China: Opportunities in an emerging wind jurisdiction
China’s demand for electricity continues to grow voraciously and whilst China’s energy supply continues to be dominated by coal fired power stations, more recently the Chinese government has shown a stronger commitment towards using renewable sources of energy.
Indeed, in its Renewable Energy Law (2006) China committed to sourcing 15% of its primary energy from renewables by 2020. This commitment was reaffirmed in the 13th “Five Year Plan” with the stated aim of achieving an energy supply that is “Clean, Low Carbon, Safe and Highly Efficient”.
Thermal, hydro-power and on-shore wind already make an important contribution to China’s energy supply, contributing around 1,000 GW of capacity on an annual basis which is about 11.5% of China’s total primary energy consumption. However, given that the optimum geo-physical conditions required for these forms of supply are often to be found only in China’s distant inland areas, the challenges of connecting much of this capacity to the highly populated Eastern seaboard is what drives the Chinese government to seek to diversify its renewable energy sources and to increasingly look to offshore wind to meet some of this demand.
China has already installed more than 1.6 GW offshore wind capacity at the end of 2016 and is on target to have 5 GW in operation and 10 GW in development by 2020. However given the potential for further exploitation of China’s offshore wind resources the current targets could prove to be the tip of the iceberg. The China Wind Energy Association estimates that up to 200 GW could be exploited at water depths of between 5 and 25 meters, with an additional 300 GW in water depths of between 25m and 50m.
Whilst most of the capacity installed to date has been built in shallow inter-tidal areas (typically within 1 mile of the shore), for example, the Shanghai Donghai Bridge Offshore and Longyaun Rudong Interitdal Wind Farms, future developments are likely to be in locations around 10-20km from the shore with higher wind speeds and ocean depths of between 10 and 15 metres.
Meeting China’s targets will require cost-effective solutions to be found to a number of technical and practical challenges posed by the local geo- and hydro- conditions and the need to move further offshore. These include:
- Reducing CAPEX costs;
- Improving the reliability of Chinese manufactured turbines;
- Manufacturing turbines that are capable of resisting typhoons and corrosion;
- Selecting foundations that are appropriate for the soft, silty soils that are characteristic of China’s Eastern coastline;
- Development of offshore sub-station expertise;
- Overcoming the challenges of connecting wind farms, e.g. access to cables and cable installation vessels;
- Access to bespoke installation vessels; and
- Developing operations and maintenance expertise.
The Chinese supply chain is of course already responding to these challenges, but given the scale of China’s development targets there remain significant opportunities for UK and other European consultants, designers, turbine manufacturers, vessel owners and operators etc. to leverage off the considerable experience gained in the North Sea in recent years and to assist China in reaching its near and mid-term targets.
We understand that out of the total capacity of 4,799 MW in the projects currently under construction, more than 4,000 MW will be installed by local suppliers such as Shanghai Electricity, Gold Wind, Ming Yang and only 100 MW will be installed by Siemens Gamesa. These numbers illustrate the big potential for European suppliers to expand their market share in China as well as the real challenge they may face in competition with local manufacturers. Cooperation with good local partner(s) may be one strategy to consider as an entry to the Chinese market. It is advisable to undertake a thorough assessment of the overall structure for such potential joint venture in China, but in the rapidly developing offshore wind industry we would consider protection of IPs and know-how as one of the most important factors to balance.