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Cablegate: Meetings with a-Power On Wind Farm Deal

VZCZCXRO0003
RR RUEHCN RUEHGH RUEHVC
DE RUEHSH #0204/01 3210124
ZNR UUUUU ZZH
R 170124Z NOV 09
FM AMCONSUL SHENYANG
TO RUEHC/SECSTATE WASHDC 8919
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC 0829
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 02 SHENYANG 000204

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD WEET PGOV PREL CH
SUBJECT: MEETINGS WITH A-POWER ON WIND FARM DEAL

(U) This cable is Sensitive But Unclassified. Please protect
accordingly.

1. (SBU) Summary. A-Power, a Shenyang-based NASDAQ-listed firm,
explained its plans for a 600-megawatt (MW) wind farm in Midland,
Texas, including production facilities and its relationship to GE
and other suppliers. According to company executives, the project
will not rely on U.S. stimulus bill financing. Rather, the project
will most likely rely on Chinese financing and support from the
Shenyang Municipal government. The lack of large-scale financing in
Europe and North America is the major obstacle to wind power
projects outside of China. A-Power plans to expand their operations
worldwide. End Summary.

2. (U) To learn more about the Shenyang operations of A-Power
(Nasdaq: APWR) and its new joint venture with Cielo Wind Power and
U.S. Renewable Energy Group (USREG) to construct a 600 megawatt (MW)
wind farm in Midland, Texas, ConGen Staff met recently with A-Power
Chairman/CEO Gene Lv and Managing Director Wang Yunbo. Lv and Wang
said they welcomed the opportunity to clear up any misunderstandings
about the project.

3. (SBU) Mr. Lv said he understood why some U.S. politicians were
against the use of government funds for the project, saying this is
a normal reaction to a project located in someone else's district
that may be poorly understood. Lv said he understands that as a
democratic country, the United States allows for different voices to
be heard, adding: "If the Senator had enough information regarding
A-Power's cooperation with Cielo and Renewable Energy, he would
understand that the project is in full compliance with USG policies
in carbon emission reduction and new energy development." Lv also
noted that former Vice President Al Gore has shown interest in wind
energy and believes it is time for the U.S. to develop new and
renewable energy instead of relying on fossil fuels.

Financing
---------

4. (SBU) Lv expects to receive all the financing for the USD
1.5-billion total cost of the project from China, not the United
States, and he said the project would not use any "stimulus" funds.
In fact, said Lv, several Chinese Banks have shown interest,
including the Dalian Branch of the China Import/Export Bank, the
Liaoning Branch of SINOSURE (China Export Credit Insurance Company),
and the China Development Bank (CDB). The Import-Export Bank and
SINOSURE have issued letters of interest to A-Power (Pol/Econ Chief
obtained the letters from the banks expressing their interest to
extend credit to the project; they were not actual letters of
credit. End Note.) CDB Deputy President Zhao Jianping traveled to
the United States on November 15 to attend a conference with all
three partners: A-Power, Cielo Wind, and USREG with the hopes of
inking another deal to establish a manufacturing plant in the U.S.
Lv believes that it is only a matter of time before the CDB agrees
to offer credit to the project. Lv added that although A-Power may
enjoy preferential tax policies in the Shenyang Export Processing
Zone (EPZ) where the majority of the turbines are being built, the
vast majority of the benefits from the project would accrue to the
United States and result in the future development of more wind
farms.

A-Power
-------

5. (SBU) A-Power is a wind-power equipment manufacturer with
operations located in the Hunan and Tiexi districts of Shenyang,
including a joint-venture with GE to produce gear boxes. A-Power has
170 employees, including one PhD, 28 Master's and over 40 bachelor's
degree holders. According Wang Yunbo, all of his managerial staff
hold college degrees or have worked in the wind-energy industry for
at least five years. By the end of 2009, A-Power's plant in the
Hunnan District, which was just built in early 2008, will produce
32 sets of 2.5 MW wind turbines, each valued at RMB 25 million. By
the end of 2010, the plant should be able to manufacture 400 sets of
2.5 MW turbines. Even though the turbines are labeled as 2.5 MW they
are, as a matter of fact, 2.7 MW so as to ensure efficiency. With
GE supplying the gearbox, A-Power will manufacture three of the
other components-the shell, the blades, and the control system. The
plant will not operate at full capacity because its production lines
will be customized according to orders.

Why GE?
-------

6. (SBU) Wang Yunbo said that with over 60 GE 2.5 MW wind turbines
around the world, all running smoothly, the GE gearbox was a natural
choice. A-Power does not use Chinese technology for 2.5 MW turbines
because the technology has thus far proven too unstable. In early
2009, A-Power negotiated a deal with GE Transportation to purchase
900 2.7 MW gearboxes, which they will use for the project. GE and

SHENYANG 00000204 002 OF 002


A-Power also established a joint venture gearbox plant to be called
GE Transmission Technology Shenyang Co., Ltd., in Shenyang's most
successful EPZ, the Hunnan District. GE will hold a 25 percent
share while A-Power will hold 75 percent. According to Lv,
negotiations for the two deals were concluded in just two months, a
relatively short period.

Why Texas? Why Cielo?
---------------------

7. (SBU) According to Lv, wind-power energy resources in China and
the United States comprise a third of the world total and it would
be a waste if the wind energy resources in Texas could not be fully
developed. The United States has a large potential market and while
1.5 MW turbines are currently the most popular, the 2.5 MW are
actually a better fit for integration with electrical grids. During
his visit to Austin, Dallas, and Midland, Lv found the
20-to-30-meter-high flat-top hills in Texas to be the perfect
environment for wind turbines and the chosen site in Midland, Texas
has convenient access to three grids. The farm will have 3,000-4,000
hours of wind resources each year for generating electric power, and
A-Power gains the over 10 years of experience Cielo has in wind farm
operations in Texas. According to Lv, Cielo has just won approval
from the Texas legislature to complete a smaller scale wind farm
project. Lack of funding, however, has played a role in making wind
energy a vastly untapped resource. Three experts from Cielo (the CFO
and two technical officers) and one from USREG recently finished a
site visit and field inspection of A-Power's Hunnan plant and were
satisfied with the inspection, according to Lv.

The Pressure to Succeed
-----------------------

8. (SBU) Liaoning Province and Shenyang Municipal government have
shown great interest in the success of the project. According to Lv,
the governments are holding A-Power accountable for any technical
problem, be it in the GE gearbox or any other portion of the end
product. The Shenyang municipal government has held four meetings on
the funding, labor force, and technology for the project, and on
November 8, Mayor Li Yingjie presided at a government Standing
Committee Meeting on the project. The Shenyang Government even sent
officers to monitor and supervise production at the site. Also
according to Lv, House Speaker Nancy Pelosi expressed her
appreciation for the project, and Senator Kay Bailey Hutchinson
(R-TX) met with the joint venture team upon her return from a
planning trip for the Copenhagen Climate Change Conference. Lv and
Wang said other luminaries from the State Department, the House
Energy Committee, and business leaders met with them during their
visit to ink the deal. "We are working hard for a positive result
for China and the United States," Lv said.

Wind, Sun, Here, There
----------------------

9. (SBU) In addition to a planned manufacturing JV manufacturing
plant in the United States, the company has signed a framework
agreement with Russia's Energy Ministry to develop its wind energy
market. A-Power is currently negotiating with Canada to do the same
and is in negotiations with Westinghouse (no details given). A-Power
has also purchased a solar energy company in Japan for USD 50
million, planning to maintain the existing portion of the company,
particularly its development center, but moving future operations to
their Hunnan District facility to save on labor costs. To retain
talent and a high level of productivity, A-Power decided to award
the Japanese R&D staff, mostly 50-60-year old professors at Kyoto
University and Osaka University, some 40 percent of the shares of
the company. Finally, A-Power is cooperating with Yuanda Company in
Shenyang to develop a new coating material for curtain walls that
can generate electric power.

WICKMAN

© Scoop Media

 
 
 
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