Wind Power Equipment
Fiberglass composites, including FRP products, are commonly used to produce wind power blades because of their lightweight and strength characteristics. Hanwei has identified opportunities to provide products for use in the wind power industry.
On June 1, 2007, Hanwei announced that it had signed a cooperation and manufacturing agreement with Daqing Deta Electric Co. Ltd., (a private PRC company), or Deta, that includes an initial order to supply approximately C$27.9 million (RMB 200 million) worth of wind power products. The agreement also contains an expression of intent to place additional orders with Harvest for wind power products in the amount of C$83.8 million (RMB 600 million) in 2008 and C$125.7 million (RMB 900 million) in 2009. Under the cooperation agreement, Hanwei will use its FRP expertise to develop and manufacture high-pressure FRP wind power blades and will assemble other key components and structures, such as the turbines and towers that it sources from other suppliers. Deta will provide the Company with wind power technology and expertise. The initial order is for Hanwei to manufacture and deliver to Deta various wind power products, including 20 turbines, 20 blade sets and 30 towers, on a cost-plus 15% basis. This initial order is estimated to result in a sale price of C$27.9 million (RMB 200 million). Deta has paid a 5% deposit and will pay Harvest a percentage of the remaining portion of the sales price as follows: 45% upon delivery of the first half of the order; 25% upon delivery of the second half of the order; and 25% upon completion of an inspection report, which requires that the generator run for 500 hours without malfunction. The final 25% payment will be adjusted to ensure a cost-plus 15% gross margin.
The wind power equipment being manufactured by the Company for Deta is to be used in a wind power project being exclusively developed by Heilongjiang Ruihao Energy Technology Co., or Ruihao, (a private PRC company), in the Durbert Mongolia Autonomous County, Heilongjiang Province, China. Deta has signed agreements with Ruihao Ruihao plans to develop up to 860 MW of wind power in Durbert Mongolia Autonomous County, subject to government approvals and funding.
Currently in China, wind power blades are supplied by both foreign and domestic producers. While domestic producers have significant manufacturing and transportation cost advantages, domestic production capacity is not sufficient to meet the current and anticipated demand. Hanwei believes that it is well positioned to compete in China's wind power blade market and plans to leverage its FRP manufacturing expertise, China market knowledge and industry and government relationships with the goal of becoming a low cost producer of high quality FRP wind power blades.
Under its agreement with Deta, Hanwei has been granted the right to use certain technology for the construction and design of FRP wind power blades and turbines. Rights to the technology for manufacturing wind power turbines are held by Ruihao under a licence granted by Shenyang Industrial University. Rights to the technology for manufacturing wind power blades are held by Deta under a licence granted by Harbin Power Equipment National Engineering Research Centre Ltd. Co. The technology that Ruihao licensed from Shenyang Industrial University is certified under the China "863 Plan", which covers the development of innovative technologies supported by the Chinese government. The Company believes such technology is currently used in an existing wind farm located in Liaoning Province. Hanwei announced in 2008 that it has entered into an agreement to acquire Deta. (see "Wind Power Industry")
