China’s debut offshore wind procurement round to include price competition prompted a lowest bid that would take the sector below $100/MWh for the first time in the country, Recharge understands.
The national record-low offshore wind price of 620 yuan/MWh ($87.8/MWh) was a bid by China Longyuan, the wind development arm of the world’s largest utility China Energy Investment Corp., during the auction for the 200MW Fengxian Phase 1 project in Hangzhou bay off Shanghai.
In a surprise to the market, Longyuan bid at a price well below other contenders, which came in between 738 and 760 yuan/MWh, and at an almost one-fifth discount to the mandatory price cap set by the National Development and Reform Commission (NDRC).
Six other domestic offshore wind powerhouses also participated in the bidding, including China General Nuclear, China Huaneng, Shanghai Electric Power, a consortium formed by China Datang, China National Offshore Oil Corp (CNOOC), and Shanghai Electric.
The final result of the auction is expected to be revealed within weeks, Recharge understands from industry sources. And despite being the lowest bidder, Longyuan has yet to clinch the project, as other scoring criteria could in theory secure victory for other contenders in the auction. Longyuan has a clear disadvantage in scoring based on turbine size and local offshore portfolios, Recharge understands. For example, it opted for 5.2MW turbines, while the other contesters all set to deploy machines larger than 6MW.
The Chinese energy regulator last year announced it would scrap the previous feed-in tariff system and require all new onshore and offshore wind allocations to enter auctions where price competition is a central element.
NDRC also introduced price caps for wind tenders; new offshore wind projects face price ceilings of 0.8 yuan/kWh and 0.75 yuan/kWh this year and next respectively, adding pressure to reduce wind costs in China, as Recharge has previously reported.
The first to launch an offshore wind auction, Shanghai is among five Chinese coastal provinces to release tender rules, but its scoring design is “unique” and “gives higher pressure for developers to bid at low prices compared to the others”, said Hubert Beaumont, CEO of China-focused sustainability consultancy Azure International.
Despite offering a steep cut from the previous feed-in tariff, Longyuan claimed its bidding price could still yield a sizeable profit from the project, estimated at an internal return rate (IRR) of 12%.
This is because capital expenditure on the Fengxian project “can be very low”, Beaumont told Recharge, thanks to the project’s shallow water depths around five metres, nearness to shore and synergies with offshore wind development in neighbouring Jiangsu province.
Although the record-low bid comes against unique market conditions, it is nonetheless positive news to Beijing’s plan to reduce offshore wind's cost and reliance on subsidy, and will strengthen state support for the industry, Azure International said.
“The prices will go down inevitably,” the head of the clean-tech advisory said, adding that the price drop should not deter foreign investors looking into the Chinese offshore market.
“If anything, this should motivate them to move rapidly and secure participation in projects where higher tariffs still apply.”
In an unexpected side-effect, Longyuan’s bid has created quite a stir in the offshore wind market on the other side of the Taiwan Strait, providing ammunition to opponents questioning the Taiwan government’s initial offshore wind tenders that resulted in an average price of NT$5510/MWh ($175.8/MWh).
Taiwan's Bureau of Energy (BOE) rebuked the criticism as "comparing apples to oranges," citing the island's auction offshore wind price of NT$2500/MWh for projects kicking off after 2023 as “lower” than Longyuan's bid.