Western wind turbine manufacturers are losing ground in China, the world’s fastest-growing green energy market.

The combined market share for companies such as General Electric Co. and its European rivals Vestas Wind Systems A/S and Siemens AG fell to 14 percent last year from 71 percent in 2005, according to Bloomberg New Energy Finance. Sales are being eroded by local companies including Sinovel Wind Co. Ltd. and Xinjiang Goldwind Science & Technology Co. Ltd.

“It’s a tough market,” said Jesus Zaldua, president of Gamesa Corp. Tecnologica SA’s Chinese subsidiary, which has four wind-turbine factories in the northeast city of Tianjin. “Some companies will have to leave China in the next five years.”

Buoyed by $47 billion in stimulus spending for environmentally friendly power over two years, China installed more than double the number of wind turbines in 2009 than in the previous year. This year, the country plans to add 18 gigawatts of wind capacity, the equivalent of 15 nuclear power plants. That’s double what’s expected in the U.S., the No. 2 market, according to estimates from New Energy Finance.

Germany and Spain, Europe’s largest wind energy markets, will add 1.8 gigawatts and 1 gigawatt in 2010, respectively.

Vestas, the top foreign wind turbine maker in China, installed turbines with a total capacity of 620 megawatts on the mainland last year, New Energy Finance said. Despite losing market share, Western turbine makers still are selling more units in China, UBS AG estimates.

Prices ‘Driven Down’

“The very explicit growth targets for wind energy in China have spurred the growth and emergence of many new competitors, which has driven down the prices of wind turbines,” said Tommerup, the president of the Vestas unit in China.

The biggest domestic competitor, Sinovel, which is based in Beijing, sold turbines with a capacity of 3,523 megawatts.

Sinovel and Goldwind, the second-biggest Chinese wind- turbine maker, are ranked among the top five global turbine manufacturers, even though they have almost no sales overseas, according to the Danish wind advisory firm MAKE Consulting.

Vestas and GE were respectively the first and second largest suppliers of turbines worldwide in 2009, according to annual rankings compiled by MAKE Consulting. Sinovel finished third, followed by Germany’s Enercon GmbH. Goldwind was fifth.

Tao Gang, a vice president at Sinovel, said in an interview the company is in discussion about opening factories overseas. “We are open to all business models,” he said, without providing further detail.

Chinese companies have kept costs down by licensing older technology from overseas rivals, including Vestas, Japan’s Mitsubishi and others that sell their own turbines in China.

While the Chinese pay royalties to the foreign firms, those payments don’t come close to making up for the business the foreign companies are losing in China, according to Emerging Energy Research’s Hays.

China’s so-called “buy local” policy steers most state- financed energy contracts to domestic players, said Magued Eldaief, a GE Energy executive who formerly oversaw the Fairfield, Connecticut, company’s Asia Pacific unit.

“There’s no question preference is given to Chinese companies,” Eldaief said. “It’s a reality you have to live with.”

To get back in the game, the foreign companies are introducing newer technology. Siemens, based in Munich, expects to open an $80 million plant this year in Shanghai that can build 3.6-megawatt turbines. That’s bigger than anything now made by a Chinese company.

Gamesa plans to build 2-megawatt turbines after retrofitting its existing plants. It will also open its fifth factory in China next year. The Spanish company’s machines cost a third more and are more reliable than Chinese models, according to Beijing-based renewable consultancy Mint Research.

“Competing on cost isn’t the way to go,” said Jens Tommerup, president of the Chinese business unit of Vestas, which is based in Denmark. “It’s about quality.”

Chinese Competition

Chinese manufacturers say they are improving their quality. Goldwind and Sinovel plan to introduce higher-output turbines next year.

“We already have 2.5-megawatt and 3-megawatt products” under development, Thomas Yao, Goldwind’s public relations director, said. “We are going to produce some 2.5-megawatt (turbines), and they will be put into mass production early next year.”

The head start in technology may pay off for western companies, particularly as the Chinese venture abroad, said Keith Hays, global wind research director at Emerging Energy Research. Western bankers, who would finance the majority of projects outside of China, have more faith in U.S. and European turbine makers because of the companies’ experience, he said.

“For now, the West has an advantage in quality,” said Hays, an industry consultant in Barcelona and Cambridge, Massachusetts. “But the Chinese are catching up fast.”