East needs West in China's offshore wind sector
China’s offshore wind sector seems to have been on the cusp of a breakthrough for some time, but annual installation tallies have consistently failed to excite.
Finally, momentum appears to be building, with 800MW of annual capacity additions on the cards by the end of the year.
“It’s not great, but it’s definitely a good improvement on 350MW last year,” observes Shane Sun, senior analyst and Asia-Pacific chief at MAKE Consulting. “Going into 2017, we expect to see the market break the gigawatt level.”
Nevertheless, a number of key issues continue to hold back development — not least the reluctance to import tried-and-tested equipment and expert knowledge from Europe, something that looks set to change.
And as long as the government remains reluctant to provide sufficient subsidy support, it’s unlikely that annual capacity additions will truly take off before 2019 at the earliest.
“The economic side of things for offshore is one of the main problems right now,” Sun says, pointing out that the current feed-in tariff (FIT) rates — set at an uninspiring 0.85 yuan ($0.13) per kWh for near-shore installations and 0.75 yuan for intertidal projects — are set to expire at the end of this year.
The authorities may decide to raise the FIT rates slightly in 2017 to reduce risks and improve returns on investment for developers, says Sun, emphasising that they may also choose not to.
Potentially, Beijing may also want to offer different rates in different regions, depending on wind speeds — something it has already done with its onshore FITs.
Macquarie Capital analyst Patrick Dai is more pessimistic about the future of the sector.
“The whole supply chain for offshore turbines has not been established... it’s not mature,” he argues, underlining that the introduction of more than 1GW of pilot projects about four years ago failed to produce the economies of scale needed to bring project costs down. “I don’t really have a very positive outlook... the solutions may not be so near-term.”
A range of issues need to be overcome before the industry can lift off, Sun acknowledges.
Problems related to product quality and technical expertise point to the need for greater foreign involvement in all levels of the offshore sector.
“The actual technical know-how to design, develop and construct — that’s one of the key problems,” Sun says, adding that lack of experience is a particularly big hurdle off the southern provinces of Fujian and Guangdong, where development is most likely to take off.
“There’s a big opportunity for foreign players.” Sun says, explaining that in the early stages of the Chinese onshore market in the mid-2000s, Western turbine suppliers such as Gamesa and Vestas were initially dominant. “We’re now at the same stage for offshore, really... China wants and needs foreign involvement to push up the level of quality.”
Chinese offshore developers have already started to tackle this in several ways. For example, in June, China Three Gorges (CTG) bought an 80% stake in the 288MW Meerwind Süd/Ost project in the German North Sea from US private equity firm Blackstone — primarily to gain experience.
“[Developers] would also like to invite some of the European offshore IPPs into China and possibly set up joint ventures or partnerships, under which they’d develop,” Sun says.
Denmark’s Dong Energy — which recently opened an office in Taiwan to explore opportunities throughout the Asia-Pacific region — tells Recharge that it sees “significant potential” in China, as well as growing interest among Chinese groups to collaborate on projects. However, the group has yet to announce any moves into the market.
“So far we haven’t seen any successes,” Sun says, noting that current foreign ownership restrictions are not conducive to the establishment of such partnerships yet. “It really doesn’t make much sense. But definitely [developers] are looking into the possibility. And we might see some changes in policy or success stories over the next three to five years.”
Foreign companies can also help in other ways, according to Dai.
“If any foreign players can reduce the cost of installations, that would add a lot of value,” he says, adding that corrosion is still a big issue in Chinese offshore.
“If they can successfully bring down the breakdown time of the turbines and reduce the repair times, that will eventually save costs for turbine makers and IPPs.”
Despite such issues, the key signal to watch for in the months ahead is what Beijing decides to do with the FITs from January, as the offshore segment is still driven primarily by policy, rather than market forces.
“The potential has yet to materialise in real projects,” says David Guiu, deputy chief commercial officer for offshore turbine supplier Adwen.
Guiu says foreign companies are waiting for the government to offer more attractive FIT rates, in addition to simplifying the authorisation process for projects.
“Both elements are prerequisites to provide certainty to developers,” he says. “Once that happens we see that the expertise of European players such as Adwen, with an important fleet of wind turbines already in operation at sea, will be crucial for the industry to take off.”
A landmark offshore wind farm — one of the biggest to be built in China thus far — quietly moved into operation in the Taiwan Strait this summer. The success of the 50MW Fujian Putian City Flat Bay project, developed by state-owned Fujian Investment & Development Group (FIDG), will, to a large extent, hinge on the performance of the Chinese-Dutch manufacturer’s 5MW direct-drive XE/DD128 machines.
“There will be a lot of attention on this project over the next couple of years,” says Sun.
The wind farm, off Putian city, Fujian province, has the potential to spur development momentum along the southeast coast, which has considerably higher wind speeds than off Shanghai and Jiangsu province, where the majority of China’s offshore capacity has been installed.
For example, a unit of Longyuan switched on four Siemens 4MW machines off the coast of Putian in late 2015. FIDG is also nearing construction on an additional 250MW of capacity in the area.
“Fujian province is still in the early days,” says Dai, noting that it took more than four years to get construction rolling in Jiangsu, where China’s earliest offshore wind pilot projects were built.
Dai believes that development in Fujian won’t truly take off until late 2017, when FIDG may start moving forward with a 600MW project near Putian.
However, he also cautions that while Fujian shows a great deal of promise, it also presents “a lot of trouble,” as key stakeholders such as the military and local fishermen may thwart large-scale build-out.
Moreover, developers will struggle to source large turbines that are technologically capable of handling the province’s high wind speeds.
“It’s an area in which you need turbines larger than 4MW,” says Sun. “It would take 5-7MW turbine models.”
Surprisingly, Goldwind — which has never been a major offshore supplier — announced plans in June 2015 to build factories and an offshore test centre in Fujian, in cooperation with developer CTG.
The OEM declined to comment on the plan when contacted by Recharge, but Sun believes that the company may not ever become a significant player in Fujian’s growing offshore sector.
“How much involvement Goldwind will have in this gigawatt-level province, I certainly have my doubts,” says Sun, noting that the turbine maker currently only offers a 2.5MW machine for offshore. Its 3MW machine is not ready for large-batch production and its 6MW prototype is still in testing.
Sun expects Chongqing-based CSIC Haizhuang — which has finished testing a 5MW machine at the Rudong demonstration site off Jiangsu province — to become a bigger player in the coming years, given its already-sizeable order backlog.
The role of another erstwhile offshore contender, Zhongshan-based Ming Yang is now unclear, as the company has scrapped development of its unique 6.5MW two-bladed turbine due to a lack of interest from developers, according to Dai. “The supply chain is not mature for two blades,” he explains.
The top suppliers in Chinese offshore now are Shanghai Electric — which licenses 4MW and gearless 6MW turbine designs from Siemens — and Envision Energy, which offers a 4MW machine.
Beyond the domestic players, GE has already bid on several offshore projects in China with its Alstom-developed 6MW machine, while Adwen — owned by Spain’s Gamesa — believes it has an important role to play in the market.
“The lessons learned [in Europe] in the past decade — manufacturing, installing and servicing offshore wind turbines — cannot be disregarded by local developers,” says Guiu.