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China key market ahead of FIT expiry as Asian offshore wind surges
China, with an expected 6 GW offshore wind capacity additions in 2021, will be the key market to watch in the sector, given the imminent expiry of its Feed-In-Tariff (FIT) by end of December, said an IHS Markit analyst.
Offshore wind projects in China need to be commissioned by the end of the year to quality for the FIT, which has seen an installation rush as developers try to get projects completed on time, said Indra Mukherjee, IHS Markit senior research analyst, power, coal, gas and renewables in Gurgaon, India.
China saw record wind capacity additions last year at around 70 GW for offshore and onshore projects combined. It will likely overtake Europe in terms of annual additions, according to Mukherjee.
FITs are used by many countries to support the installation of renewables by providing guaranteed prices for generated power, often above the market rate for the initial years of operation. The guarantees enable project developers to obtain the financing necessary to build their projects and connect them to the power grid.
The Asia Pacific region has seen a flurry of offshore wind projects in the last two years as governments in the region face increasing pressure to commit to their climate change targets. The race to net zero requires the replacement of fossil fuel-based power generation, and a number of Asian countries have looked upon offshore wind as a viable renewable alternative.
"The Asia Pacific region is increasingly driving growth of the global wind industry, with the region accounting for 60% of all new wind power capacity in 2020," according to the Global Wind Energy Council (GWEC).
China has the second-highest installed offshore wind capacity after the UK, with nearly 10 GW, while Taiwan's first large commercial offshore wind projects are under construction by international players such as Orsted, according to Andrei Utkin, IHS Markit principal research analyst, power, gas, coal and renewables in Paris.
"China installed 3 GW [of offshore wind] in 2020, which is more than any other country in the world. It's not significant in terms of renewables additions, but in terms of global offshore wind additions it's a solid number," he said.
China installed 52 GW of new wind power capacity in 2020, double what it installed in 2019 and more capacity installed in a single year than by any country in history, according to the GWEC.
Taiwan's plan for offshore wind development involves a three-stage strategy and it targets 5.7 GW of cumulative installed capacity by 2025 during the first two stages. It aims to build 1 GW of resources per year during 2026-2035, which will be considered the third stage of development. Stage two is now in progress, but IHS Markit believes Taiwan will miss the target based on progress so far.
"Detailed rules for stage three have not been rolled out yet, which should have been published late last year. It is rumored that the authorities will increase 1 GW per year to 1.5 GW per year, but nothing is confirmed," said Shan Xue, principal research analyst, power at IHS Markit in Beijing. "Most of Taiwan's available offshore wind resources are expected to be unlocked upon completing the three stages."
While major projects are underway in Taiwan, which has contracted a substantial amount of capacity, development will be restricted by the size of the market, Mukherjee said.
Taiwan's offshore wind resources, concentrated in Taiwan Strait, though relatively rich compared with other types of renewables in Taiwan, are considerably smaller than those of other countries, according to Xue.
Japan, South Korea
Japan and South Korea have seen some major announcements for offshore wind projects, albeit not a significant amount of execution, and it will be some time before those projects are commissioned, said Mukherjee, adding that Japan is faring better than South Korea.
"In these markets, development has been sluggish historically. There are issues with local stakeholders such as the fishing industry as well. Also, the sites are complex, and a market like Japan has unlimited potential for floating offshore wind, but not as much for bottom-fixed. That's a whole other ball game since the technology for floating offshore isn't fully ready. That's not to say Japan and South Korea won't be important offshore markets in the future, [but I] don't take some announcements at face value right now," he said.
Japan is expected to see the installation of more floating projects given its deep waters, added Utkin.
South Korea is banking on the 48.5 trillion won (US$42.9 billion) Sinan project, which has the capacity to generate up to 8.2 GW of power and will be built off the coast of Sinan in South Jeolla province over the next 10 years, to help it achieve net-zero targets. The current installed capacity for offshore wind in South Korea is 0.1 GW.
"If the project proceeds as planned, it's likely to help achieve about two-thirds of the country's 2030 offshore wind target of 12 GW," Vince Heo, associate director for IHS Markit in Seoul, said when the project was unveiled.
Under the Renewable Energy 2030 Implementation Plan announced in December 2017, South Korea hopes to source more than 20% of its energy from renewables by 2030.
The South Korean government is also working on amending the Environmental Impact Assessment Act, with the aim of reducing the time required for environmental impact assessments for both onshore and offshore wind farms and in granting permits.
The government will set up a new multilateral "wind power development committee" under the Prime Minister's Office and establish a secretariat in the Ministry of Trade, Industry and Energy. The new committee will take charge of all the complex permits for both onshore wind and offshore wind projects, according to Heo.
"Currently, an onshore wind project requires 22 permits from eight agencies, while offshore wind needs 25 permits from nine different agencies, resulting in nearly 10 years of the typical wind project development process in South Korea," he said, more than double the three-and-a-half years needed in the EU.
Outside of North Asia, India is starting to redress its execution challenges and picking up the pace with installations that have been stalled, Mukherjee said. India also has an offshore tender in its plans.
Like China, Vietnam is also gearing up for a significant installation rush due to an FIT expiry, Mukherjee said.
Vietnam's current FIT at $85/MWh (for onshore wind) and $98/MWh (for offshore wind) expires on 31 October 2021. "There is a proposal to extend the FIT for another two years, but at a lower rate," according to Joo Yeow Lee, principal research analyst at IHS Markit in Singapore.
Vietnam plans to build a 3.4-GW offshore wind project - named Thang Long - that is expected be fully completed by 2030. The first phase, scheduled to be online by 2025, will involve a capacity of 600 MW. Vietnam was the first country in Southeast Asia to announce an offshore wind plan.
"Project developer Enterprize Energy's planned completion is broadly similar to that outlined in the eighth Power Development Plan released by the Ministry of Industry and Trade (MOIT), but the MOIT is expecting only 2 GW of the capacity to be fully operational by 2030, instead of the full 3.4 GW," Lee said.
Mukherjee cautioned that the plan to build the 3.4 GW offshore wind project is aspirational, subject to the country building out its offshore supply chain and capabilities for delivering the target.
"Vietnam already is installing nearshore projects under the current FIT race. These are installed in shallow waters in the Mekong Delta region and they use specialized foundations. But nearshore is slightly different from the proper offshore we see in Europe and China," he said.
Australia, which last month confirmed the transmission route for its first offshore wind farm - Star of the South - is another market to watch, given the attractive wind resources and strong impetus from state governments to drive renewable generation growth. The 2.2-GW Star of the South project will be located off the south coast of the state of Victoria and ship power to the Latrobe Valley.
The uncertainty surrounding the development of a federal regulatory framework for the sector poses a hurdle to Australia's offshore wind development, according to Logan Reese, research and analysis associate director at IHS Markit in Brisbane. The national government sought comments on an offshore policy in early 2020, but no progress has been made so far.
"I don't think it is a priority of the government given its focus on a gas-led COVID-19 recovery, and wind is not included in their low-emissions technology investment roadmap that was released in September 2020," he added.
Asian countries have chosen offshore wind over other renewables for a number of reasons, but in most cases it is due to the inaccessibility of the best onshore sites such as hilltops in the case of South Korea, or due to the "NIMBY" (not in my backyard) phenomenon, according to Mukherjee.
"Sometimes the average onshore wind speeds are lower, such as in Taiwan. In China, for example, having a lot of renewables capacity in the coastal region makes sense since most of the demand is there. But land for onshore development does not come cheap there. The good onshore resources are also located in the northern and western parts of the country, far away from the main cities of the largest population centers," he said.
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