (Tsinghua) Guangwei Li (CMU) Prof. Sally Xu (Peking University) Prof. Zhou Yuan (Tsinghua) 16

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References Cabellero, R. and Jaffe, A. (1993). How High are the Giants Shoulders: An Empirical Assessment of Knowledge Spillovers and Creative Destruction in a Model of Economic Growth, NBER Macroeconomics Annual, Vol. 8, pp.15- 74. Cockburn, Iain M., Hall, Bronwyn H. and Trajtenberg, Manuel, National Bureau of Economic Research Patent Database: Data Overview (November 2, 2007). 2007 Kauffman Symposium on Entrepreneurship and Innovation Data. Jaffe, A.B. and Trajtenberg, M. (2002). Patents, Citations and Innovations: A Window on the Knowledge Economy. Boston: MIT Press. Jaffe, A.B. and Trajtenberg, M. (1996). Flows of Knowledge from Universities and Federal Labs: Modeling the Flow of Patent Citations over Time and Across Institutional and Geographic Boundaries. NBER Working Paper No. 5712. Johnstone, N., Hascic, I., & Popp, D. (2009). Renewable Energy Policies and Technological Innovation: Evidence Based on Patent Counts. Environmental and Resource Economics, 45(1), 133155. Klagge, B., Liu, Z, Silva, P. (2012).Constructing Chinas Wind Energy Innovation System. Energy Policy, 50, p. 370- 382. Lewis, Joanna. (2013). Green Innovation in China: China's Wind Power Industry and the Global Transition to a Low- Carbon Economy. New York: Columbia University Press. Print. Nemet, G. F (2009). Demand-pull, technology-push, and government-led incentives for nonincremental technical change. Research Policy, 38(5), 700709. Ru, P, Zhi, Q., Zhang F., Zhong X., Li J., Sun, J. (2012), Behind the development of technology: The transition of innovation modes in Chinas wind turbine manufacturing industry. Energy Policy, Volume 43, p. 58-69, ISSN 0301- 4215, 10.1016/j.enpol.2011.12.025. 17