China’s Offshore Wind Market Provincial Breakdown (1)

China's OW Market

China’s offshore wind market has been an investment hotspot in the past three years. But after the country’s frenzy project dash between 2018-2019, the booming market now faces a turning point. 

Over 50GW of offshore wind projects have secured government approvals in the past two years, of which only about 11GW is now under construction. 

While the industry previously assumed that the rest 40GW—those approved but not yet kicked off construction—will take off an only in a later time frame. That assumption is not up for some adjustment. Instead, a portion of these projects may be stranded, due to the sunset of national subsidy from 2022 onward. 

Subsidy Policy Change the Key Tumbling Blocks

Beijing has required all the offshore wind projects currently under development to complete grid connections by the end of 2021 if they want to secure the national subsidy. Based on the subsidy, wind farms could sell generation at a premium ¥0.78/kwh feed-in-tariff for 20 years, and the failure to lock in the price means steep discounts.

Then it is a double whammy of troubles for the industry. Majority of the projects already struggle to succeed in the 2021 timeline; the work disruption caused by COVID-19 and a foreseeable supply chain bottleneck have added insult to injure. 

The industry was hoping to convince Beijing to postpone the deadline for at least half a year. But as Energy Iceberg has predicted, Beijing is unlikely to cut slack on the wind deadline, because the financial support sunset is due to subsidy cash pool deficit. 

That prediction now appears to be correct. Last week secretary-general Qin Haiyan of China Wind Energy Association mentioned in a virtual summit

It is difficult (for Beijing) to carry out the deadline-extension policy. The industry should properly arrange and coordinate construction plans. 

The industry also called for the local governments could provide regional subsidy support. But right now only a couple of local governments have reacted positively to the suggestion.

The market is moving toward a period of uncertainty, given the double whammy of subsidy cuts. 

But the market implications of the policy hits may be vastly different for separated regions, given the resources, local policy, and market structure difference. 

In the following pieces, we will break down the different policy and market progress of 11 Chinese provinces with offshore wind plans. 

Jiangsu: Leading Offshore Wind Province with Stable Growth

  • Policy Targets: 3.5GW installed, 4.5GW set off construction, 6GW approved by 2020—target exceeded
  • Local subsidy: undetermined with some probability 
  • Business Case: existing projects with the best profitability due to shallow site condition
  • Market Structure: relatively diverse developers; mature supply chain
  • Annual Maximum Load Utilization Time: 2500~3500hrs
  • Long-term Plan: 15GW Installed 2025

Jiangsu is currently the largest offshore wind regional market in China in terms of installed capacity and projects under construction, as it is the pioneer to step into offshore wind energy development. 

The leading position is due primarily to a lower-risk and clear economic perspective thanks to its shallower offshore sites. 

In its provincial 13th five-year plan (2016-2020), Jiangsu sets to install 3.5GW offshore wind capacity by 2020, with 4.5GW cumulative constructing units and 6GW cumulative approved projects. 

The development in the regional market has exceeded all of its 2020 expectation. As of 2020, the province will not approve new offshore wind project. 

However, the province is looking into longer-term development for offshore wind. A recent regional 14th FYP policymaking research suggests 15GW installed offshore wind capacity as the 2025 horizon. 

Guangdong: More Ambitious Offshore Wind Province

  • Policy Targets: 1GW installed, 2GW set off construction by 2020—target likely to achieved
  • Local subsidy: undetermined, but most likely among all local provinces to provide local subsidy 
  • Business Case: higher uncertainty; pipeline projects heavily impacted by the subsidy cut; challenging geology;
  • Market Structure: concentrated with five dominant developers; a rapid supply chain development (GE 12GW, MYSE 10GW R&D, CSIC 10GW Floating R&D)
  • Annual Maximum Load Utilization Time: 2800hrs
  • Long-term Plan: 66.85GW built by 2030

Compared to Jiangsu, Guangdong is a new offshore wind region. But the southern province is, without doubt, the most aggrieve in pushing forward the offshore wind agenda. 

As a new market, Guangdong put up just 320MW by the end of last year. But the local economic planer has set to develop 66.85GW, an amount unheard-of in any single market, by a plan looking towards 2030.  

Moreover, the province in 2018-2019 approved 11GW projects to kick off construction, a move to help developers to lock in the national offshore wind subsidy. 

However, only 1.9GW or roughly a tenth of the project approved has so far kicked off construction, as Beijing require projects to complete grid connection by the end of 2021—to secure the national subsidy. And a bottleneck of the construction supply chain means most projects in Guangdong is unlikely to succeed in that timeline. 

The situation also makes Guangdong the most uncertain market for offshore wind development post-2022. Some 10GW projects have secured approval but did not kick off development. 

Whether these pipeline projects would eventually go-ahead may be dependent on the local financial stimulus package. 

Guangdong government has hinted to consider providing such incentives. But still, the regional ruler has yet to decided on the subsidy details. 

In the long-term development plan, Guangdong set to see the progress of 9.85GW projects in “shallow water” sites first, while some 57GW projects located in the “deep water sites” remaining for the next phase development (2022-2030). Notably, the deep-water sites are below 50m but still provide some market opportunities for floating solutions, due to the challenging embedded geology formation.

Fujian: Best Business Cases to Explore

  • Policy Targets: 2GW set off construction by 2020—target achieved
  • Local subsidy: undetermined and low probability 
  • Market Structure: concentrated with 2-3 dominant developers; rapid developing supply chain (DEC 10MW prototype; Goldwind 8MW prototype; Fuchuan CTG Jack-ups)
  • Annual Maximum Load Utilization Time: 3500~4000
  • Long-term Plan: 3GW built by 2030 (subject to change); 13.3GW developed without a clear time frame

Fujian is known for the best offshore wind resources among peer coastal provinces, thanks to the tunnel effect of the Taiwan Strait.  

The province appears to be modest in its 13th Five-Year Plan target which sets to see 2GW projects taking off construction by 2020. Right now the region has more than 3GW under construction, far exceeding that target. 

The province did not state to suspend project approval in 2020, only emphasizing on pushing forward the construction of 18 offshore wind projects previously approved. 

China Three Gorges (CTG) and the provincial government-run Fujian Energy Investment Corp are the two dominant players in Fujian market, which adopted a “cluster development” strategy. 

The province looks to develop 13.3GW eventually from 17 mega offshore wind complexes. 

We will look into the rest 8 provinces–emerging markets–in next week’s analysis.