IN DEPTH: Is the tide turning for Chinese offshore? By Brian Publicover, Recharge News, Updated: Wednesday, October 14 2015
A Sinovel turbine goes in at the Donghai Bridge intertidal project
When China announces a national target, it generally has the ability and capacity to ensure that goal is met. But in the case of offshore wind, it has not even come close.
The National Energy Administration (NEA) set cumulative targets in 2011 for 5GW of installed offshore wind by 2015 and 30GW by 2020. Yet forecasts suggest that only 1.2GW will have been installed by the end of this year, with China lucky to get a third of the way to its 30GW goal by 2020.
Nevertheless, the tide seems to be turning for the sector. The rate of installation has been picking up this year, with analysts expecting it to accelerate in the years to come.
To explain why this is happening, it is first necessary to understand the reasons why the sector is so far behind schedule.
Offshore wind is an expensive business at the best of times. To start the industry from scratch in a new territory — where there is no local supply chain, no installation vessels and no local experience — is even more expensive. So to kick-start a local offshore wind industry, provincial governments have to offer generous incentives to make it worthwhile for commercial developers to invest.
However, the subsidies set by the Chinese government have never been high enough to attract the level of development Beijing required. In an apparent attempt to remedy the situation, a new feed-in tariff (FIT) was introduced last year, but at 0.85 yuan ($0.13) per kWh for near-shore installations and 0.75 yuan for intertidal projects, it still wasn’t enough.
“It was set too low compared with what the industry was expecting,” says Liming Qiao, China director for the Global Wind Energy Council. “And that’s why we didn’t see huge, rapid growth right after the FIT was released last year.”
With incentives so low, only major players such as Longyuan have had the appetite — and the deep pockets required — for inherently risky offshore development, she says.
“Some of the developers who are more experienced with offshore — who have already done lots of projects and are familiar with the procedures, the maintenance and installation — they have the advantage of going bigger before the new offshore FIT kicks in [which is expected in 2017],” she adds. “But not everybody has that much experience in offshore and can risk going too big on this low FIT. So I think some developers are still watching and doing small projects to learn.”
According to MAKE Consulting analyst Shane Sun, Chinese offshore developers can only “just about break even” at “certain wind farms”.
“The risk is extremely high, considering that the initial capex for offshore is more than double that of onshore,” he says. “So for a very limited return on that investment, it’s a very high risk for an IPP [independent power producer] to take. That’s why the current progress of offshore has been very slow.”
Interestingly, Bloomberg New Energy Finance analyst Yiyi Zhou believes this could be exactly what the government intended when it set subsidy levels — to discourage less-experienced developers from jumping into the market. “It seems to us that the strategy is to attract developers who are really serious about offshore development. They’re trying to avoid the mistakes they made with the onshore market,” she explains, referring to curtailment problems, low-quality turbines and poor project construction.
With experienced European offshore developers reluctant to enter the Chinese market, local developers have not been able to draw on the existing offshore wind knowledge base, so are almost starting from scratch, learning through doing.
Much of the experience gained by Chinese developers at intertidal sites — where turbine foundations are only underwater when the tide is in, and flat-bottomed installation barges rest on the exposed sandbanks — does not translate to near-shore installation. So even the more experienced developers still have a big learning curve ahead for conventional offshore projects.
“Construction experience is extremely lacking,” says Sun.
The lack of available vessels is also keeping costs high. At present, there are seven vessels in China that are capable of installing offshore turbines, with at least two more under construction, according to FTI Consulting analyst Feng Zhao.
“China has a very substantial shipbuilding industry, so building the actual vessels is not a problem,” says Sun. “The problem comes from the technology for the installation equipment on the vessels. And China doesn’t currently have that knowledge, it can only be purchased from abroad.”
According to Zhao, the softer seabeds off China’s coasts cause significant problems for European jack-up vessels.
“The Europeans have tried to use existing vessels for Chinese projects but especially for intertidal projects... the mud, it’s really a headache for vessels with legs,” he says.
“[Contractor] ZPMC is renting one [such] vessel from German utility RWE [but] it’s doing nothing now, due to the different sea conditions in China.”
The lack of a local supply chain and suitable Chinese turbines has also kept the levelised cost of energy relatively high.
Of the leading offshore turbine suppliers, only Siemens has actually installed machines in China. MHI Vestas, Senvion and Adwen have not entered the market. And even Siemens, which will install more turbines off China than anyone else this year, according to Zhou, is effectively pulling out of the market, by ending its joint venture with Shanghai Electric(SE). Instead, the German giant will license its turbines to the Chinese company, meaning that SE will have to manufacture the nacelles itself, although it will continue to buy blades directly from Siemens.
Whereas European turbine makers have designed their offshore models from the ground up to ensure that every component will function well in the cold, damp, salty conditions, Chinese OEMs have simply “marinised” existing onshore models. This has inevitably led to poor capacity factors and lower-than-promised returns — hardly a catalyst for confidence building or swift sector growth.
“On the technology side, there is still a lot of room for improvement,” says Sun.
When the government went public with its offshore ambitions in 2011, it was not aware of how difficult and costly offshore development could be, explains Qiao.
“But now that they realise it is impossible, they are not stressing too much on the target. But they are seriously finding solutions to help contribute to the target.”
Industry observers believe that the problems holding back the Chinese offshore sector are in the process of being resolved.
Local turbine makers have started to take offshore far more seriously. Ming Yang, for example, with the help of German designer Aerodyn, has built, installed and grid-connected its prototype 6.5MW two-blade, downwind offshore turbine at the intertidal demonstration site off Rudong, Jiangsu province. Calculations suggest that a 500MW development using this turbine would have an LCoE of just over €100 ($112) per MWh — some 30% cheaper than the average LCoE off Europe.
Goldwind, Envision and Dongfang have also launched prototype offshore turbines in the past two years, with Goldwind’s and Envision’s machines (3MW and 4MW respectively) now being sold on the open market. Dongfang, which started testing a 5.5MW prototype at Rudong in July 2013, is now fine-tuning a 3MW model.
Similarly, dedicated offshore wind installation vessels are now being built for Chinese conditions and experience is growing — although Feng admits that the installation learning curve will continue for a while. “It’s really tough to find people who have offshore installation experience,” he says. “And training takes time.”
This year, analysts expect about 500MW to be installed offshore, a substantial increase on the 229.3MW and 39MW seen in 2014 and 2013 respectively.
Much of that new capacity has been built off Jiangsu province and Shanghai, as well as Fujian province, which is becoming something of a centre for offshore wind due to its excellent wind resources. Fujian Energy and China Three Gorges (CTG) revealed plans in June to construct 400MW in two stages off the city of Putian, with the intention of building 1GW in the province’s waters. Goldwind and CTG also announced their intentions this summer to jointly build a new offshore wind test centre near the provincial capital, Fuzhou.
Bloomberg New Energy Finance is forecasting that 1GW of offshore will be installed in Chinese waters in 2016, with roughly 1.2GW the following year.
This uptick might be at least partly due to the government’s decision to give the new offshore FIT to some of the roughly 1GW of projects that were successfully tendered in 2010, says Zhou.
Last December, the NEA published a list of 44 offshore projects — 10.53GW in total — that had been approved for development in principle. To qualify for the current FIT, they will need to complete the entire approval process by the end of 2016 or face reapplying. Sun believes this fact should push most of these developers to start connecting projects by 2017-18.
And perhaps more importantly, it is believed that Beijing will offer a higher FIT for offshore projects when the current rates come up for review in 2017.
“The outlook for the FIT is fairly simple. It needs to increase and it probably will increase, according to all [developer] sources I speak to,” says Sun.
The effect of a higher FIT can already be seen in the Shanghai municipality, where the local authorities have been offering offshore developers an extra 0.02 yuan/kWh premium.
“That’s why the Shanghai government is attracting development,” says Qiao.
Developers Datang and China Guangdong Nuclear were among those taking advantage of this top-up when they completed their second-phase extension of the 102.2MW Donghai Bridge offshore wind farm in June.
Sun also believes that the government might start pushing offshore wind more aggressively in its forthcoming 13th Five-Year Plan, which will set out the nation’s development strategy for 2016-20. Beijing has already revealed that the plan will aim for “higher quality, efficiency, equality and sustainability”.
Sun adds that the Five-Year Plan will set more realistic installation targets and development guidelines, but that it will take several years for this next phase of projects to enter the water. “I don’t expect offshore to really pick up speed until 2019,” he explains.
Zhao is more optimistic, arguing that the Chinese offshore sector will reach “industrialisation” next year as it hits 1.5GW of annual installations.
“I think the pipeline is quite healthy,” he says. “As soon as annual installations reach 1.5GW, that means the local supply chain will reach a certain level and industrialisation can be reached. That will help the Chinese offshore industry to move on.”