Concept Note China Offshore Wind Mission

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Concept Note China Offshore Wind Mission – Jun 2018

Monday 11th - Arrival in Beijing.

Tuesday 12th Meetings in Beijing – China Longyuan Power Group and Hua Neng Group. Transfer to Fuzhou in the afternoon/evening.

Wednesday 13th Visiting Fujian Longyuan (morning) Visiting Fujian Ship building Group Headquarter and shipyard (Operation & Maintenance ships) (afternoon)

Thursday 14th Participation in the China Offshore Wind Summit. Sino-Norwegian offshore wind forum in the afternoon as part of the summit.

Friday 15th Participation in the China Offshore Wind Summit (morning). Delegation visit to China Three Gorges Fuzhou Offshore Wind base (afternoon).

Today there are a further 17 projects approved for construction, with 5 due to enter this phase during 2018. Under the 2020 Offshore Wind Development Plan Fujian is targeting having 900MW grid connected and a further 2GW under construction, which it is confident it will achieve. Fujian is also targeting 7GW installed by 2030.

Environmental Environmental conditions vary considerably across the 17 approved projects in the Province. These have therefore been mapped according to their relative difficulty in delivery, with the easiest ones planned to come forward first.

Fujian has some complex environmental conditions that have restricted growth in the sector to date. Firstly, it is located on the Fujian Strait, a geographical location prone to regular high strength typhoons that are funnelled between Mainland China and Taiwan. These winds mean that average speeds, at 9-12m/s on existing sites, are by far the highest in China.

Developers are therefore taking a cautious approach, with China Three Gorges bringing forward a 73.4MW demonstration project to test seven turbines including the established Siemens 6MW and GE 6MW Haliade turbines from Europe. The intention here is to prove the concept of offshore wind projects in typhoon conditions before rolling out CTG’s 2GW pipeline in the Province.

The opportunity to install turbines of this size commercially in China has only recently become more viable with the launch of Longyuan Zhenhua’s new, specially designed installation vessel and the arrival of DEME’s ‘Goliath’ from Europe. This previous bottleneck has played a considerable part in the slow expansion of the sector in Fujian to date.

Fujian’s wind conditions also impact the nature of the waves, with average sea-states consisting of short wave lengths that require specially designed vessels in order to navigate efficiently.

This also has design implications for foundations, so developers in the Province are keen to understand more about the Norway’s approach to meet-ocean data collection, analysis and interpretation for O&M vessel and foundation design.

Subsea geological conditions also vary across the Province, with an undulating seabed consisting of varying thicknesses of hard rock often around 200MPas in strength.

Furthermore, depths for existing projects are in the 10-20m range, but later projects go up to 50m thereby requiring a different approach to foundation design and installation than has been used in China to date, potentially including floating concepts in the future in order to avoid expensive drilling.

Geological conditions off Fujian are also subjected to seismic activity on a regular basis. This is another reason design institutes and developers in the Province are looking to consider floating foundation options for their projects.

China is still exploring design standards for the conditions off Fujian so the natural approach from developers and manufacturers is to be cautious, which inevitably leads to increased costs. For these reasons the only projects that have come forward have been close to shore and in low risk locations relative to sites that are likely to come forward in the coming years.

Economical The seabed and depth conditions outlined above will have an impact on cost however, by allowing access to a much higher wind resource projects are still likely to be financially viable.

Conditions across the Strait in Taiwan are slightly different, where projects with similar depths and wind speeds to Fujian are being planned on deeper soils, making design and installation potentially easier. Nevertheless, the learning and technology development enabled in the region by European developers in the Taiwanese market could have a positive impact on the viability of projects in Fujian.

The impact of the current Provincial power market also needs to be considered in project economics. Fujian is currently a net exporter of power so accommodating large amounts of offshore wind in the system is likely to be challenging, potentially leading to curtailment which would impact project economics.

Fujian DRC therefore believe that development in the Province will both take time and need to come forward sustainably in coordination with the development of traditional power sources.

Technological Fujian’s historical reliance on traditional power generation from hydro, nuclear and coal mean that it has not established the same depth of supply chain in the wind sector as Jiangsu.

This means the only option for turbine manufacturers seeking a presence in Fujian is to set up new, bespoke offshore facilities rather than diversification from existing ones. Given the likely requirement for larger, offshore-specific machines off Fujian, this option could therefore result in a more efficient, dedicated offshore wind supply chain than Jiangsu, something the Provincial Government are very interested in delivering. The challenge is in creating the necessary confidence in the Provincial pipeline to invest in such facilities.

The strategic approach Fujian appears to be taking here is to establish a large baseload of demand with a small group of developers, within which China Three Gorges is by far the largest.

CTG’s 2GW pipeline, and appetite for more, may itself be big enough to incentivise one strategic supplier to set up in the Province. Currently CTG are delivering a 73.8MW demonstration project with seven turbine manufacturers and, in parallel, are establishing an industrial manufacturing base on the coast. CTG therefore clearly hope that this three-pronged strategy of initial demonstration, industrial base investment and 2GW sales opportunity, will incentivise the necessary private investment to meet the Provincial Government’s industrial objectives.

Success will however hinge on the confidence of turbine manufacturers in the Provinces’ appetite to approve projects and absorb their power into the grid, and on CTG’s ability to deliver them cost effectively given environmental conditions. Currently all of these aspects are quite uncertain so, until they are resolved, CTG and other developers will have to secure components from elsewhere.

Beyond turbines, Fujian Fuchan Investment Co and Fujian Shipbuilding Industry Group appear to be positioning themselves as the core suppliers of steel towers, vessels and O&M services to Provincial projects. It is not clear at this stage whether Fujian has the heavy fabrication capability to compete with Nantong, but given the large nature of these components it is likely that at least some Provincial demand will be served locally.

Fujian Shipbuilding Industry Group and Yongfu are looking to set up a centralised O&M base in Putian with the intention of serving all 17 projects throughout Fujian. This is a core area for them and one in which they would welcome support from the UK, particularly in the operating models used by developers to manage assets efficiently offshore.

Political Fujian Government appears to be realistic about the challenges it faces in delivering and integrating a large pipeline of offshore wind projects. It understands that the industry will have to grow sustainably, in coordination with traditional power sources, potentially suggesting that it may have to dovetail with the retirement of onshore generators in order to ensure connection capacity is available. This approach may be behind the delivery targets of 2GW by 2020 and 7GW by 2030.

They are also quite clear in what they would like to see delivered from this existing pipeline: industrial capability and economic benefits. The Fujian Provincial Government, Putian Municipal Government and CTG will therefore be working together on this common objective, which may result in key challenges to the necessary investment, such as project approvals or grid connections, being unlocked more efficiently.

The lack of existing industrial capability in the Province means technology transfer from elsewhere into Fujian is a key strategy of the Government. This strategy incentivises R&D Centres and local technology partners to prioritise engagement with companies that will want to fully transfer their technology into Fujian. For this reason, having a base in Fujian, or at least a willingness to establish one, is likely to be conducive to doing business in the Province.

Fujian is an emerging opportunity in the Chinese offshore wind sector. Although significantly behind Jiangsu, with less than 100MW operational today and one 400MW project under construction, Fujian will have the second highest installed offshore wind capacity in China in 2018. Today there are a further 17 projects approved for construction, with five due to enter this phase during 2018. Under the 2020 Offshore Wind Development Plan Fujian is targeting having 900MW grid connected and a further 2GW under construction, which it is confident it will achieve. Fujian is also targeting 7GW installed by 2030.

Background on key organisations Leading developers, installation contractors and O&M service providers in the provinces of Fujian and Jiangsu. Due to the relatively small size of the market today these companies have different levels of experience. They also have different technical requirements because of the varying provincial environmental and commercial conditions outlined above.

We would therefore recommend using these notes to help you develop your offer for each company. This will minimise exploratory discussions, which can often be difficult through translators.

China Three Gorges From a late start China Three Gorges have emerged as one of the most ambitious developers in the Chinese market, with plans to have 3GW of projects in their development pipeline by 2020.

As part of this they also employ a strategic overseas investment strategy to advance learning at home, including taking a 70% stake in the 288MW Meerwind Project in Germany alongside China Yangtze Power (30%) in July 2016. In October 2015 CTG also stated their intention to take a 30% stake in the Moray Firth Offshore Wind Project on award of CfD, although this deal has yet to complete despite success in the recent auction.

In China they commissioned their first project off Jiangsu in 2016. The 202MW Xiangshui project utilised 75% Siemens 4MW turbines alongside 25% Goldwind machines, as part of CTG’s strategy to support Goldwind’s entry into the offshore wind market (they hold a 23% ownership stake in the company). This project was also only the second in China to utilise an offshore substation.

More recently they are in the process of completing a 73.4MW demonstration project in Fujian that will utilise seven different turbines as part of their industrial strategy for the Province. Over the next

12 months they are also focussing on delivery of the CTG Defang H11 300MW off Jiangsu, and two similar sized projects off Zhejiang and Dalian Provinces.

It is however CTG’s project pipeline in Fujian that is of most interest due to the strategic industrial strategy behind this to drive down costs and deliver economic benefits in the Province. CTG are continually adding to this portfolio through the purchase of assets owned by local Provincial developers. They also have a strategic JV with Fujian Fuchuan Energy to deliver 1GW of projects, so their full Provincial pipeline is estimated to be close to 2GW today.

CTG have worked with Longyuan Zhenhua (turbines/foundations) and Shanghai Foundation Engineering Group (cables) during installation, and are utilising an integrated jack-up designed by Fujian Shipbuilding Industry Group on their existing demo project.

They also have their own in-house design institute, the Shanghai Design and Investigation Research Institute (SDIRI), who provide design and construction planning services across their projects.

Key areas of interest to CTG in Fujian are likely to be:

 Foundation designs for larger (6-8MW) turbines in hard seabed conditions, particularly jackets due to the lack of drills suitable for large diameter monopole installation  Floating foundation design options, particularly for depths less than 100m.  Installation equipment for larger components than have been installed on utility scale projects in China to date  Cable burial equipment for hard/rock seabed.  Cable protection from damage and degradation due to exposure on hard seabed conditions  CTV vessel designs suitable for the short wave length conditions off Fujian  Cost effective and robust offshore substation designs, given lack of experience in this area and recent fire on Bin Hai H2 sub

Fujian Fuchan Energy Investment & Fujian Shipbuilding Industry Group – Fuzhou, Xiamen

Fujian Fuchan Investment Co is a large provincially owned enterprise that is owned 100% by Fujian Shipbuilding Industry Group. They are the local partner to CTG on 1GW of offshore wind projects in the province. Their focus is on new energy, including OSW, across four subsidiaries – each set up to contribute to the development of the Fujian supply chain:

OSW R&D Centre (in partnership with CTG’s in house design institute, SIDRI). Focussed on testing and certification and seeking to develop a national recognised R&D facility in the province.

Steelworks (in partnership with CTG). Have invested 1.3bnRMB to date to set up a facility that can produce 200,000 tonnes of steel products per year. They are now a top three producer of steel structures to the wind industry (both on and offshore)

Marine Engineering Co. (40% shareholder alongside CTG and China Rail Bridge). Have designed and delivered an integrated jack-up vessel that was delivered for use on CTG’s demonstration project in June 2017. Another is due to be delivered spring 2018.

Offshore O&M Co, working with Yongfu Electricity. Targeting offshore O&M service delivery, safety training and logistics. The Fujian Provincial masterplan proposes to consolidate resources centrally so this company will build out an O&M base at Putian to serve all projects off the coast of Fujian.

They have already engaged companies from Denmark, Germany and the Netherlands on O&M vessel design, and are working with “surewind” in Germany to support design standardisation as they would like to replicate European standards.

Key areas likely to be of interest to Fujian Fuchan Investment Co and Fujian Shipbuilding Industry Group include:

 Installation best practice across all components  O&M best practice, including management systems, communications, vessels, spares, port optimisation etc.  Specifically interested in vessel design optimisation for O&M and in replicating European standards  Specifically interested in equipment from Europe for both installation and O&M vessels in order to optimise performance

China Longyuan Power Group

Founded in Jan. 1993, China Longyuan Power Group was affiliated to China National Department of Energy. It is now affiliated to China Guodian Corporate.

The company mainly dedicates to the design, development, construction, management and operation of wind farms (it has over 300 wind farms). In addition, it also runs other projects, such as thermal power, solar power, tidal power, biomass power and geothermal power. Meanwhile it offers services to wind farms, including consultation, repair, maintenance, and training.

By the end of 2014, the holding installed capacity of the group had reached 15,697MW (wind power 13,543MW). The company also takes the lead in several new emerging areas in China, such as development of the overseas market, offshore wind power, and wind power at high altitudes and low wind speed area.

The company has gradually constructed ten supporting system of wind power technology and service, forming unique advantages in many fields, including preliminary wind measurement, design and consultation, equipment procurement, operation monitoring, check and maintenance, technological R&D, and professional training. It is the only power enterprise of the five giant power groups that possesses the state-level R&D center.

With the approval of Ministry of Human Resources and Social Security, the company has set up National Occupational Skill Certification Station of Wind Power of Guodian Longyuan which is to cultivate and appraise advanced professional talents of wind power industry, providing a reliable guarantee for the sustainable development of the company.

Longyuan Power also possesses several overseas projects. Canada's 99,100 kw wind farms are the first wind power project that state-owned power companies independently develop, construct, and operate overseas. The company also have two 244.5 MW wind power projects in South Africa.

Key areas likely to be of interest to China Long Yuan Power Group:  Wind power, energy saving technology and other new energy technology development  Power station pollution control  Technical transformation, technical services and production maintenance of power systems and  electrical equipment  Research, development, production, and transfer of new technologies, new equipment, new  materials, and new processes related to electricity

Longyuan has six major wind power bases based on the characteristics of distribution of wind resources in China and the characteristics of wind power construction.

Longyuang Group has proposed its strategic conception of building up six major wind power bases all over China, namely, six 1 million KW wind power bases will be built up in Xinjiang, Gansu, Inner Mongolia, Hebei, the three provinces in Northeast China, and the coastal area in Southeast China. Such six major wind power bases will be the major battlefield for the Company’s wind power development. The Southeast Coastal Wind Power Base is mainly in Jiangsu, Zhejiang, Fujian, and Guangdong, where a total wind power installed capacity of 581,000kW has been put into production; and wind farms there are mainly distributed in such places as Nantong, Jiangsu and such places as Fuzhou, Zhangzhou, and Putian in Fujian.

Longyuang Group provide technical services in 10 major aspects:  Studies on the Development of Renewable Energies  Platform for Public Services in the Sector of Wind Power

 Wind Power Pre-phase Development Technical Services  Management over Wind Power Projects and Equipment Procurement  Wind Power Engineering Consultation and Design  Wind Farm Operation Monitoring  Wind Farm Inspection and Repairs as well as Technical Services  Wind Farm Spare Part and Component Management Services  CDM Development Services (clean development mechanism)  Wind Power Vocational Technical Trainings

Wind Power Project 2018/04 MWh 2017/04 MWh Neimenggu 541,632 484,523 Liaoning 341,177 254,683 Xinjiang 320,194 283,123 Jiangsu onshore 278,603 230,724 Heilongjiang 249,921 300,522 Gansu 247,963 177,677 Hebei 246,127 269,373 Yunnan 214,131 166,552 Jiangsu offshore 201,990 95,219 Shanxi 191,274 129,150 Anhui 169,993 146,835 Ningxia 159,691 134,955 Guizhou 118,347 135,043 Jilin 109,015 100,180 Shandong 108,515 80,158 Fujian 100,720 105,553 Shanxi 73,217 59,641 Tianjin 50,767 28,356 Chongqing 34,659 33,312 Zhejiang 31,255 33,092 Guangxi 22,857 21,353 Hunan 16,866 16,610 Shanghai 13,679 11,032 Hubei 12,028 - Guangdong 6,710 8,642 Hainan 6,397 9,217 Tibet 1,236 995 South Africa 42,622 - Canada 20,992 24,214

Current wind power projects in Fujian: Longyuan Putian Nanri Island 400 MW Project – (phrase1-200 MW)2018.04. Project capacity: 200 MW; Turbine capacity: 4 MW; Number of turbines:50; Number of export cables: 1. Distance from shore: 13.4 km. This project has three stages and is included in the 12th Five Year Plan and the “National Offshore Wind Power Development and Construction Plan (2014-2016)”.

Huadian Fuxin Energy Corporation Limited

Huadian Fuxin Energy Corporation Limited, headquartered in Beijing, is a wholly owned subsidiary of China Huadian Corporation (one of China’s biggest state-owned power generators) established in Fujian in 2004 (Assets: $15134 mil; Revenues: $2342 mil; profits: $281 mil; Return on Invested Capital: 2%. 06/08/2017). It was listed in Hong Kong Stock Exchange in 2012 with registered capital of 7.62 billion yuan (NOK 970 mil.)

Currently, the Company is China’s leading clean energy company with diversified power generation combinations including hydroelectric power, wind power, thermal power, distributed energy, nuclear power, biomass power and solar power generation. In terms of wind power, the Company is China’s leading wind power operator with eight wind power industrial bases in such places as Xinjiang, Gansu, Jiangsu, Zhejiang, Anhui, Guangxi, Fujian, Hebei.

Assets of the Company are distributed in 24 provinces and autonomous regions throughout China. When it was listed in 2012, the total installed capacity put into operation by the Company achieves 10,424.3MW, including hydroelectric power 2,457MW, wind power 3,500.8MW, thermal power 3,850MW and other clean energy 616.5MW. Now the company’s wind power capacity has reached 6500 MW with annual increase of 1000 MW. The company has a strategy to shift its wind power to new areas like Fujian, Jiangsu, Anhui, Henan, Hubei and Zhejiang. The company is determined to push forward its offshore wind construction.

Before, most of Huadian’s wind farms were in northern China, a region that suffers from the worst grid capacity shortages. Some 19 % of Fuxin’s wind power output was not taken up by the grid and went wasted last year due to the bottlenecks in 2015 (11.3 % in 2014). The national wind-power wastage rate was 15 % in 2015 (8 % in 2014). Fuxin announced that it would not start any new wind farm projects in 2016 in the worst-hit provinces of Gansu, Jilin and Heilongjiang as well as the Xinjiang Uygur autonomous region. It shifted its development focus to eastern, central and southern China from 2015. It is now looking for those territories to account for 40 to 50 % of total wind generation capacity, up from less than 20 % in 2016. The company in 2016 planed an increase of 1 to 1.2 gigawatts (GW) of new wind farms, 75 per cent of which be in the central, eastern and southern China.

Current wind power projects in Fujian:

Fuqing Xinghua Bay – Phase 1 (prototype test site) built on November 2016. Developer: CTG; Owner: CTG/ Huadian Fuxin Energy Company Limited/ Project capacity: 79.4 MW; Turbine capacity: 5 MW – 6.7 MW; Number of turbines: 14; Distance from shore: 11 km; The project is in the southeastern part of the Jiangyin peninsula. It has a favorable geographical location and abundant wind resources. The total sea area is about 75 hectares. The test site is the first-phase project of the 300 MW offshore wind farm in Xinghua Bay, Fuqing. It plans to install a total of 14 sets of wind turbines of more than 5 MW produced by 9 well-known domestic and foreign wind turbine manufacturers such as GE, Goldwind, Shanghai Electric and Haishang, with a total installed capacity of approximately 80,000 kilowatts.

Huadian Fujian Fuqing 300MW Haitan Strait offshore wind farm project Developer/ Owner: Huadia (Fujian) Wind Power Co., Ltd (Huadian Fuxin Energy Company Limited) Project capacity:300 MW; Turbine capacity: 6 MW; Number of turbines: 50; Distance from shore: 4.6 km; Number of export cables: 12; This project is approved on December 29th, 2017. (Huadian Fuxin Energy Company Limited’s Huadian Fujian Youxi Yuchuan (48MW) and Datian Wuling (48MW) wind power projects were also approved on the same day.).

The project is included in the “National Offshore Wind Power Development and Construction Plan (2014-2016)”. It is located at the northeast side of Longgao Peninsula, Fuqing City, Fujian Province, in the north and middle of the Haitan Strait in Fujian. The project is an offshore wind farm with an annual average wind speed of 9.2 m/s and a planned installed capacity of 300 MW. It is planned to install 50 6MW fans; the annual average utilization hours are 3,526 hours and the annual power generation is 1,058 million kwh. The project is scheduled to start construction in 2018. The construction period is 36 months. The first turbine will strive to generate electricity in the first half of 2018.

Shibi Mountain Wind Power Project: Project capacity: 48.3 MW; Turbine capacity: 2.3 MW; Number of turbines: 21. Construction period: 12 months. Total investment: 419.57 mil yuan.

Hongjian Mountain Wind Power Project: Project capacity: 48 MW; Turbine capacity: 2MW; Number of turbines: 24. Construction period: 12 months. Total investment: 423.92 mil yuan.

Qingyang Wind Power Project: Project capacity: 20 MW; Turbine capacity: 2MW; Number of turbines: 10. Construction period: 12 months. Total investment: 189.27 mil yuan.

Quanhui Wind Power Project: Project capacity: 50 MW; Turbine capacity: 2.5 MW; Number of turbines: 20. Construction period: 12 months. Total investment: 520.29 mil yuan.