WoodMac: China Faces Offshore Wind Supply Chain Bottlenecks
Only 20% of China’s current offshore wind pipeline is expected to be connected to the grid by the end of 2021, mainly due to local supply chain bottlenecks, according to Wood Mackenzie.
Wood Mackenzie reports that 45GW of projects have been approved for higher feed-in tariffs (FIT) before 2022, which strengthens the long-term outlook but also puts more pressure on the local supply chain than it can handle.
Bottlenecks in vessel supply are said to be the main barrier to project delivery from 2019 to 2021 as there are currently only a few purpose-built wind installation vessels in operation in the Chinese market and developers can barely meet the grid connection deadline for all approved projects.
Nevertheless, Wood Mackenzie expects 10.8GW of new capacity to come online during the installation rush from 2019 to 2021.
The market will then see new additions dip by one-third in 2022 when the FIT level reduces, compared with the previous year. However, new additions will soon rebound to the normal level given China’s huge market size and offshore potential, with an average of more than 4GW of annual capacity additions from 2023 to 2028.
In total, 40.4GW of offshore wind capacity is expected to be grid-connected nationwide from 2019 to 2028.
The Guangdong and Jiangsu provinces continue to lead the market growth as they hold approximately 85% of capacity that is planned or under construction and will contribute 60%, or 25GW, of the new-build additions in the next 10 years.
Wood Mackenzie anticipates that the 5GW target outlined by China’s National Energy Agency (NEA) in the 13th five-year plan covering 2015 to 2020 could also be met given the growing momentum.
According to the report, offshore wind remains the most expensive energy in the near term, with the average wind levelised cost of electricity (LCOE) expected to drop from the current RMB 646/MWh to RMB 409/MWh in 2028 (circa EUR 83/MWh to EUR 52.7/MWh), representing a 36% decrease.
Developers are expected to face earnings pressure when subsidies start to decline after 2021, and the offshore wind project LCOE will not drop below the provincial coal power FIT until 2028.