Concept Note China Offshore Wind Mission – Jun 2018
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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). 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 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. 1 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. 2 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. 3 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