After years of planning and sluggish development, 2016 may be the year that offshore wind power development takes off in China. Once it does, the market will be large.
Offshore wind power has a very important role to play in easing power shortages in coastal areas of China and in responding to climate change effectively. China’s abundant offshore wind energy resources, coupled with today’s improved technology and the support of national policies, indicate that offshore wind farms will become a rapidly growing energy market. At the same time, the offshore wind power equipment industry will become a significant economic growth sector.
In 2016, China’s offshore wind power development is expected to accelerate after years of preparations in both policy and industry levels. This article analyzes the current situation of offshore wind power development in China as well as its development potential and driving forces.
In the past decade, wind power has achieved rapid development in China. Installed capacity jumped from less than 75 MW in 2004 to 145 GW in 2015. Wind power’s share of total installed capacity has exceeded 7%, which means wind power has become the third-largest power source, behind thermal power and hydropower.
After many years of preparation and development of policy and industry, China’s offshore wind power sector is expected to accelerate, beginning in 2016. Specifically, offshore wind power may start to move into actual business operation at the end of this year. According to the 12th Five Year Plan of Wind Power presented by the National Energy Administration of China, 5 GW of offshore wind power was planned to be operational by the end of 2015, increasing to 30 GW by the end of 2020. However, as Figure 1 shows, the 2015 target was missed by 4 GW.
1. China’s offshore wind capacity. The 12th Five Year Plan of Wind Power planned for 5 GW of offshore wind power by the end of 2015, but that goal was not reached. Source: Chinese Wind Energy Association, www.cwea.org.cn
Offshore Wind Power Potential
Compared with inland, onshore wind power, there are stronger and more stable wind resources at sea, and offshore turbines have greater unit capacity and higher utilization hours. Meanwhile, offshore wind farms are closer to load centers, which makes wind curtailment less likely. Therefore, offshore wind power is a certain direction for future development.
According to surveying and mapping by China Meteorological Administration, the amount of wind energy resources that can be developed technically in China is about 500 GW in the range of 5 to 50 meters water depth, as shown in Table 1 (areas for waterways, fisheries, and other purposes, as well as areas where strong and super typhoons passed three times or more historically, are excluded). Although the exploitable wind resources offshore are only one-fifth of those onshore, when you consider the rate of developable/developed resources and the exploitable resources per unit area, the potential of offshore wind power is greater. Consequently, the average annual growth rate is also expected to be greater for offshore than onshore development in the future.
Table 1. Wind energy resources in China. Source: China Meteorological Administration, www.cma.gov.cn
Considering the advantages and the potential of offshore wind power (Figure 2), both the government and companies have started to attach importance to its development and construction.
2. Wind power resource. Annual average wind power density distribution of 5 to 20 meters water depth and 100 meters height in coastal waters of China. Source: China Wind Power Development Roadmap to 2050
Development and construction of offshore wind facilities in China was relatively slow in 2014 and 2015. The main reasons included these:
■ Pre-approval of projects is complex due to multiple management responsibilities between departments such as marine, environmental protection, military, and others.
■ Installation costs are high and do not match the on-grid power tariff currently, which makes it hard to profit from offshore projects.
■ The industrial supply chain is imperfect, and all aspects of the supply chain lack experience.
As the European experience shows, all these problems can be solved by government support, technology improvement, and improvement of the industrial supply chain.
There are several driving forces for offshore wind power development in China.
Cost Reductions Are Driven by Technology Progress and Optimization of the Industrial Supply Chain.The offshore wind power sector is new, which means components and equipment used in China are mostly adapted from other industries. Therefore, the industrial supply chain for offshore wind power is immature and imperfect. Also, there is tremendous room for progress in technology and installation methods.
With increased research and investment in related fields, cost reductions may be realized. For example, as is forecasted by the Crown Estate, the levelized cost of electricity (LCOE) of offshore power in England can, in a variety of ways, drop by 39% compared to 2011 by the year 2020. That would be a drop from£140/MWh in 2011 to£85.4 /MWh in 2020.
There are four main ways to lower the cost of offshore wind power:
■ Offshore wind turbine manufacturing develops toward large scale and specialization.
■ Increasing competition in links on the industrial supply chain.
■ Experience is accumulated with optimized installation methods and new types of foundation support.
■ Achieving economies of scale in manufacturing.
China has cheaper labor costs, shipping rent (transportation costs), and some other production factors compared to England. Therefore, the total costs and the LCOE will be lower in the future.
On-Grid Power Tariff Is Established. In the early stage, offshore wind power demonstration projects were examined and approved separately in China, and so was the price. For example, a demonstration project completed in 2010 named Donghai Bridge Offshore Wind Farm in Shanghai (Figure 3) implemented a price of 0.978 CNY/kWh. Another project, named the Intertidal Zone Wind Farm of Rudong, Jiangsu (Figure 4), implemented a price of 0.778 CNY/kWh. In general, earlier prices are relatively higher than what is expected later.
After that, bidding of the first offshore wind power projects in China is carried out by means of the concession tender. The price for these projects is only 20% higher than the price onshore, while the investment cost is twice as much as for onshore wind projects. Therefore, profitability has become a major concern of developers.
The intention behind the idea that the price of offshore wind power be determined by tender is to cut the subsidies gradually through competition, so as to realize technology progress and healthy development of the market and industry. However, the too-low bidding price, which may be caused by malicious competition, has actually hindered the development of the offshore wind power industry. What’s needed by developers is a more stable expectation of price.
Therefore, in order to promote further development of offshore wind power in China, a uniform offshore wind power on-grid power tariff was established in June 2014. Although it’s still lower than the subsidy standard in European countries, the on-grid power tariff has at least reversed the situation in which the income level for offshore wind power investment is fuzzy. The remaining problems should be solved by the enterprises’ ability to control risk and improve technology.
Development Planning Is Established by Coastal Provinces.In August 2014, the “National Development and Construction of Offshore Wind Power Planning (2014–2016)” was published by the National Energy Administration of China. Forty-four offshore wind power projects with a total capacity of 10.53 GW are included in the development and construction program. In addition to the national level, the coastal provinces actively carry out research work as well and develop their own offshore wind power installation planning, as shown in Figure 5, which shows 39.3 GW of planned capacity by 2020–2030 in total.
5. Offshore wind power capacity planning of coastal provinces in China. Source: Shanghai Geotechnical Investigations and Design Institute, www.sgidi.com
The developers will tend to be diversified.
Currently, the domestic offshore wind power developers in China include Guodian Group, China Guangdong Nuclear Power, State Power Investment Corp., Datang Group, the Three Gorges Group, State Grid, and many other central enterprises in the power industry. China Longyuan Group is walking in the front of this group.
Compared with onshore wind power, there is a higher barrier in offshore wind power, so the type of developers is now limited. However, with the development of a free market in China, this limitation will be gradually liberalized. In the future, state-owned power enterprises and foreign enterprises with experience in the offshore wind power industry will join the queue of offshore wind power developers in many ways such as joint ventures (Figure 6) or sole investment.
The Target for Installed Offshore Wind Power Capacity in 2020 is 30 GW. By the end of 2015, China’s cumulative installed capacity of offshore wind power was about 1,017.88 MW. The stage of pilot demonstration has passed and the era of early commercialization has come.
By the end of July 2015, according to the offshore wind power industry monitoring system, among all the offshore wind power projects that are included in the National Development and Construction of Offshore Wind Power Planning, two of them with a total capacity of 65 MW had been finished and been put into production; five of them, with a total capacity of 170.2 MW, had been approved and were under construction; six of them, with a total capacity of 154 MW, were approved to be built; and the rest of the projects were carrying out preparatory work. In general, progress is slow.
With the establishment of the on-grid power tariff for offshore wind power, improving coordination between departments, perfection of the industry supply chain, and the accumulation of experience, China’s offshore wind power industry will gradually break the ice and come to a burst in the 13th Five-Year period. The 30-GW target of installed offshore wind power capacity in the year 2020 might be reached after all.
A Promising Outlook
Offshore wind power technology has been greatly improved after nearly 20 years of development. However, its main problem lies in the high costs and inconvenient installation and transportation conditions. With the maturity of offshore wind power technology, the cost of offshore wind power will continue to decline.
Offshore wind resources are a type of clean and sustainable energy. With the active support of national policies, the improvement of offshore wind power technology, and the decline in wind power development costs, large-scale development of offshore wind energy will be more widely utilized.
Based on development in the global offshore wind power industry and existing problems in onshore wind power consumption, China will accelerate its efforts to create a package of policies that promote the development of the offshore wind power industry, including scientific planning, reasonable pricing, power grid construction, trading system, capital access threshold, and so on by coordinating the interests of all parties on the basis of further clarifying the overall strategic thinking and actively introducing market trading mechanisms. In short, the “sea breeze” is coming.
The work described in this article was supported by the National Natural Science Foundation of China (Grant no.71271082) and the Fundamental Research Funds for the Central Universities in China (Grant no. 2015XS37). ■
—Prof. Zeng Ming, Dr. Peng Lilin (firstname.lastname@example.org), M.A. Li Yuanfei, M.A. Wang Xin, and M.A. Liu Yang are in the School of Economics and Management, North China Electric Power University, Beijing, China.