Could China’s offshore wind installed capacity exceed 120GW by 2035?

Could China’s offshore wind installed capacity exceed 120GW by 2035?

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Recently, a layout of Shandong Province’s Offshore Wind Power Master Plan (2019-2035), drafted by Power China Zhongnan Engineering Co., Ltd., has been released by the Investment Solicitation Office of Hekou Economic Development Zone of Shandong.

According to quoted information, the master plan is comprised of three major offshore wind power bases*:

  1. 8.9GW in Central Bohai Sea (Bozhong), 7GW of which is located near Dongying City
  2. 300MW in the North of Shandong Peninsula (Bandaobei)
  3. 6.8GW in the South of Shandong Peninsula (Bandaonan)
    (Source: Shandong Hekou Development Zone)

*Information about the Shandong Offshore Wind Master Plan (2019-2035) is subject to change based on official announcements by the government.

 

 

While the above information is not the official provincial NEA 14th Five-Year-Plan ("FYP"), it does have some credibility as it is released by an office under the Dongying city government, indicating a project pipeline of 16GW in Shandong by 2035.

In the 13FYP of Shandong Power Development (2016-2020), the government had already put forth an offshore wind power plan of six offshore wind bases including Lubei (northern Shandong, covering Binzhou and Dongying sea territories), Laizhou Bay (covering parts of Dongying, Weifang, and Yantai sea territories), Bozhong (Central Bohai Sea), Long Island (Long Island County sea territory), North of Shandong Peninsula, and South of Shandong Peninsula, with a total installed capacity of 12.75 GW. Among these, inter-tidal and near-shore offshore wind farms in Lubei, Laizhou Bay and Long Island were supposed to be developed in the course of the 13FYP.

However, based on Azure’s research, only 2.7GW of projects had identified investors by the end of 2019, only few have started construction and none have been connected.

Including this new Shandong intelligence and adding previously announced plans from other provinces, the total offshore wind capacity planned for 2035 now exceeds 120GW, which includes 66.8GW in Guangdong and 14.3GW in Jiangsu.

Nevertheless, the path forward is fraught with obstacles. Of the 91 offshore wind projects totaling 42GW approved in 2018, more than half have not given any news nor launched tenders, and the remaining ones are striving hard to achieve full grid connection by the end of 2021 in order to secure the 0.85CNY/kWh national subsidy. Since missing the deadline would indicate a dramatic slash in project profitability (without the national subsidy, offshore wind power would be sold at local coal-fired benchmark on-grid price which is less than half of the FIT in many provinces), developers are pushing turbine OEMs and EPCs to accelerate project delivery. Due to the COVID19 lockdown between February and April, construction has been severely impacted by labor shortage and transportation blockage. Under the extreme pressure on timeline, accidents on construction sites and breakdown of installation vessels have already occurred. Amid the COVID19 pandemic causing disruption to global transport and trade, the already strangled offshore wind supply industry is further threatened by the shortage of Balsa wood from South America.

However, some good news and the usual bullishness of local SOE investors are pushing the industry forward. Local offshore wind players have been lobbying with the NEA and Ministry of Finance for an extension of grid connection deadline in light of the unprecedented COVID19, and some local governments are indicating that provinces may take over the subsidy burden to support the offshore wind industry during its transition to grid parity.

According to Azure’s supplier database, we estimate that construction capacity in 2021 could reach 6GW to 7GW, a sharp increase for the 2+GW in 2019, while the main bottleneck remains installation vessels. But with the positive announcements from Shandong and other provinces, local entrepreneurs are likely to continue to invest in EPC equipment.

At Azure we believe that the 2018 approval boom has already had its effect. Local players have made tremendous efforts to reduce offshore wind LCOE, shorten project timelines and build out supply capacity. Once again China might live up to its reputation of exceeding market forecasts. At the current pace, the 120GW target for 2035 is feasible and may even grow bigger as more provinces join in. We take the bet that Offshore is likely to rapidly take up more than a third of the country's annual wind installations.

 

This analysis is compiled by Sharon Feng, Director of Research at Azure International. With more than ten years working experience within GE, Siemens and other MNCs in China, including rich expertise in dealing with Chinese governments and SOEs, Sharon has a background of government affairs and regulatory research and has developed deep knowledge of Chinese policy making and energy markets. Since joining Azure International, Sharon has led a number of important projects as a key analyst, strategic advisor and Research Director.

Contact Sharon for inquiries on the Chinese renewable energy markets: This email address is being protected from spambots. You need JavaScript enabled to view it.