A Sinovel turbine goes in at the Donghai Bridge intertidal project
When China announces a national target, it generally has the ability and capacity to ensure that goal is met. But in the case of offshore wind, it has not even come close.
The National Energy Administration (NEA) set cumulative targets in 2011 for 5GW of installed offshore wind by 2015 and 30GW by 2020. Yet forecasts suggest that only 1.2GW will have been installed by the end of this year, with China lucky to get a third of the way to its 30GW goal by 2020.
Nevertheless, the tide seems to be turning for the sector. The rate of installation has been picking up this year, with analysts expecting it to accelerate in the years to come.
To explain why this is happening, it is first necessary to understand the reasons why the sector is so far behind schedule.
Offshore wind is an expensive business at the best of times. To start the industry from scratch in a new territory — where there is no local supply chain, no installation vessels and no local experience — is even more expensive. So to kick-start a local offshore wind industry, provincial governments have to offer generous incentives to make it worthwhile for commercial developers to invest.
However, the subsidies set by the Chinese government have never been high enough to attract the level of development Beijing required. In an apparent attempt to remedy the situation, a new feed-in tariff (FIT) was introduced last year, but at 0.85 yuan ($0.13) per kWh for near-shore installations and 0.75 yuan for intertidal projects, it still wasn’t enough.
“It was set too low compared with what the industry was expecting,” says Liming Qiao, China director for the Global Wind Energy Council. “And that’s why we didn’t see huge, rapid growth right after the FIT was released last year.”
With incentives so low, only major players such as Longyuan have had the appetite — and the deep pockets required — for inherently risky offshore development, she says.
“Some of the developers who are more experienced with offshore — who have already done lots of projects and are familiar with the procedures, the maintenance and installation — they have the advantage of going bigger before the new offshore FIT kicks in [which is expected in 2017],” she adds. “But not everybody has that much experience in offshore and can risk going too big on this low FIT. So I think some developers are still watching and doing small projects to learn.”
According to MAKE Consulting analyst Shane Sun, Chinese offshore developers can only “just about break even” at “certain wind farms”.
“The risk is extremely high, considering that the initial capex for offshore is more than double that of onshore,” he says. “So for a very limited return on that investment, it’s a very high risk for an IPP [independent power producer] to take. That’s why the current progress of offshore has been very slow.”
Interestingly, Bloomberg New Energy Finance analyst Yiyi Zhou believes this could be exactly what the government intended when it set subsidy levels — to discourage less-experienced developers from jumping into the market. “It seems to us that the strategy is to attract developers who are really serious about offshore development. They’re trying to avoid the mistakes they made with the onshore market,” she explains, referring to curtailment problems, low-quality turbines and poor project construction.
With experienced European offshore developers reluctant to enter the Chinese market, local developers have not been able to draw on the existing offshore wind knowledge base, so are almost starting from scratch, learning through doing.
Much of the experience gained by Chinese developers at intertidal sites — where turbine foundations are only underwater when the tide is in, and flat-bottomed installation barges rest on the exposed sandbanks — does not translate to near-shore installation. So even the more experienced developers still have a big learning curve ahead for conventional offshore projects.
“Construction experience is extremely lacking,” says Sun.
The lack of available vessels is also keeping costs high. At present, there are seven vessels in China that are capable of installing offshore turbines, with at least two more under construction, according to FTI Consulting analyst Feng Zhao.
“China has a very substantial shipbuilding industry, so building the actual vessels is not a problem,” says Sun. “The problem comes from the technology for the installation equipment on the vessels. And China doesn’t currently have that knowledge, it can only be purchased from abroad.”
According to Zhao, the softer seabeds off China’s coasts cause significant problems for European jack-up vessels.
“The Europeans have tried to use existing vessels for Chinese projects but especially for intertidal projects... the mud, it’s really a headache for vessels with legs,” he says.
“[Contractor] ZPMC is renting one [such] vessel from German utility RWE [but] it’s doing nothing now, due to the different sea conditions in China.”
The lack of a local supply chain and suitable Chinese turbines has also kept the levelised cost of energy relatively high.
Of the leading offshore turbine suppliers, only Siemens has actually installed machines in China. MHI Vestas, Senvion and Adwen have not entered the market. And even Siemens, which will install more turbines off China than anyone else this year, according to Zhou, is effectively pulling out of the market, by ending its joint venture with Shanghai Electric(SE). Instead, the German giant will license its turbines to the Chinese company, meaning that SE will have to manufacture the nacelles itself, although it will continue to buy blades directly from Siemens.
Whereas European turbine makers have designed their offshore models from the ground up to ensure that every component will function well in the cold, damp, salty conditions, Chinese OEMs have simply “marinised” existing onshore models. This has inevitably led to poor capacity factors and lower-than-promised returns — hardly a catalyst for confidence building or swift sector growth.
“On the technology side, there is still a lot of room for improvement,” says Sun.
When the government went public with its offshore ambitions in 2011, it was not aware of how difficult and costly offshore development could be, explains Qiao.
“But now that they realise it is impossible, they are not stressing too much on the target. But they are seriously finding solutions to help contribute to the target.”
Industry observers believe that the problems holding back the Chinese offshore sector are in the process of being resolved.
Local turbine makers have started to take offshore far more seriously. Ming Yang, for example, with the help of German designer Aerodyn, has built, installed and grid-connected its prototype 6.5MW two-blade, downwind offshore turbine at the intertidal demonstration site off Rudong, Jiangsu province. Calculations suggest that a 500MW development using this turbine would have an LCoE of just over €100 ($112) per MWh — some 30% cheaper than the average LCoE off Europe.
Goldwind, Envision and Dongfang have also launched prototype offshore turbines in the past two years, with Goldwind’s and Envision’s machines (3MW and 4MW respectively) now being sold on the open market. Dongfang, which started testing a 5.5MW prototype at Rudong in July 2013, is now fine-tuning a 3MW model.
Similarly, dedicated offshore wind installation vessels are now being built for Chinese conditions and experience is growing — although Feng admits that the installation learning curve will continue for a while. “It’s really tough to find people who have offshore installation experience,” he says. “And training takes time.”
This year, analysts expect about 500MW to be installed offshore, a substantial increase on the 229.3MW and 39MW seen in 2014 and 2013 respectively.
Much of that new capacity has been built off Jiangsu province and Shanghai, as well as Fujian province, which is becoming something of a centre for offshore wind due to its excellent wind resources. Fujian Energy and China Three Gorges (CTG) revealed plans in June to construct 400MW in two stages off the city of Putian, with the intention of building 1GW in the province’s waters. Goldwind and CTG also announced their intentions this summer to jointly build a new offshore wind test centre near the provincial capital, Fuzhou.
Bloomberg New Energy Finance is forecasting that 1GW of offshore will be installed in Chinese waters in 2016, with roughly 1.2GW the following year.
This uptick might be at least partly due to the government’s decision to give the new offshore FIT to some of the roughly 1GW of projects that were successfully tendered in 2010, says Zhou.
Last December, the NEA published a list of 44 offshore projects — 10.53GW in total — that had been approved for development in principle. To qualify for the current FIT, they will need to complete the entire approval process by the end of 2016 or face reapplying. Sun believes this fact should push most of these developers to start connecting projects by 2017-18.
And perhaps more importantly, it is believed that Beijing will offer a higher FIT for offshore projects when the current rates come up for review in 2017.
“The outlook for the FIT is fairly simple. It needs to increase and it probably will increase, according to all [developer] sources I speak to,” says Sun.
The effect of a higher FIT can already be seen in the Shanghai municipality, where the local authorities have been offering offshore developers an extra 0.02 yuan/kWh premium.
“That’s why the Shanghai government is attracting development,” says Qiao.
Developers Datang and China Guangdong Nuclear were among those taking advantage of this top-up when they completed their second-phase extension of the 102.2MW Donghai Bridge offshore wind farm in June.
Sun also believes that the government might start pushing offshore wind more aggressively in its forthcoming 13th Five-Year Plan, which will set out the nation’s development strategy for 2016-20. Beijing has already revealed that the plan will aim for “higher quality, efficiency, equality and sustainability”.
Sun adds that the Five-Year Plan will set more realistic installation targets and development guidelines, but that it will take several years for this next phase of projects to enter the water. “I don’t expect offshore to really pick up speed until 2019,” he explains.
Zhao is more optimistic, arguing that the Chinese offshore sector will reach “industrialisation” next year as it hits 1.5GW of annual installations.
“I think the pipeline is quite healthy,” he says. “As soon as annual installations reach 1.5GW, that means the local supply chain will reach a certain level and industrialisation can be reached. That will help the Chinese offshore industry to move on.”
A North Sea supergrid is seen as the spearhead of a pan-European network that would underpin greater co-operation to integrate renewables
Europe is leading the world in developing its vast offshore wind resource, but building the transmission network to bring power to shore is proving a slow-rolling process, with EU's 28 leaders only signing up earlier this year to a package of policies that include taking "urgent measures" to reach a minimum interconnection target of 10% of total generation capacity by the end of the decade and 15% by 2030.
Construction of a North Sea supergrid — seen as the spearhead of a pan-European network that would underpin a flexible energy market and greater regional co-operation to integrate renewables — could at last be gathering pace, now that the main contracts for the biggest of several planned "ring main" offshore interconnectors have been handed out.
Last week, contracts totalling €1.5bn ($1.65bn) were awarded for the 1.4GW North Sea Network (NSN) trunkline between Norway and the UK. Cable suppliers Prysmian and Nexans will provide the high-voltage DC (HVDC) link, with the $450m order for the converter stations at either end of the line going to power technology group ABB.
Prysmian will handle the 950km of line for the North Sea sections of the route, with cables fabricated at its Arco Felice factory in Naples, Italy, and installation carried out by the cable-laying vessel Giulio Verne. Nexans is supplying the fjord, tunnel and lake sections of the NSN, made up of 500km of HVDC cables manufactured at its Halden, Norway, plant, which will be laid by its Skagerrak vessel. ABB will deliver converter stations using its HVDC Light technology.
NSN, slated to be in operation by 2021, will form a key link in a newbuild offshore transmission infrastructure that will include the recently approved 1.4GW NordLink line between Norway and Germany; as well as the Viking Line between Denmark and the UK; and the Nemo Link between Britain and Belgium, both of which are at an advanced planning stage.
Tied together with existing interconnectors such as the 1GW BritNed line linking the UK and the Netherlands, the Norway-Netherlands' 700MW NorNed and the 2GW IFA line connecting the UK and France, and the potential for a supergrid capable of pulling in the North Sea's rich wind resources — potentially 65GW by 2030, enough to make up more 25% of electricity generation in Europe — comes into focus.
Although critical to the longer-term future of Europe's renewables vision, bigger and beefier interconnectors are only a first step in the region's electricity infrastructure build-out. What is needed, according to the offshore wind industry, is a"meshed" grid woven between these trunklines that would mean the giant projects off Britain and Germany now on the drawing boards could be wired in over much shorter (read "less expensive") distances.
The savings from a meshed grid would be enormous. Estimates varying widely, from €1.5bn to €13bn, but even by the European Commission's more conservative calculations, the figure could be €5.1bn — a major fillip for the fast-evolving offshore wind business.
Expansion and reconfiguration of the European grid to deal with coal and nuclear plant retirements and the rapid growth of offshore wind generation represents a big prize indeed, according to figures from Navigant Research. Over the next decade, the continent is expected to account for more than half of the submarine cable projects around the globe, a market forecast to grow from $16.8bn this year to $24.8bn in 2024.
Led by Europe's Energy Union framework project, the Dutch, who take over the EU presidency in the first half of next year, could exercise great sway in how swiftly plans for a North Sea network move from idea to reality.
But it could be Britain, armed with a soon-to-be-unveiled study — contributed to by developers of the Dogger Bank, Hornsea and East Anglia mega-zones — on the regulatory changes needed for a meshed grid that proves most influential over the medium term, not least as it holds the EU reins for the second half of 2017.
The paradox for offshore wind infrastructure is that unlike the wider sector, it is the regulatory side that is lagging behind the technology.
Ultra-large turbines and high-capacity, low-loss HVDC lines are moving towards the mainstream. Matters of financial and regulatory logistics and how cross-border offshore power is transported, allocated and traded need concrete resolution before the European supergrid can be reeled out in full.
Brazil's National Development Bank BNDES has approved R$494m ($130m) in long-term loans for the 180MW Morrinhos wind complex in the northeastern state of Bahia.
Morrinhos is made up of six 30MW wind farms owned by local developers Atlantic Energias Renováveis (80%) and Casa Dos Ventos (20%).
The partners sold power from the projects in the A-5 auction in 2011 and the A-3 auction of 2013.
Atlantic is the renewable energy investment platform in Brazil of private equity fund Actis.
The six projects are being built with 2MW Gamesa turbines and are expected to start commercial operations in January 2016.
In line with BNDES' new approach to incentivise innovative financing mechanisms in the country, the approval of the long-term loan took into account Morrinhos' owners' decision to sell local infrastructure bonds to finance part of the project.
The near-shore plants will join Anholt in Denmark's wind fleet
The Danish offshore wind sector is hoping first-of-a-kind incentives such as offering communities the chance to buy a stake in projects will outweigh local objections as the country plans 350MW of near-shore capacity.
The country has launched a tender for capacity to be shared over two or more of six potential sites and grid-connected by 2020. Turbines would be located between four and ten kilometres from the coast.
The locations were selected by the Danish Energy Agency (DEA) after a lengthy process that according to Kristine van het Erve Grunnet, DEA chief consultant and senior adviser "highlighted public acceptance and support to development".
That support was undoubtedly helped by the concessions available to locals who would be affected by development. Denmark's 'option-to-purchase' scheme typically offers up to 20% shares in an onshore wind project to local populations.
To help smooth the near-shore plans, it was applied for the first time to the offshore plants covered by the tender. Danish law also assures compensation for any loss of value to local homes.
The sites have already been approved by the Danish Parliament and Mayors of the relevant municipalities.
But the planned developments also face some opposition on the grounds of visual impact and detriment to tourism.
"We believe that a wind farm here just four kilometres from the beach would be a disaster for nature and the area around Bovbjerg," said one objector to the Vesterhav North & South sites, which along with Sæby has become a particular focus of objections submitted to the DEA and Danish Nature Agency.
Those three sites may be built up to 200 MW, while lower restrictions are placed on sites at Bornholm (50 MW), Sejerø Bugt and Smålandsfarvandet (100 MW).
Fuelling the objectors' fears is the fact that significant details of the wind farms, including turbine heights and precise locations, will remain unknown until the final tender is prepared next year.
Grunnet told Recharge: "It's not entirely surprising. It must be expected that as developments become closer to a reality there's new discussion and concerns raised. Those concerns, and formal opposition, are being considered carefully."
A final version of the tender rules will be published in January. "In my view it's not likely that the protest will lead to regulatory changes concerning this tendering process – however it might influence new projects," said Grunnet.
Denmark's government and wind sector alike will be hoping the projects proceed smoothly.
The tender represents a important aspect of Denmark's plans for wind growth up until 2021, and the near-shore locations offer the industry significant opportunities for cost savings, according to Grunnet, who said a ceiling price of DKr0.70/kWh ($0.106) set by the government would leave the parks financially competitive
It is also the first multi-site tender of its type in Denmark, and was designed to attract new project owners, especially smaller ones, as actors into the Danish wind industry.
In that respect it has already succeeded – new players WPD HOFOR Danish Offshore Consortium and European Energy Nearshore Consortium are two of three bidders who have pre-qualified along with Vattenfall for negotiations beginning in spring 2016.
Eddie O'Connor says a $33-per-tonne price on CO2 'would rapidly accelerate the transition to sustainability'
Mainstream Renewable Power
A "meaningful" global carbon price rather than transnational financial support is the best mechanism to achieve emission cuts that would curb the worst impact of climate change, says Mainstream Renewable Power chief executive Eddie O'Connor.
He says any binding deal coming out of the COP21 summit, which concludes on Friday, should factor in that the "dramatic fall" in the cost of wind and solar technologies will allow many emerging markets to "rapidly expand their clean-energy generation without the need for large-scale financial support from other states".
The funds being sought by many developing nations from the US and Europe to facilitate schemes to incentivise renewables investment are "not needed", O'Connor maintains.
"The deployment of large amounts of new wind and new solar PV plant is no longer reliant on support schemes like the feed-in tariff or green certificates," he adds.
"These programmes were very effective at bringing forward new technology when it was more expensive than new fossil plant. But today new wind and, in some markets, new solar PV, are now... a whole lot cheaper than new fossil generation.
"In South Africa, new onshore wind can be built for less than half the cost of new coal plant. What COP21 can do is to incentivise sustainable behaviour by countries, companies and families. By far the best way to do this is to put a price on carbon. A €30 [$33] price per tonne of CO2 would rapidly accelerate the transition to sustainability."
The renewables maverick, whose company is developing wind and solar in South Africa, Egypt, Ghana, Chile and Mexico, says the energy industry must "learn to stop whistling yesterday's tunes".
The cost of onshore wind has fallen by more than 60% and PV by 80% over the past decade, which means "India and other fast-growing countries can have economic development and clean energy — new coal or any other fossil fuel is not a prerequisite for economic growth".
A consensus seems to be taking shape at COP21 in Paris, and the parallel Sustainable Innovation Forum, that a carbon price would super-charge global investment in wind and solar.
Until the end of 2017, at least 56% of so-called “basic items”, such as electrical components and module frames, must be produced locally.
In 2018 and 2019, manufacturers must include more complex items, such as inverters and junction boxes, with an overall national content of at least 64% for crystalline silicone (cSi) projects and at least 82% for thin-film arrays (including more complex manufacturing processes for layering the cells).
From 1 January 2020, cSi arrays must have at least 76% local content, including cells and modules with at least 60% locally made content.
Wind local-content rules
From 1 January 2015, all turbine makers need to supply towers and blades that have been made using at least 60% locally produced content, plus hubs assembled in Brazil, in order for their customers to receive cheap loans from the BNDES national development bank.
From 1 January 2016, turbine makers also have to assemble nacelles in Brazil, using at least 12 components produced locally. This is a huge undertaking for a manufacturer, leading the likes of Siemens to question whether they can feasibly make such a move. 2015 will therefore be a key year for OEMs as they set up nacelle production.
France and India have joined to launch an International Solar Alliance (ISA) in a bid to mobilise $1trn of investments by 2030 to advance the renewable source in sun-rich developing nations.
French president Francois Hollande and his Indian counterpart Narendra Modi said they have secured the support of about 120 countries for the new group, which will “undertake innovative and concerted efforts with a view to reducing the cost of finance and cost of technology for immediate deployment of competitive solar generation assets”.
The body will work to promote common approaches over R&D, standards and training, with a view to technology transfer from wealthier to poorer nations, especially in Africa.
In India the ISA will have a founding member with some of the world’s biggest solar ambitions. The country aims to install 100GW of PV by 2022, and itself needs hundreds of billions of dollars of investments to hit its targets.
Launching the Franco-Indian alliance at the COP21 climate summit in Paris, Modi said the country will add 12GW of solar in 2016 alone.
Modi said solar is the perfect fit for the situation that “the vast majority of humanity is blessed with generous sunlight round the year. Yet, many are also without any source of power”.
Modi added: "As you put clean energy within the reach of all, it will create unlimited economic opportunities that will be the foundation of the new economy of this century.
“This is an alliance that brings together developed and developing countries, governments and industries, laboratories and institutions, in a common enterprise.”
France cited the potential role for some of its major renewables groups, including Engie, DualSun, and oil and gas giant Total, which owns US-based PV manufacturer SunPower.
The two governments will provide funding – $30m over five years in the case of India – and facilities for the new organisation, which will be based at India’s National Institute of Solar Energy.
The launch was welcomed by European solar industry body Solar Power Europe. Its CEO James Watson said: “We commend Prime Minister Modi and India as a whole for spearheading this collaborative initiative, which recognises solar as a key solution to fight climate change whilst providing clean and affordable energy to millions of people."