July 17 (Bloomberg) -- China is three years behind schedule on a plan that would make it the world’s biggest market for offshore wind, a setback for the $15 billion industry that’s seeking to produce affordable electricity from the one of nature’s most reliable energy sources.
China set out an ambitious plan in 2011 to build 5,000 megawatts of offshore wind turbines in four years, enough to power 5.4 million homes. With less than 10 percent of that capacity in place, officials now say they won’t meet that goal.
Strong, steady offshore breezes have the potential to become an important source of electricity, but installing jumbo- jet sized gear in the harsh, marine environment is a complicated and expensive endeavor. The slow pace in China is matched by the U.S., which has no offshore wind farms after more than a decade of development efforts. In Europe, the only continent with any significant sea-based wind power, companies have scrapped plans for more than 5,700 megawatts since November.
China is “more cautious” on offshore wind than it was on solar and onshore wind because “it’s more risky and costly,” said Shi Pengfei, honorary chairman of the Chinese Wind Energy Association.
The target for offshore wind “definitely can’t be attained,” said Li Junfeng, director general of the National Center for Climate Change Strategy and International Cooperation. That’s a rare public admission from the government agency responsible for studying climate-change policy.
German power-equipment maker Siemens AG, along with Chinese competitors Xinjiang Goldwind Science & Technology Co. and Sinovel Wind Group Co., have the most at stake since they’re the top turbine suppliers for China’s offshore projects.
There was 429 megawatts of offshore wind power operating in China at the end of 2013. The country may install about 500 megawatts of offshore capacity next year and 1,000 megawatts in 2016, according to Bloomberg New Energy Finance.
Worldwide, about 2,570 megawatts are expected to be installed this year, worth about $15 billion. That total may grow to 7,560 megawatts in 2020, according to the London-based researcher.
“Offshore wind is at the testing stage and development won’t be too fast,” said Gao Hongbiao, deputy general manager of Jiangsu Longyuan Offshore Wind Power Co., a unit of one of the four biggest Chinese utilities commissioning wind projects.
Offshore turbines are insignificant when compared to China’s onshore wind capacity of 77 gigawatts. That’s the most in the world, and the government has plans to install an additional 18 gigawatts this year, according to the National Energy Administration. The cost of power from land-based wind rivals that of coal or natural-gas fired plants.
China is moving slowly with offshore wind after its onshore wind industry expanded so quickly that the rest of the country’s energy infrastructure couldn’t keep up. As much as 12 percent of its onshore wind turbines weren’t connected to the grid in 2013. Another 11 percent of the turbines had grid connections and were idled because transmission lines couldn’t handle all the output producing.
“China learned from experience on onshore projects when setting offshore policies,” said Tang Wenqian, executive vice secretary-general of the Chinese Renewable Energy Industries Association, an organization that acts as a conduit between government policy makers and industry executives.
What’s happening in China is mirrored in other regions, said Steve Sawyer, secretary-general of the Global Wind Energy Council.
Progress in the industry “is well behind most projections that have been made,” he said in an e-mail.
In the U.S., Cape Wind Associates LLP has been planning what may be the country’s first offshore wind farm for more than a decade, in Nantucket Sound, off Massachusetts. It’s faced stiff opposition from fisherman, American Indian groups and local residents including both the Koch and Kennedy families.
A handful of other companies are also developing Atlantic Coast wind farms. The U.S. Interior Department has awarded five leases from Massachusetts to Virginia and is planning to auction more offshore sites this year.
Europe is the most advanced market for offshore wind, with about 7.3 gigawatts in operation, and 4.9 gigawatts under construction, according to the European Wind Energy Association.
Even there, environmental concerns and risks including unexploded World War II-era undersea mines are driving up the cost of what’s already a costly source of power. Developers have canceled plans to build more than 5,700 megawatts of additional capacity since November.
Offshore wind is among the most expensive renewable energy technologies working at utility scale. Towers as tall as 40- story buildings must be anchored to the seabed, holding blades as long as the wingspan on the biggest commercial jetliners. The units must withstand storms that buffet the coast, including typhoons that hit China in the summer.
The cost of offshore turbines is surpassed only by solar- thermal systems, which use the sun’s energy to heat fluids, and by more experimental equipment that produces electricity from the motion of waves and tides, according to data compiled by Bloomberg.
The price China is offering for offshore wind power is the lowest among nations that have publicly set out goals for developing the industry.
It set incentive rates of 750 yuan a megawatt-hour for projects in inter-tidal areas, waters up to five meters deep, and 850 yuan for turbines in water deeper than that. That comes out to about 89 euros ($121) and 101 euros, compared with 255 euros for offshore wind in Japan, about 150 euros in the U.K. and 124 euros in Germany.
The prices set for offshore wind power are “quite conservative,” said Tang of the renewable energy lobby group.
Even so, China’s rates may be enough to attract some developers. Rates of return for the projects may be as much as 8.2 and 10.3 percent, according to Bloomberg New Energy Finance estimates.
“We can still make money at the new rate,” said Lan Peizhen, investor relations manager at China Longyuan Power Group Corp., the nation’s biggest developer of onshore and offshore wind farms. The company currently operates 250 megawatts of inter-tidal projects. It’s building a 100-megawatt inter-tidal project in the eastern province of Jiangsu and a 400-megawatt sea-based project in Fujian.
Goldwind “will gradually develop offshore turbines with bigger capacity as well as higher reliability and power generation,” the company said in an e-mailed response to questions.
“Offshore wind is the main battlefield of displaying Sinovel Wind’s skill to the full,” Sinovel’s media manager, Bao Zhen, said in an e-mailed response to questions. Cordula Ressing, a spokeswoman for Siemens, declined to comment when contacted by phone and e-mail.
The government in Beijing may have to issue a general plan for ocean uses before pressing the industry to expand more quickly, said Wang Zhongying, deputy head of the Energy Research Institute at National Development and Reform Commission, a state-level organization that studies energy policies. “It’s hard to see a rapid development in offshore wind power,” Wang said.
--With assistance from Ehren Goossens in New York and Chisaki Watanabe in Tokyo.