China’s Offshore Wind Market 2020-2030: Strong Momentum but Major Risks Ahead

China is poised to be a leading offshore wind market of the highest growth in the coming decade, as more and more data point out. 

How significant is the market potential, and what does it tell us?

Largest Market that Dwarfs All the Others by 2025  

Within six years, China will become the world’s biggest offshore wind market by overtaking Germany in one year and then the UK, according to the most recent projection mentioned by the research institute of energy regulator National Development and Reform Commission (NDRC).

With only 5.1GW turbines in the sea by the end of last October, China is likely to add some 3GW new capacity in the coming 2020. 

NDRC official recently predicts that, by the end of 2020, the nation’s installed offshore wind capacity will reach 7.9GW. 

Then the figure will rise to 12GW by 2021 and 25-26GW by 2025, according to the statistics revealed by NDRC officials. 

The additional market space of offshore wind is 3GW, 4GW in 2020, and 2021—and, on average, 3.5GW in 2022-2025. 

NDRC’s projection is of merit, despite less bullish compared to many other predictions out there. For instance,  last year Azure International projects some 20GW (instead of 12GW) that can be done by 2021. And research reports from several brokerages appear to believe 40GW installed capacity could be achieved by 2025. 

Even taking a more pessimistic view, the Chinese market looks set to build some 20GW new offshore turbines in the coming six-year. This figure alone has already dwarfed any other emerging market in Asia. 

Strong Momentum May Continue to 2030

The momentum is most likely to continue after 2025, based on the fact that local governments have collectively green-lighted a large number of projects in the pipeline. 

There was never an official release of the number of projects “approved” in total, but lately, the NDRC official revealed a number— a total cumulative approved capacity of 53.53GW by the end of October 2019.

Of this 53.5GW, 5.1GW has been installed (by 2019 Oct). Thus simple Math tells us 48GW projects are still in the pipeline—either under construction or ready to take off construction. 

All of these 48GW was hoping to connect to the grid before the end of 2021, in order to lock in a premium offshore wind feed-in tariff and free from price competition (and price cut)—due to a series of policy Beijing announced between 2018-2019 changing the feed-in tariff paradigm and replacing with competitive tender pricing.

Simply put, these projects would need to secure grid connections before 2021 to get the premium FIT of 0.85/KWh, otherwise, they are subject to a reduced fee. Moreover, the Ministry of Finance also signaled in a recent meeting to axe subsidy for offshore wind once for all from 2022, which means new projects will sell at the local coal-fired power price. [To understanding the detailed of the new policy, please check out my recent report in Recharge News or send your question to yuki@energyiceberg.com]

But clearly, the majority of these 48GW pipeline projects would not make the 2021 deadline, due to commonly known chokepoints in the nascent offshore wind supply chain. We have discussed one of the most obvious supply shortage issues, as in the offshore installation vessels. [READ MORE on the Supply Shortage of Jack-Ups in China’s Offshore Wind Market & the Installation Players]

Those who fail the deadline will suffer from a price dip. But still, most projects would seek to complete soon after 2021 to avoid further policy changes. This may ensure the stable growth momentum moving on. 

Beyond the 48GW, in the past year, nine Chinese provincial governments have established or adjusted their local offshore wind long-term development plan, collectively envisioning 74.72GW projects to develop before 2030. 

It is safe to estimate, therefore, around 27-34 GW projects would be installed between 2025-2030, at the very least. 

The mega size of this market makes it too big to ignore, especially compared to other emerging regions—Taiwan, for instance, looks at only 10GW between 2025-2030 and challenging to develop a self-sufficient supply chain for that among of capacity.

Although the Chinese energy market is known for the different market infrastructures and rules applied, and notorious for being relatively “closed-up” to international players due to its self-sufficiency. The pressing timeline and pressure currently upon the Chinese offshore wind value change to “get things done” provide a unique time window for the “outsiders” to seek to enter the market.

Supply Chain: Opportunities to Crack the Hard Nut

  • Opportunity for products with frontier concept & design: given the size and the predictability of the market from now to 2025,  the supply chain would be able to prepare 3-5 years ahead. As a result, products of frontier design or requires a longer R&D cycle are most likely to find buyers, funding, and supports from the Chinese market 
  • Changing paradigm for the efficiency-boosting tech: though the Chinese market is notorious for the indifference of efficiency and the lack of long-term economics measurement, the developers are facing growing pressure to cut costs due to Beijing scraping the feed-in tariff (FIT) pricing mechanism. Thusly, products of higher efficiency and better performance would bring more value to the market. 
  • Technology and equipment parts lacking in the domestic market face easy access: this is more of a general rule of thumb in the Chinese market; technology and equipment of the chokepoints (bearing, vessels and other equipment used in offshore engineering, blade design…etc) may be facing a blue ocean. [READ MORE about China’s demand for offshore wind construction and vessels capacity]

Investors and Developers: Caution & Selection

  • The rapid expansion generates opportunities for developers and investors in the market.
  • The uncertainty of financial perspectives will prompt the Chinese projects–more than before–to seek financial supports. [READ MORE about China’s current renewable asset sales trend]
  • New Chinese players may turn to investors and developers with experience: between 2010-2016 the Chinese offshore wind market is with just a few players–around 2-3 developers and only active in Jiangsu province. But that has changed now with a large group of companies with diverse energy background rush to the market, most of which lack experience in the offshore projects. It is possible that the Chinese players to seek cooperation with experienced foreign players. [READ MORE on our analysis of Shell and other foreign companies’ potential role in the offshore market. ]
  • The 48GW pipeline is facing mounting financial risk. Rapid pricing scheme changes means that most projects’ previous internal investment return estimation or decisions could be built on shaky ground. A careful selection of projects and examining the different details of each project is essential. As a previous example, several offshore wind projects in Fujian after COD reported higher power yield compared to former projection. The capability of identifying strategic projects will be critical.
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