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Date: May 9, 2022
China’s Renewable Energy: Offshore Wind Takes Off, What Does the Future Hold?
1. Renewable energy mismatch in China has raised concerns over the coastal region’s carbon neutrality progress, offshore wind could be one solution. 
2. Although the dramatic surge of offshore wind in 2021 was mostly due to the cancellation of national subsidies, there are several reasons why offshore wind power growth could stay strong despite the removal of subsidies. Policy signals and great potential wind resources on the sea are major reasons. 
3. Challenges also exist. Costs remain the main barrier. High construction costs in vessel renting and installation of submarine cables and high operation and maintenance costs are likely to continue in the short term. 
4. In the middle of every challenge lies great opportunities. New technologies such as floating offshore wind and synergies like the offshore wind with oil or hydrogen production are at the forefront. 
Keywords: #renewable energy #offshore wind power #14th Five Year Plan (FYP) #clean energy base (CEB) #submarine cable #vessels #floating offshore wind #smart wind turbine #green hydrogen
If you like this article, please also refer to our comprehensive analysis report "Wind and PV Power Policies in China" in our database. 

China has been vigorously expanding its renewable energy (RE) since over the last decade. By the end of 2021, China accounts for 35% of the global total RE capacity (3,064GW). It owns the world’s largest RE installation for wind, solar(PV) and hydropower at 328GW, 306GW and 391GW, respectively. Recently, according to the National Energy Administration (NEA), China’s total renewable energy capacity exceeds 1,063 GW in 2021, accounting for 44.8% of the country’s total power generation capacity, 10.2% higher than in 2015. 
The rapid expansion of RE in China is of considerable significance for understanding China’s renewable energy development determinants and draws implications for prospects. In this article, we first look at China’s overall renewable energy policy briefly, then centre on the surging offshore wind power and evaluate potential challenges and new business opportunities. 
Renewable energy mismatch in China
Over time, Beijing has released hundreds of policies relating to renewable energy development. Released in 2021, the nation’s 14th Five Year Plan (FYP) has put climate commitment in the energy sector as the central policy theme. In terms of geographical focus, China has stated it intends to construct 9 large scale multi-energy complimented  clean energy bases (CEB)  and 4 offshore wind bases as key to its energy development. The geographical distribution of the key projects is illustrated in the map below. 
As the map shows, there is geographic mismatch between renewable energy resources and demand centres. China’s most abundant wind and solar resources are in the north and northwest, while high electricity demand is primarily in the southeast. Shortage in RE resources makes the southeast, especially the east coast region particularly important in the government plan for carbon neutral. To solve it, the Ultra-high Voltage (UHV) transmission lines and the development of interprovincial green power market are critical (See our article about Smart Grid with UHV: Smart Grid, A Game ChangerSee our article about power market trade: China’s Green Electricity Pilot Trade In a Nutshell)
However, these two alone cannot solve the problem. Firstly, the construction of the green power market is still at the initial stage and needs time to develop. Currently, intra-provincial trading still takes the main contribution to the total amount (82%). Inter-provincial RE trade only amounts to approximately  4%  of total power trade (see figure 2 below). This is partly due to the high cost of long-distance transmission, unclear ancillary service responsibility which might add on invisible costs and little participation of entities other than the grid.
Secondly, inter-provincial trade in China is still under development and facing barriers. Inter-provincial trade amount is limited due to the contradiction of benefits for local governments and grid companies. This includes local concerns in maintaining local power balance, preference on prioritizing local generators and consuming electricity locally, etc. (To know more about inter-provincial electricity trade, read our article: China’s Green Electricity Pilot Trade In a Nutshell)
Therefore, the central government has been emphasizing the diverse energy development along the eastern coastal regions. Main solutions include nuclear (small modular reactor (SMR), High-Temperature Gas-cooled Reactor (HTGR) and floating nuclear power plants pilot projects), Distributed PV (such as BIPV) and offshore wind power. Nuclear reactors need a vast amount of cooling water, making coastal areas more appropriate sites. Distributed PV also is suitable application in the industrial area where land resources are limited. In the 14th FYP, in total 10 nuclear plants and 9 offshore wind projects have been specified to be built by 2025.
Offshore wind starts to surge in China
After decades of development, onshore wind is approaching saturation, with fewer sites available and increasing curtailment. In 2021, the newly installed onshore wind decreased by about 55%, from 69GW in 2020 to 30.67GW in 2021. However, at the same time, offshore wind instalment surged to 4.5 times from the previous year. 
Many of the key developing provinces in offshore wind have stated their installed capacity targets in the next five years (see figure 4 below). The total announced installation target has exceeded 70GW. Some of the provinces have also released long term plans. For example, Shandong province is aiming to construct 35GW offshore wind by 2030, of which 10GW will start during the 14th FYP period. Guangdong, Jiangsu, Fujian and Guangxi are key development provinces in China’s offshore wind industry with a planned capacity >10GW. Although the installed target has not been announced by the Fujian government, one city in Fujian named Zhangzhou (漳州) has disclosed the plan for a 50GW offshore wind industrial base. Once approved, tenders will be launched to install 5-10GW every year from 2025. 
Why offshore wind is surging?
As mentioned above, offshore wind is one of the key methods for achieving carbon neutrality in China’s coastal region. It helps to cope with the coastal region’s tight electricity use without the need to construct long transmission lines and a more mature green power market. (See our article about green power market: China’s Green Electricity Pilot Trade In a Nutshell)
Besides that, wind condition on the sea is generally in better condition better than on the land, not only the wind speed is about 20% faster but the wind is also less turbulence and more consistent on the sea, thus less fluctuation. From figure 5 below, it indicates that coastal regions themselves are not the best area to develop onshore wind in China since most of the land is under low wind speed areas (wind speed < 7m/s) but quite suitable for offshore wind development due to high wind speed. Furthermore, offshore wind is transported by ships rather than trucks which means larger and higher turbines can be transferred easier and to be built. Not to mention that offshore wind does not take uptight land resources in this region, it is thus possible to be built on a larger scale. Therefore, more energy can be generated from offshore wind turbines.  
Top turbine players in China have already started to deploy in the offshore wind business. Domestic players like Mingyang 明阳智能 and CSSC 中国海装 have devoted many effect to developing supersized offshore wind turbines in recent years. Mass production of 10MW sized offshore wind turbines began last year. In 2021, Mingyang unveiled MySE 16.0-24 (16MW), said to be the world’s largest hybrid drive offshore wind turbine.
Foreign players in China such as Siemens Gamesa discontinued local sales of onshore wind turbines in China with its Tianjin manufacturing base and claimed will focus on offshore wind only in the future. In 2021, Siemens licensed its offshore technologies (11MW direct drive) to United Power 联合动力, making another solid step through this licensing business model. 
Challenges of offshore wind power in China
Although China’s offshore wind surged in 2021 (as mentioned above), one of the major reasons was because of the cancellation of national tariff subsidies, which led to “a race of construction” by the end of 2021. Currently, the offshore industry in China is still facing some challenges before becoming more mature like onshore wind. Major challenges are been listed below. 
1) High construction cost. The construction cost of offshore wind projects in China has increased by about 2,000 yuan/kw in recent years. Currently, the cost of constructing offshore wind is about 2-3 times higher than onshore wind. The capital cost of onshore wind farms averages around 6,000 yuan/kw, while the cost of offshore wind is about 13000-15000 yuan/kw. This is mostly due to the completion of the currently small-scaled offshore wind projects, shortage of construction vessels, lack of experience in construction and the high cost of constructing the submarine electricity cable. Among these factors, shortage of vessels and difficulties in setting up submarine cables are key. 
Shortage of offshore wind construction vessel supply
The offshore wind projects construction spree has sparked strong demand for offshore wind construction and O&M vesselsCurrently in China, there are around  40  offshore wind construction vessels available. According to the average annual capability of one individual vessel (40 turbines), theoretically, maximum total of 1,600 turbines can be served per year. When various factors such as extreme weather, and high sea level are in place, the number is usually hard to be achieved. Assume all announced provincial installation targets (78GW) mentioned above for offshore wind will be met, and with one single offshore turbine’s capacity to be 7MW, there will be 2,228 turbines to be built by  55  vessels every year. Not to mention that in China, only about 20 vessels are able to construct offshore wind turbines larger than 6MW. 
Due to the high construction cost and long construction duration of offshore wind construction vessels, the constrained supply of vessels could delay project progress and might cause a bottleneck in the sector in the next five years. According to one expert in the industry, Dean of the Longyuan Zhenghua Research Institute (龙源振华研究院), Feng Xiaoxing (冯小星) has said that the rent fee of one vessel has surged from 4 million per month to 10 million per month in recent years. All vessels in China now have been fully booked, the earliest available appointment will be around 2024. ​
High cost of constructing submarine cables
So far, two types of submarine cables have been adopted in offshore wind construction, HVAC (High Voltage Alternative Current) and HVDC (High Voltage Direct Current). Most of China’s offshore wind projects now apply  HVAC  technology with the combination of “35kv AC submarine array cables + 220kv AC long-length submarine cables”. To explain simply how it works: the 35kv array cable linking the wind turbines together will first transmit electricity produced by wind turbines to the offshore voltage booster stations (substations) first. At the substations, the electricity is then converted to 220kv high voltage current and transported back on land.
Construction of submarine cables accounts for around 1,500 yuan/kw and in total about 10% of the total investment costs. Combining with the construction cost of the voltage booster station to pair with the transmission, the cost could increase by an extra 3-5%. Conditions undersea are harsher than on the land, which makes it technically difficult to prevent cable damage from erosion, saltwater intrusion, shifting tides, storms etc. Due to this high technology entry barrier in the subsea cable sector, suppliers are limited. Market share is concentrated on five top players: Zhongtian Technology (中天科技),Orient Cables (东方电缆), Hengtong (亨通光电), Henhe Cable (汉缆股份), Baosheng Cable (宝胜股份). The supply of cables are also limited, procuring of new cables can be two years or even longer. Furthermore, there is also the construction barrier. Skilled personnel and specialized cable installation vessels are still in shortage. These two factors have increased cost largely and imposed uncertainties on offshore wind projects. Long procuring time is the additional risk that the cable repair imposes on long term turbine performance. One key solution to reduce cable costs is to increase the turbine size. The reduction in the number of turbines leads to fewer array cables, which in fact reduces installation and maintenance scope. 
2) High operation & maintenance (O&M) cost 
O&M accounts for around 25% of the Levelized cost of electricity (LCOE) while onshore wind projects are only about 15-20%. The main reasons for higher O&M costs are because of poor accessibility to the sea and high transportation costs. Harsh weather conditions such as typhoon and the rise of wave heights prevent operation or maintenance work been carried out. Therefore, there is only a limited time in one year that the vessel can operate. Due to that and the shortage in O&M vessels in China, around 20% of the offshore O&M cost are contributed by renting fees of O&M vessels.
The high O&M costs imply the urgent need for developing large-scale wind turbines (>10MW) and other technologies such as digitalisation to reduce the frequency of vessel operations.
3) Environment and ecosystem damage
So far, most of China’s offshore wind projects are near-offshore wind projects which means they are in shallow waters with water depths less than 35m. However, this area is home to most marine animals and plants. Some of the major ecosystem damage offshore wind project can cause includes:
  1. Noise. Underwater noise generated during the construction and operation of wind turbines might cause fish to vacate feeding, spawning and disrupt their migration routes. 
  2. Water pollution. Pollution of increased vessel traffic might contaminate water quality and degrade benthic, pelagic habitats and damage plants like reefs. 
  3. Harm to birds and bats. Offshore wind can harm birds by disturbing their feeding and migration routes, destroying habitats and collisions. 
New opportunities for offshore wind
In the middle of every challenge lies great opportunities. Since now the subsidy has been cancelled, there will be a growing need to reduce costs. In this section, we introduce some new business opportunities to cope with existing issues. Key common solutions to the challenges mentioned above include increasing turbine size, digitalisation, and technology innovations. 
1) Floating offshore wind
Floating offshore wind turbines are based on floating structures rather than a fixed bottom. It opens the door for the deployment of larger turbines in further offshore sites (80% of the world’s offshore wind resources lie in far offshore sites) with higher wind potential. Current it is still at the demo stage in China. Once matured, floating offshore wind is beneficial in reducing construction costs because of its much-simplified structure and eliminating ecosystem damage as it is far from marine life’s habitants. 
Cost is the main issue with floating offshore wind. The LCOE is about  4 times   higher than offshore wind projects with a fixed bottom. This is largely due to the current small-sized single turbine module, and immaturity of the technology and supply chain. Once scaled up in the future, costs might be largely reduced. Referring to GWEC’s 2021 report on global offshore wind, the LCOE of floating offshore wind could decline from 17% by 2035 and 40% by 2050. 
Other than cost, technical barriers and insufficient policy support also hurdle the commercialization of this technology. Technology bottleneck exists in high voltage dynamic cables, mooring & anchoring systems, and the platform size. And no subsidy mechanism has been issued yet which leads to a lack of market pull from developers and private investors.
Nevertheless, the seemingly distant plan three to four years ago has still turned into reality in China. Industry leaders such as Mingyang, CSSC and big SOEs like the “China Three Gorges (CTG) 中国三峡” have already started to produce floating offshore turbines. In 2021, CTG’s project, “Sanxia Yinling Hao (三峡引领号)”,  consisted of Mingyang’s typhoon resistant turbines successfully connected to the grid in Yangjiang, Guangdong. It is said to be China’s first floating offshore wind project. The same year, CSSC also completed its floating wind project with a capacity of 6.2MW in Guangdong. Several other projects are also under planning. This implies although the technology stays immature, the adoption of this technology is expected to increase in the future.
2) Smart wind turbines and wind farms 
Smart wind turbine is wind turbines equipped with digitalization technology such as IoT, AI etc. Usually, it includes functions such as on-site real-time equipment monitoring, fault alarm, refinement control and cluster control. It can help reduce costs in two ways.
Firstly, it reduces operation and maintenance costs. Digitalisation is capable of predictive maintenance instead of normal preventative maintenance which was based on assumptions. By installing sensors on various components of the turbines, it can predict a failure month ahead of time. This might enable the operator to procure repair components or book a vessel required at a better price rate. Most importantly, it ensures the turbine does not go out of operation for a long time and minimises unnecessary site visits. 
Secondly, it reduces operating costs through increased operational efficiency. Wind energy output like other renewable energies is fluctuating and inconsistent. Digitalization helps to enhance turbine performance through forecasting of wind conditions thus resulting in better operation schedules. In the future, when entering trade in the green power market, price forecast is critical. Digitalisation is able to predict wind power generation output with high accuracy and maximise profits. 
In the future, as big data plays an increasingly important role, smart wind turbines will be inevitable, whether on onshore, offshore, or distributed wind turbines. Top players like Goldwind, Envision, Mingyang, etc. have all invented their smart turbines and digital platforms. For instance, Envision’s smart wind platform offers wind speed forecast, real-time equipment monitoring, troubleshooting etc. 
3) Synergies with other industries
Partnering up with another industry could potentially lower construction costs. Common combinations at present are offshore wind with hydrogen production or oil production companies.
Offshore wind with hydrogen production
The unpredictability of wind leads to curtailment issues. By using the excessive wind to produce hydrogen, it solves the curtailment issue and produces green hydrogen, which is a critical resource to achieve carbon neutrality. Offshore wind is especially promising as wind is less turbulent on the sea, which enables much more stable production of hydrogen than onshore wind. Also, in the electricity demanding coastal area, many Hydrogen Refuelling Stations (HRS) are planned to be deployed. Close to production sites means less transmission cost. Currently one of the main bottlenecks of this synergy lies in the transportation of produced hydrogen back to the shore, if it can be transported back through existing pipelines, the cost could be severely reduced. (See our article about green hydrogen: Paving the Way for Green Hydrogen in China)
In China, coastal cities including Fujian, Guangdong and Zhejiang have put offshore wind with hydrogen production as the major development sector in their provincial 14th FYP. 
Offshore wind with oil production
Oil or natural gas companies’ experience in offshore installation can be easily applied to offshore wind constructions. Some of the facilities like an oil drilling platform or vessels can also be used for offshore wind projects. As mentioned in the previous section, skilled personnel and installation vessels are exactly what offshore wind projects lack now, there is thus undoubtedly a desire for the two sectors to form an alliance. 
At the same time, it is also a big opportunity for oil companies to lower their carbon footprint. China’s top offshore oil and gas drilling company China National Oil Corp (中国海油) has set up a subsidiary company for developing RE related technology including wind, PV and CCUS. In 2021, its first 300MW offshore wind project in Jiangsu successfully operated.
The figure above is China National Oil Corp’s first offshore wind project in Jiangsu. The country’s top offshore oil and gas driller converted a drilling platform into an offshore wind power construction and installation platform. 
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[2] Global Wind Atlas.
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[4] 财通社,2021-11-4,福建漳州市50GW海上风电大基地规划出台,海上风电迎机遇.
[5] Harvard Business School Belfer Center, 2017, The Challenges and Promises of Greening China's Economy.
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