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