It has been a surprise to many. The Chinese offshore wind market did not cease its high-speed development despite the central government having stopped subsidizing new projects.
Offshore Wind 2025 Targets of the Local Government: Ambitious as Usual
The renewable subsidy sunset did not cause the local offshore-wind ambition to wane. Instead, the Chinese local regulators plan to add at least 60GW offshore wind capacity between 2021 and 2025, according to the bullish plans established by the local governments.
By now, most local governments of the coastal provinces have released their renewable energy 14th Five-Year Plans (FYPs,) where many include offshore wind targets. Three provinces (Guangxi, Hainan, and Shandong) are new markets open to offshore wind development only recently, which have announced their long-term goals for the first time. On the other hand, the established regions remain ambitious as always in promoting the offshore wind sector.
- Guangxi province plans to eventually host 22.5GW offshore wind turbines, of which 7.5GW projects have received preliminary approval. 3GW of these projects are slated for grid connection by the end of 2025.
- Hainan province is drafting an offshore wind development plan, where the 2025 installation target is allegedly set at 12.3GW.
- Shandong: the northern province aims to build 5GW offshore wind by the end of 2025 and achieve 35GW in a long run
- Guangdong is poised to be the largest offshore wind market in China. In the 14th FYP period, it strives to add 17GW OW capacity, which means its cumulative capacity would reach 18GW
- Zhejiang province: the province plans to add 4.5GW wind power capacity during the 14th FYP period, most of which will be offshore units.
- Jiangsu: the current leading OW market plans to continue its robust OW growth by adding 9.09GW from 2021 to 2025, while the province has some 2.65GW projects slated for 2020 completion but delayed. These projects will seek grid connection during 14th FYP.
These local policies point to a collective incremental capacity of 58.54GW offshore turbines to be installed between 2021 and 2025, while the local authority’s long-term plans for offshore wind have mounted to over 150GW.
China has become the world’s largest offshore wind market since last year. In 2021, the country erected 16.9GW new turbines offshore. The cumulative installed capacity of offshore wind is just under 26.4 GW. The collective local targets mean an incremental capacity of more than double the current market size.
Offshore Wind Market 2022: Beating the Odds
The development has been a small surprise. The industry was expecting to embrace some severe investment retreat as Beijing announced (in 2019) the decision to shelf national subsidy for new offshore wind projects after 2021.
Indeed the five-year plan targets are the regulator’s projection of market development, which sometimes fails to materialize. However, they are also market results imposed on the industry. Thus, ambitious figures often herald robust market growth in an industry sector.
The participation of “new” offshore wind regions–Guangxi, Hainan, Shandong– after the subsidy sunset sends a clear signal of the growing political support from the local authorities. Shandong province, for instance, has become the second regional government that offers a local subsidy to offshore wind developers.
These targets do not appear to be some wishful thinking of the local government and are backed by the investment plans of key industry players. The country’s leading developers have long participated in the OW policymaking of regional governments. As the local governments confirm the goals in the recent FYPs, project investments have quickly followed suit.
China’s Offshore Wind 2025: Moving toward Grid Parity
The optimistic view of the OW market is driven both by China’s renewable development strategy and the speedy cost reduction of the industry, against the backdrop of China seriously committing to achieve carbon-neutrality by 2060.
Regarding ramping up offshore wind capacity, Beijing conducted a study in 2021 for policy planning. The tentative conclusion is to develop ten-gigawatt-size offshore wind complexes in the “deep sea” areas further off the coast. Waters off Shandong Peninsular, Yangtze River Delta, Fujian South, Guangdong East, and Beibu Bay were identified as the most promising areas for the task. The study suggests a goal of 290GW combined installed capacity in these complexes, involving 41 projects.
The long-term positive view of Beijing strengthens the investors’ confidence.
Another factor driving the offshore wind push is the improving business case of the OW projects, facilitated by the speedy cost reduction of wind turbines.
China has already seen the first grid-party offshore wind case. Earlier this month (2022/04/02,) the Shanghai government announced the project development allocation result of Jinshan Offshore Wind Phase I. A consortium led by China Three Gorges, Shanghai Green Environment ProtectionEnergy, and CNOOC won the project at a fixed feed-in tariff rate of ¥0.302/kilowatt-hour (KWh)—a price lower than the city’s coal-fired power benchmark of ¥0.4155/kWh.
The result marks that offshore wind power price has reached a new low record and reached grid parity for the first time.
The inroad into grid parity is, in part, due to the high wind yields of the projects, which have been higher than developers’ previous expectations in some cases. Nevertheless, the decisive factor is the dropping price of wind turbines during the last round of the “wind project construction dash.”
Earlier in January (2022/01,) Dongfang Electric set the market’s new low-price record and became the turbine supplier of the Taizhou-1 project, with a bid of ¥3458/KW (turbine & tower price.) The average bidding price in that tender was ¥4124/KW.
That means the current offshore turbine price has dropped by at least 40% and 30% compared to costs of 2021 and 2019. (Note: 2021 offshore turbine price jumped to over ¥7000/KW, from around ¥6000/KW in 2019, due to the surge of turbine demand in the previous wave of project dash.)
Challenges Remain in China’s Offshore Wind Market after 2022
Despite the price dip and the initial grid-party cases, China’s offshore wind market still faces several challenges in order to achieve the ambitious government target.
Firstly, Chinese turbine makers increase R&D spending to pursue>10MW turbines, helping to reduce the wind LCOE in the long run. However, the unclear reliability of new products, rising engineering, construction, and maintaining costs for the mega turbine remain risk factors of adding costs, which is still a near-term dilemma.
Moreover, as the market moves to deeper water and further-away areas from shore, the business cases face higher uncertainty due to increased engineering difficulties, equipment transportation costs, maintenance costs, and greater grid connection challenges. All of these issues add to the financial invisibility of the new projects.
The centralized offshore wind construction also requires a sizable energy storage capacity market. While the onshore renewable market has seen a quick surge of energy-storage capacity, the offshore market still lacks mature business models and technical experience for energy storage. Nevertheless, the robust growth of the sector will provide new demands for short-term and long-term storage applications–flywheel, green power-to-fuel, and others.
