Following the announcement by the Chinese government on feed-in tariff for offshore wind earlier this month, Fliss Jones wrote an article about it.
Jones is a part of DNV GL, company which became one of the leading global providers of services for managing risk after a merger in September 2013.
China’s offshore wind tariffs announced last week were much anticipated. New offshore wind projects installed between now and end-2016 will receive 850 CNY/MWh ($136/MWh). Intertidal projects will receive 750 CNY/MWh ($120/MWh).
The rationale behind China’s new feed-in tariffs (FiTs) is clear: to accelerate offshore wind deployment.The General Secretary of the Chinese Renewable Energy Society Wind Energy Committee has indicated that a 10% rate of return on offshore projects could now be possible.
This is welcome news. Offshore wind deployment in China has been slower than expected in a country famed for moving fast. Whilst solar has pushed forward with around 12 GW installed in 2013 alone, offshore wind has a cumulative capacity of just 430 MW only.
The pace will quickly pick up under the new FiTs, particularly in Guangdong, Fujian and Jiangsu. And some local governments are providing extra incentives to lure developers: Shanghai offers a 200 CNY/MWh ($32/MWh) bonus for 5 years.
China follows both Japan and Taiwan in announcing offshore wind-specific FiTs—a reminder that offshore wind is going global. Crude comparison of their different tariff levels delivers interesting results.
At NT$5607.6/MWh ($187/MWh), Taiwan’s offshore FiT is 36% higher than China’s, even though the countries’ projects’ technical characteristics are very roughly comparable. Taiwan’s leading projects have water depths of 2-44m and distance from shore of 1-16km.
Moreover, some of China’s near-term projects—such as those off Fujian—are even located in the vicinity of the Taiwan Straits, thus experiencing similar installation challenges (and cost pressures) with typhoons and potentially high current speeds.
China can get away with lower tariffs due to supply chain advantages. Its offshore wind industry benefits from economies of scale—contrasting Taiwan, which targets just 600MW by 2020 (and even this will prove tricky to deliver).
China also benefits from cheap homegrown turbines, whereas Taiwan must import from abroad—unlikely to be from low-cost China, for political reasons.
Meanwhile, China’s offshore wind tariff is less than half that of Japan’s.
This is despite Japan’s tariff of 36,000 JPY/MWh ($353/MWh) being designed to support nearshore projects in shallow waters. Japan is similarly generous in its financial support for other technologies, as a reflection of its high cost base—for instance, its PV tariffs at 32,000 JPY/MWh ($314/MWh) are well above European benchmarks.
This means that Asia is home to both the lowest (China) and highest (Japan) cost offshore wind markets globally.
A common challenge
Whilst tariffs may vary from country-to-country, offshore wind faces the same challenge across the world: the need to cut costs. FiTs might stimulate an industry, but they can also attract criticism from the energy consumers who foot the bill.
Increased cost pressures brought by the shale gas revolution have already killed off projects in the US. Elsewhere, offshore wind is outshined by other renewable energy sources: PV FiTs have sunk below those of offshore wind in Japan and the UK.
The good news is cost reduction can be delivered through technical advances which are already close to market. DNV GL’s Project Force found that an integrated approach to wind turbine structure design can deliver potential cost of energy savings of at least 10%.
Another key cost reduction driver will simply be the ‘learning by doing’ that comes through deployment.
Now tariffs have kick-started its offshore wind market, China may well be the one to show us how it’s done.