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Offshore wind in China

Posted by Al-Karim Govindji | 10 September 2014 | Insight Paper
Offshore wind turbines

China's ambitious offshore wind targets of installing 5GW of offshore wind capacity by 2015 and 30GW by 2020 would eclipse capacity in other countries. This insight paper looks at the challenges to the development of China's offshore wind industry.

 

China’s energy demand continues to grow rapidly, most of it met by coal (70%) and oil (19%). Electricity supply is dominated by coal, though hydro already makes an important contribution. However, the government has committed to reduce energy intensity and increase use of renewables. The challenge of connecting significant amounts of this capacity to the energy hungry eastern coastal regions as well as a desire to diversify energy sources has led to an increasing focus on offshore wind as a potential new source of renewable energy close to the demand. Indeed, the government has set ambitious targets of installing 5GW of offshore wind capacity by 2015 and 30GW by 2020 that would eclipse capacity in other countries. However, China faces numerous challenges to the development of the offshore wind industry, highlighted below.

China’s Offshore Wind Ambition & Challenge

200 GW of offshore wind energy could be exploited in China at water depths of between 5 and 25 meters, with an additional 300GW in water depths of between 25m and 50m[i]. Within this envelope, the Government has the following deployment targets: 5 GW by 2015 and 30 GW by 2020, which would make it a world leader in offshore wind.  

Generation capacity of offshore wind in China

But 30GW is just 2.6% of the country’s overall electricity generating capacity of 1,144 GW in 2012.Furthermore, current demand for electricity at 4,693 TWh is expected to reach 8,000 TWh by 2020 and 10,000 TWh by 2030 (IEA, 2011). But even this seemingly modest build-out rate of 5 GW per year would be higher than the current global offshore wind capacity.

While the majority of electricity supplied in China today is from coal-fired power stations, with hydro power increasing its share in recent years, there is increasing pressure to develop cleaner sources of energy. In 2006 the Chinese government set ambitious targets for renewable energy through its Renewable Energy Law (REL), which requires that 15% of primary energy comes from renewables by 2020 (NEA, 2013): offshore wind will be part of the solution.

Electricity Installed in China

Electricity installed in China

The majority of wind power’s contribution to the renewables component will continue to come from onshore wind, which has grown from an installed capacity of 2.5GW in 2006 to over 75GW by 2012, or a CAGR of 76%[ii]. Offshore wind capacity will gradually increase, but will take time and may be slower than anticipated. Indeed, it would not be surprising if the targets set for 2015 and 2020 were not met; China's National Energy Administration has admitted it is likely to miss its 2015 5GW offshore target.

Just over 425 MW were installed as at the end of 2013, and the majority of this is intertidal (typically within 1 mile of the shore) rather than truly offshore. Furthermore, the pace of deployment has declined over the past few years, with only 39 MW in installed capacity added in 2013[iii], a stark contrast to the pace of growth of onshore wind indicated above. At present some 1GW of near shore projects are under development[iv].

Projects under construction in 2014      
Fujian Putian Nanri Island Offshore Project 400MW Longyuan Near shore
Fuji Putian Haiwan Haishangfengdian 300MW Fujian Zhongmin Near shore
Jiangsu Rudong Inter-Tidal Project 200MW Longyuan Inter tidal
Jiangsu Dafeng Concession Tenter project 200MW Longyuan Inter tidal
Jiangsu Rudong Offshore Project 150MW China Guangdong Nuclear Inter tidal
Shanghai Donghai Bridge Phase II 116MW Shanghai Donghai Wind Energy Near shore
Guangdong Zhuhai Guishan Project 200MW China Southern Grid Near shore

 

Policy & Feed-in-Tariffs

The proximity to shore of China's offshore wind farms (typically less than 15km) makes them similar to Round 1 and Round 2 sites in the UK, where typical capex ranged from around £1.2m/MW to £1.5m/MW (BWEA and Garrad Hassan, 2009a). Analysis reviewed by the Carbon Trust indicates that the deployment costs in China are similar, at around £1.3m/MW to £1.4m/MW. While in the UK over the last five years costs have risen due to the more challenging conditions of farms further from shore and in more difficult met-ocean conditions, where capex has doubled to £3m/MW. So any assessment of future costs in China must account for changes in offshore wind farm location.

While clearly the challenges of offshore wind are much greater, many of the issues in China are linked with the bidding process for projects, whereby developers have submitted low bids in order to win the tenders, but as the real costs of planning and pre-construction have become clear, developers have been reluctant to rush into the construction phase.

The recent announcement of Feed in Tariffs (FiTs) does help to provide some clarity for developers:

  • For non-bidding offshore wind power projects, the feed-in tariff is determined by whether the project is intertidal or offshore. The feed-in tariff for offshore wind projects operated before 2017 (not including 2017) is 0.85 RMB (£0.08) per KWh (tax included), while that for intertidal wind projects is 0.75 RMB (£0.07) per KWh.
  • For offshore wind projects operated after 2017, the feed-in tariff will be decided according to the technology improvement and the cost change of offshore wind projects, combining with the concession bidding condition.

Analysts with China's CI Consulting, an industrial research firm, said in a note that while the new price would not completely cover the current costs of offshore wind installation, it would ease worries that electricity generated by offshore wind power would be refused by the grid.

Things are moving now. By the end of 2013, three of the four concession projects had all necessary permits and were set to start construction. In the beginning of May 2014, the Shanghai Municipal Government announced additional RE subsidies on top of the FIT given by the central government: onshore wind is given an additional subsidy of RMB 0.1/kWh, while offshore wind a boost of RMB 0.2 (£0.019) per kWh.

New Carbon Trust research proposes a number of policy instruments, developed to accelerate the roll out of offshore wind in the UK, be applied to China to speed up their offshore programme and help ensure government targets are met in a cost effective way. These include:

  • Developing an effective publicly funded research and demonstration programme to commercialise new cost reducing innovations.
  • Developing an offshore wind capital grants scheme to improve the government’s awareness of the commercial realities of developing offshore wind in Chinese waters and support R&D and technology testing
  • Developing an effective on-going price support mechanism to balance developer incentives with government costs to ensure value for money for electricity consumers and tax payers.
  • Developing an effective zoning policy to accelerate planning by relaxing constraints in identified development zones;


Technical Challenges

Apart from pricing, developers face a number of technical and non-technical barriers in moving forward at the rate required to meet the Government targets, including a slow consenting regime and the lack of a focussed innovation programmes to drive costs out of the deployment process. Key technical challenges that need to be addressed by Chinese players across the supply chain include:


Developers:

  • A critical need is to undertake wind resource assessment to help developers identify the most promising sites.
  • Better coordination between central government, provincial authorities and the State Oceanic Administration would help speed up the consenting process. The process can take two years. In an effort to speed up approvals, the National Energy Administration (NEA) has delegated some authority to the regional government; however, local authorities often lack the skills to effectively evaluate proposals, thus shifting the approval process back to central government.
  • Acquire deeper experience of operating wind farms: partnering with European companies could be a way to achieve this.  
  • As most of the farms are off the eastern coast where grid infrastructure is robust, there is little issue here. However, connecting farms to shore via cables is a challenge given that grid companies have limited capabilities and experience in this area, which will become more acute as farms move further from shore.


Turbines:

  • European offshore wind turbines are moving to beyond 95% availability, a key factor for achieving satisfactory project returns. Reliability of Chinese turbines is thought to be less than this, with a key issue being the gearbox. Some OEMs are moving to gearless turbines but these also have challenges around weight and hence additional cost of fabrication and installation.
  • Given the unique weather conditions in China, turbines also need to be resistant to typhoons and impacts of corrosion.


Foundations:

  • Offshore wind foundationsThe sea bed off China’s east coast (within 5-30m depth) is characteristic of soft, silty soils which are unlike soil conditions in Europe. This causes difficulty with regard to foundation type and installation techniques. Selecting appropriate foundations will therefore be crucial, and while there may be available solutions from existing European technologies, there is likely to be scope for local R&D to develop bespoke solutions for China, such as suction buckets.
  • Given China’s typhoon zones, finding effective corrosion resistance, such as by use of impressed current cathodic protection, will be important.


Connectivity:

  • The challenges of connecting farms long distances away from demand is not an issue for offshore, as it has been for onshore. But there are areas that need addressing, such as access to cables and cable installation vessels.
  • As future farms are required to be at a distance of at least 10km from shore, development of offshore sub-station expertise will be needed.


Installation:

  • The lack of expertise as well as bespoke vessels makes installation the key cost in Chinese offshore wind development.
  • Offshore wind installationMonopiles are the key foundations currently deployed, and limiting noise by using novel piling techniques could reduce environmental impact.
  • A lack of appropriate installation vessels capable of installing multiple turbines at a time is another key need; companies such as Gaoh Offshore have developed jack-up solutions that can carry up to 16 turbines and can operate in all year conditions.


Operations & Maintenance:

  • Poor turbine reliability significantly adds cost to O&M and so can greatly reduce developer margins over time. A lack of expertise around transfer vessels also limits the operation window for conducting repairs.
  • Offshore wind operations & maintenanceA valuable way that wind farm operators in Europe have started to assess the ongoing performance of their farms is through the use of condition monitoring software tools. Such software could help Chinese operators better manage their infrastructure.
  • The anonymous sharing of performance data by developers, such as through the National Renewables Energy Laboratory in the UK, can help the industry judge where gaps exist and make the needed R&D to help improve.
  • China does not yet have a wide range of access vessels and transfer systems to enable more effective and year-round O&M to be carried out.


The UK’s world leadership position in offshore wind could be extremely helpful to China to overcome a number of key barriers to developing its vast offshore wind resource. However, all solutions used in Europe are not necessarily applicable to China. Chinese coastal conditions are different to UK Round 3 sites, where R&D is focussing on solutions for >30m water depth. In contrast, water depth in China is unlikely to surpass 20m in most cases, while the soft seabed conditions may present different challenges. Nevertheless, there is still considerable overlap regarding the technologies employed and best practice for constructing and operating offshore wind farms, particularly given that many European projects installed to date have been in 10-20m water depth.

Recommendations

There are a number of ways to help apply European lessons learnt to the Chinese market, as well as develop bespoke solutions to some of the unique challenges facing the offshore wind industry in China.

  • Collaborate on European Joint Industry Projects: Collaboration with European companies offers an opportunity for China to benefit from lessons learned and capitalise on the progress made in Europe in recent years. Duplication of R&D initiatives is an inefficient use of limited funding support for an industry which desperately needs to reduce costs in order to ensure its long term viability. Accessing data from European demonstrator projects could add tremendous value. For example, the Universal Foundation demonstration, sea trials for access vessels. Use of floating LIDAR validation for wind resource data capture instead of traditional met masts cost bring the cost down from up to  €10m to under €1m.
  • Develop Operational Experience through Co-Investment: Technology solutions are just one piece of the puzzle, since there can be no substitute for gaining real experience of developing and operating offshore wind farms. With just one truly offshore commercial wind farm in China, such experience has been difficult to come by for Chinese developers. Slow ramp up has also limited the investment opportunities available to Chinese utilities with substantial financial resources. In contrast, European developers have struggled with project financing. This therefore potentially represents an opportunity for significant mutual benefit through co-investment and development of offshore wind project in Europe. In addition to offering attractive rates of return for Chinese investors, it would also enable developers to gain first-hand experience of developing and operating an offshore wind farm, as well as gaining exposure to the leading technologies being employed in the European market. An example is Marubeni’s co-investment in Gunfleet Sands offshore wind farm with Dong Energy.
  • Establish Offshore Wind Farm Zones to give Confidence to the Market: All countries hoping to develop an offshore wind industry are dependent on significant government support to provide the necessary clarity and confidence to invest in the market. This is no different in China where poor coordination between government departments has led to delays and uncertainty in the consenting process. While establishing a single entity to manage the process, such as the Crown Estate in the UK, appears unlikely, there are tools which can support coordination. In the UK, The Crown Estate developed a spatial planning tool to identify the best sites for offshore wind development and create a number of leasing zones that enabled developers to target potential sites. A similar tool for China could provide the necessary clarity to focus development in the right areas, where the cost of energy is lowest.


China has leveraged its skills and capabilities from the onshore wind industry to the offshore wind market but where the technical challenges are much greater and where the weather conditions more impactful on turbine performance. Furthermore, initial demonstrations in China have focussed on the inter-tidal range; given that the NEA has insisted that future farms be at least 10km from shore, rapid learning is now taking place that will take time to flow through to improved capabilities, technology and equipment. But given its incredible achievement in growing the onshore market, there can be confidence that China will accelerate deployment of its offshore wind market also in the coming years.

 

Read the report: Offshore Wind in China - Sharing the UK’s policy experience

[i] China Wind Energy Association

[ii] China Wind Energy Association

[iii] http://www.renewableenergyworld.com/rea/news/article/2014/05/china-boosts-development-of-offshore-wind-power

[iv] Global Wind Energy Council

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