Eyes on the east: China asserts power over global offshore wind sector

Despite being a newcomer in the global scene, China added more capacity than any country in the last two years.

When the UK began construction on the world’s largest offshore wind farm in early January, the global power sector looked on with great anticipation. One of the most eager onlookers is China, whose offshore wind project pipeline, especially for the province of Guangdong, could give the UK and other European countries a run for their money.

UK’s 3.6 GW Dogger Bank Wind Farms, the world’s largest to date, is expected to power over 4.5 million homes, but China’s plans for Guangdong now amount to 12GW for 2020 alone. This, in addition to Chinese aspirations to become subsidy-free by 2022, is pushing the sector to lower costs, adopt modern technology, and become even more strategic in choosing and operating its wind sites.

Offshore wind accounts for a measly 0.3% of global electricity generation, but recent regulatory and technological developments showcased offshore wind’s potential to become one of the world’s central energy sources in the coming years.

As the UK and China race for dominance in this space, other global leaders are also breaking new ground. Vietnam is another market to watch, as the government aims to make offshore wind a primary energy source.

Dr. Fatih Birol, executive director, International Energy Agency, said that global offshore wind power capacity is set to increase by as much as 15 times over the next 20 years. This will turn the global offshore wind sector into a $1t business, the leading source of electricity in Europe, and a viable source of hydrogen to reduce emissions from the iron, steel, and shipping sectors.

Whilst the UK and the rest of Europe remain on top of the global offshore wind game, China and other players from the Asian region could eventually emerge as winners if they fulfil their potential for wind power. According to a report by Fitch Solutions, China is expected to become a global offshore wind power frontrunner over the coming decade as it accelerates offshore wind capacity deployment in Guangdong and Jiangsu provinces.

“China's offshore wind capacity growth since 2015 has seen the country grow its share of total installed capacity globally from 9% as of end-2015, to more than 25% as of end-2018, aided by the market comprising 40% of global net offshore wind capacity growth over 2018. With the offshore wind project pipeline strengthening over the coming years, we believe China's global offshore wind power footprint will expand further,” analysts at Fitch Solutions said.

Favourable conditions
China is catching up with rapidly falling offshore wind power costs in Western Europe and more competitive technology in markets like the United States and Taiwan. Analysts believe that China’s aim is to eventually export technology, after decarbonising power supplies near the country’s coastal consumption hubs.

Danish company Ramboll designed the world’s biggest and heaviest monopiles for State Power Investment Corporation’s Guangdong Offshore Wind Power project last year. Weighing 1,600 tonnes, the monopiles are being installed at a depth of 37 metres, one of the deepest in the market to date.

Apart from China, other Asian countries are moving towards increased offshore wind capacity. Vietnam, for instance, has been looking to European expertise for developing many of its offshore wind projects. The country’s largest offshore wind farm at 3,400 MW will be developed by UK-based Enterprize Energy in Thang Long, off the coast of the south central province of Binh Thuan.

“Primarily, Vietnam’s wind resources are some of the best in the world. The water depths are within the range that is manageable with current engineering, and our understanding of what makes commercial development possible. There is a developing onshore wind sector with technical expertise in operations and maintenance and so we believe this will be capable of expansion to serve the offshore projects over time,” said Ian Hatton, chief executive officer, Enterprize Energy.

Elise Do, associate director, Augusta, said that Vietnam has power generation needs of 60,000MW by 2020 and 120,000MW by 2030. She added that the growing demand will be a huge enabler for renewable energy, specifically offshore wind, which can help increase capacity almost immediately. The country also has a 20-year feed-in-tariff (FiT) in place, part of the government’s efforts renewable investments more attractive.

“The offshore wind sector offers scale, but what is also important is that you need to have good wind resources, which Vietnam has. It also needs benign sea conditions and proximity to load. Vietnam, with its long coastline, has a lot of the ingredients needed to make the offshore wind sector work. Another interesting point about Vietnam is that its oil and gas supply chain is already established and that's a good base from which to build the new industry of renewable energy,” Do added.

But before Vietnam piqued the interest of giant developers, some investors have already looked to Taiwan as a launching pad for their expansion into the Asia Pacific. In Taiwan, Enterprize Energy has also been working on the 1,000 MW Hai Long offshore wind project.

The country already boasts of an encouraging regulatory framework amidst the Taiwan Strait being a technically demanding environment to build an offshore wind project in. Hatton said that Taiwan’s geographic location makes it vulnerable to seismic activity and typhoons, requiring projects to have strong foundations to cope with seismic liquefaction risk and deeper water of up to 50 metres.

“For the utilities, it's more of a question of diversifying into new markets. For IPPs, this is also a yield play, as they are looking to increase their yields and returns on investment. Asia does offer that and it's becoming more and more interesting for investors. Taiwan has been a key growth region, and now people are looking for the next market,” Do said.

Money trails
Many investors are also looking at Australia, Japan, Korea, and countries in Southeast Asia with growth potential in renewables, and Do said that this will depend on which market each investor is familiar with.

Tim Buckley, director of energy finance studies, Institute for Energy Economics and Financial Analysis (IEEFA), said that wind, utility-scale solar and distributed rooftop solar generation reached 14.7% of Australia’s energy mix in 2019, compared to just 1% in 2009. Buckley noted that offshore wind power in particular has been slow to take off, but has eventually gained ground in the country’s national energy market.

Like Vietnam, Australia is taking inspiration from European leaders in offshore wind. The country’s first ever offshore wind project, The Star of the South, is a 2.2 GW wind farm located off the coast of Gippsland, Victoria. Proposed by Copenhagen Infrastructure Partners (CIP), it is the country’s largest electricity project worth around $5.4b in investments. CIP’s capital comes from institutional investors such as pension funds and insurance companies that prefer investing in infrastructure with long-term cash flows.

“An interesting trend to follow will be how well the support mechanisms that are going to be in place will meet the criteria of international investors and what they're familiar with. The PPA is not bankable as it stands, but I understand that the Vietnamese government is working on the structure to see what can be done so I would say it's progressing,” Do added.

Over the last year, another Asian country has seen an upsurge in the number of investors flocking to its offshore wind sector. A report by GlobalData reveals that Japan’s offshore wind can grow to more than 770MW from just 68MW at present. Major foreign developers such as Ørsted, Equinor, wpd and CIP have expanded their global footprints in Japan, proof that the country has huge potential for offshore wind generation.

Harminder Singh, director of power, GlobalData, says, “The offshore wind market in Japan, though presently at a nascent stage, is increasingly showing positive signals to investors. The recent joint venture between Canadian Energy Company Northland Power and Shizen Energy is a testimony to this.”

In addition, Japan passed the Marine Renewables Energy Act to enhance the government’s energy policy and hit 2030 energy targets. This piece of legislation will require multi-stakeholder collaboration in utilising parts of the sea for renewable energy projects.

“Having the supply chain developed in Vietnam could also be a gateway to the supply of other Asian markets when they do come on stream. The opportunities will also evolve as technology evolves. For example, we’re seeing technological advances in floating offshore wind, and that will help strengthen the business case, and the realisation of other Asian markets where the waters are much deeper and more advanced technology would be needed,” Do said.

Analysts from IEA are also closely watching Korea, which may play catch up with China if it strives to achieve its ambitious policy targets. Under the country’s Renewable Energy Plan 2030, offshore wind targets will account for more than 10% of the country’s electricity by 2040 or 25 GW, the largest outside the European Union.

In terms of specific investors to watch, Buckley and his team at IEEFA noted that Macquarie Group has become a leading renewables investor across Asia and is the key investor in Taiwan’s offshore wind sector. In fact, Shemara Wikramanayake, chief executive investor, Macquarie Group, announced that they could be the world’s largest renewable infrastructure investor within the next few years, due to their global target of 20GW of new capacity.

Tech rollouts
As projects move further away from the shore and get installed in deeper waters, Birol said that floating turbines are becoming the norm. A geospatial analysis conducted by IEA showed that with just offshore wind, the electricity demand can already be met in Europe, the United States, and Japan.

And since the cost for offshore wind projects has been steadily declining, companies can invest in better technology and innovate faster than before. In 2018, the IEA reported that the average upfront cost to build a 1GW offshore wind project, including transmission, cost over $4b. Over the next decade, analysts at IEA said that the cost is set to drop by more than 40% as a result of cheaper turbines, foundations, and installation costs.

“The technological advancements in offshore wind turbines have been dramatic. The rotor diameter of offshore turbines has doubled from 80 metres to more than 164 metres and average turbine capacity has more than quadrupled, climbing from 1- 2MW in 2012 to 8-12MW today. Leading players like Vestas, Siemens Gamesa and Goldwind have already implemented offshore wind turbine upgrades and are betting on reaching 14MW turbines by 2024,” Buckley said.

Larger turbines will also increase the capacity factors of new offshore wind projects, from as low as 26% to as high as 50%. Despite not being available at all times, offshore wind can, at this level, match the capacity factors of gas- and coal-fired power plants in many regions. In fact, offshore wind is in a league of its own in terms of baseload technology.

“Offshore wind can generate electricity during all hours of the day and tends to produce more electricity in winter months in Europe, the United States and China, as well as during the monsoon season in India. These characteristics mean that offshore wind’s system value is generally higher than that of its onshore counterpart and more stable over time than that of solar PV,” Birol added.

Countries with extremely deep waters such as Japan will also benefit from innovations in offshore wind technology. According to Norwegian energy firm Equinor, floating installations could be the gamechanger in the country, as there are few to no sites for bottom-fixed turbines.

Why diversify?
Hatton said that for their part, they are looking at how liquefied air energy storage (LAES) can work best with wind farms and other renewables. Enterprize Energy is also developing its own hybrid concept, which means offshore wind and natural gas are co-developed and converted to electricity on-site.

“We are party to three gas fields that can be developed this way where we plan to co-locate offshore wind turbines. Our concept is a commercially sensitive business model but I can say that we have a patient strategy to incorporate hydrogen production powered by wind which can then be stored, transmitted or converted to electricity by combustion at site,” he said.

Leaders, however, can use offshore wind to inject greater reliability on the grid. It has a utilisation rate of 50-55%, which means it offers supply diversity. In this scenario, offshore wind can help countries reach their ambitious targets on time, especially as investment costs fall and make it a more accessible renewable energy source.