Eastern Airstream

Asia Prepares for Exponential Offshore Wind Growth

By Amy McLellan

Offshore wind is blowing up a storm with a surge in financing taking capacity investment in 2019 to almost US$30 billion in the Asia-Pacific region, up 19 percent on 2018. This was US$2 billion more than the previous record year of 2016, helped along by a flurry of projects reaching financial close in the fourth quarter, including the US$2 billion 376-megawatt Formosa II Miaoli project offshore Taiwan and the US$1.5 billion 500 MW Fuzhou Changle C installation in the East China Sea.

Indeed, offshore wind is enjoying real tailwinds in Asia, where a combination of favorable policies and falling costs are driving investment. Analysts at Fitch Solutions see substantial growth potential over the next 10 years, with the project pipeline strengthening in multiple markets across Asia, while the team at global natural resources consultancy Wood Mackenzie predict Asia-Pacific’s offshore wind capacity will rise 20-fold to 43 gigawatts by 2027. The International Renewable Energy Agency, taking an even longer-term view, believes that Asia could account for more than 60 percent of all installed offshore wind capacity by 2050.

This kind of energy transition doesn’t come cheap, however. The bullish long-term forecasts of the International Renewable Energy Agency require a significant scaling in investment, from the current level to US$100 billion by 2050.

Should it materialize, this would be good news for the health of humans and the planet. The region’s energy demand growth is expected to grow 60 percent between now and 2040 – and that’s going to mean burning a lot more coal, gas and oil. Increased investment in offshore wind could help displace some of those fossil fuels.
According to Australia’s Institute for Energy Economics and Financial Analysis, or IEEFA, the greater Asian countries of China, Japan, Taiwan, India, South Korea, Vietnam, the Philippines and Indonesia could together account of 100 GW of offshore wind power capacity by 2035, which, if achieved, would have the effect of replacing the equivalent of 300 million to 350 million tonnes of thermal coal annually or 35 percent of the current global seaborne trade.

It helps that offshore wind is starting to look more price competitive, although there is still a long way to go before it can stand on its own without government support.

“Future offshore wind prices are projected to be competitive with traditional thermal prices by 2025,” said Robert Liew, Wood Mackenzie senior analyst. “This should attract investments in offshore wind, though Asia-Pacific is still playing catch-up with Europe as it is still in the process of establishing a dedicated infrastructure to support large scale offshore growth.”

Building Infrastructure Capacity

All new industries, particularly those offshore, take time to establish effective supply chains and maritime support networks. Already analysts are warning of capacity bottlenecks when it comes to accessing the specialist vessels, cranes and jack-ups required for these huge projects, particularly in those countries with strict cabotage laws, such as Japan. Investment is being made in local manufacturing and supply chain businesses to build local solutions, but this will take time.

The good news, according to Wood Mac’s Liew, is that once such support systems are in place, the experience in Europe suggests that growth in Asia will then be “exponential.”

Until then, it means there are huge opportunities for European contractors with the right fleet, heavy-lift equipment and experience to deliver on these complex and demanding jobs in Asia.

“It’s about having the know-how,” said Laurens Govers, manager of commerce shipping at Dutch heavy-lift specialist Jumbo, which has worked on two big wind farm projects offshore Taiwan.

“It’s having the specialist equipment to handle these very heavy-lifts, the knowhow to come up with innovative and flexible solutions that save the client time and money, knowing colleagues who can support us on these big projects and understanding the local and geopolitical issues.”

“The outlook for the next five to seven years is pretty strong,” he added.

As has been seen in Europe, however, policymakers can’t resist tinkering with market mechanisms, creating uncertainty for investors. Feed-in tariff, or FiT, programs that ensure power purchases and priority grid connections have helped fuel growth in some markets, such as the Philippines, Thailand and Vietnam.
However, it is not unknown for FiT regimes to be changed with little warning or replaced with auctions. Auctions can help drive prices lower, although some commentators worry they could lead to a race to the bottom that could prove unsustainable.

Changing tariffs or new local content requirements can also see developers hustle to beat deadlines or, worse, put the brakes on until they have more clarity. Taiwan’s highly promising offshore wind market experienced a serious wobble in 2018 when the government announced a cut in feed-in-tariff cuts, prompting such an angry response from developers – Danish developer ├śrsted suspended work on its slate of projects in protest – that the government was forced to compromise.

Meanwhile, China saw a surge in offshore wind investment in 2019, as developers raced to greenlight projects ahead of a planned cut in electricity prices for offshore wind projects.

“Offshore wind developers in China brought forward 15 projects to beat a scheduled expiry of that country’s feed-in tariff,” explained Tom Harries, head of wind research at Bloomberg New Energy Finance.

China: Leading the Way

Another round of subsidy cuts will be put in place from 2022 as tenders are brought in. While this phasing in of China’s new offshore wind regime may lead to uneven pacing as developers charge to complete projects within tariff windows, the general direction of travel is clear, with Wood Mac expecting 40.4 GW of offshore wind capacity to be grid-connected through 2028. Turbine manufacturer Goldwind and China’s Three Gorges Group have been powering ahead with a hugely ambitious project off Jiangsu Province in the East China Sea, where a range of projects is expected to deliver green energy to coastal communities. Indeed, according to Fitch, the country should smash its own national growth target of 5 GW by 2020 with the cumulative 2020 provincial-level targets in Jiangsu (3.5 GW), Fujian (2 GW) and Guangdong (2 GW) already exceeding the national target.

Taiwan, meanwhile, is one of the biggest offshore wind markets in the Asia-Pacific region, and could have as much as 8.7 GW of offshore wind capacity by 2027. The government not only has an ambitious target for renewable energy to account for 26 percent of its total power mix by 2030, but it is also pledging to close its nuclear plant by 2025 and the plan is for offshore wind projects to fill 5 GW of capacity. So far, despite the odd wobble, the country is making good progress with more than 7.8 GW of offshore wind capacity in the project pipeline. Projects underway include ├śrsted’s 900 MW Changua 1 and 2a and 128 MW Formosa projects (the latter is Taiwan’s first commercial-scale offshore wind project) and wpd’s 640 MW Yunlin development.

Taiwan’s burgeoning offshore wind market has created real opportunities for the European contractors, which have built up so much expertise supporting wind farms in their local markets. Jumbo, for example, has worked on the 640 MW Yunlin and 128 MW Formosa projects, giving it real insight into what it takes to succeed in this market. The company is bidding on three more projects and expects to see more activity in this fast-growing market.

Widespread Pockets of Growth

With limited land space for onshore wind, South Korea’s large coastal zones are seen as a good way to meet the country’s ambitious renewables growth targets. Norway-based Equinor has formed a consortium with Korea National Oil Corp. and Korea East West Power to look at building a 200 MW floating offshore wind facility, which, if realized, would be the world’s largest floating windfarm when it comes online in 2024.

Vietnam was an early leader in offshore wind in the region; its 100 MW Bac Lieu near-shore wind farm has been in operation since 2016. “The country’s 3,000-kilometer coastline has some of the best resources for both onshore and offshore wind,” according to Ben Backwell, CEO of the Global Wind Energy Council.

Unlike other countries in the region, its government has actually increased FiT rates, which will act as a stimulus for further investment. Already the UK’s Enterprize Energy is working on the 3.4 GW Ke Ga project valued at US$9 billion, which will be developed in 600 MW phases. Enterprize Energy Chair Ian Hatton said Ke Ga will have the highest local content of any offshore wind farm, providing not just energy, but also a “major contribution to Vietnam’s economy, sustaining existing employment in fabrication yards and creating new, long-term employment opportunities in operations and maintenance.”

In Japan, Wood Mac analysts predict installed capacity will surge 62-fold to 4 GW by 2028 after its parliament last year approved legislation to pave the way for its first offshore wind tenders. Companies are already lining up to play their part in this new industry. Toronto’s Northland Power, for example, has signed a 50/50 joint venture with Shizen Energy to form Chiba Offshore Wind Inc. to develop early-stage offshore wind development opportunities with combined capacity of 600 MW in Chiba Prefecture, Japan.

Meanwhile European contractors are forming alliances to support the emerging offshore wind energy sector. Sweden’s Northern Offshore Group and Tokyo’s NYK Line have agreed to cooperate on building capacity for Japan’s fledgling offshore wind industry. The memorandum of understanding mainly concerns the building and operating of crew transfer vessels. NYK has also teamed up with Van Oord to jointly own and operate offshore wind installation vessels under the Japanese flag. Dutch heavy-lift specialist Jumbo is also bidding on projects here in what looks set to be another very promising destination for offshore wind contractors. 

Freelance journalist Amy McLellan has been reporting on the highs and lows of the upstream oil and gas and maritime industries for 20 years.

Image credit: Shutterstock