Graceful sailboats plying blue waters off the central-east coast of China must be a frustrating sight for power company executives at Shandong Luneng Group.
If not for regulatory delays, the sea breezes that fill billowy sails could be turning wind turbine blades – and making money – at a Luneng offshore wind farm.
Luneng officials have been waiting since May 2010 for permission to proceed with a proposed 200-megawatt wind farm off the coast of Dongtai, a city in Jiangsu Province. That’s the month the cash-rich, state-owned regional power concern won a National Energy Administration (NEA) tender for the project.
But more is needed than NEA’s permission. To proceed, the project also needs a green light from the State Oceanic Administration (SOA), which regulates all economic activities within China’s offshore territorial waters. And the two agencies apparently do not always see eye-to-eye.
So far, an industry source told Caixin, SOA has neither rendered a decision on the Luneng proposal, nor said when it might. Meanwhile, Dongtai and Jiangsu officials are proceeding with plans to develop the seacoast for tourism and aquaculture – proposals that clash with the wind farm plan.
“Apparently, Luneng’s project conflicts with local economic interest,” said Fang Xijin, an official with the city’s Tideland and Fishery Bureau. “Sea waters lie within the regulations of SOA, and NEA does not have the exclusive say on offshore wind energy projects.”
And Luneng’s executives are not playing this waiting game alone. Three other state-owned power companies – China Datang Corp. Renewable Power Co., China Power Investment Corp., and China Longyuan Power Group – were similarly approved for Jiangsu offshore wind projects by NEA last year, but still need SOA’s permission.
For now, it seems power company executives can do little more than wait and watch the wind blow.
Although relatively new to China, wind power facilities including the offshore variety have won favor as an alternative energy sector in recent years among Chinese central government policymakers. Many officials like wind power because it’s less expensive than solar and safer than nuclear energy.
Moreover, power companies have increasingly set sights on offshore wind farms, since the amount of land available and accessible for wind farms has been dwindling. Much of the prime property for wind turbines in China has already been taken.
NEA says as of late last year, China’s combined, installed capacity for offshore wind farms was only 1,380 megawatts, compared with over 44,000 megawatts for land-based capacity nationwide.
The long-range goal, NEA Director Liu Qi said in June, is to install more offshore wind power capacity in China than exists in any other nation in the world. And these plans call for tapping the sea breeze for 30,000 megawatts worth of installed capacity by 2020.
To that end, Liu said his agency plans to launch a new round of tenders for offshore wind projects in the second half of this year, laying the groundwork for what’s expected to be another 1,500 to 2,000 megawatts of installed capacity.
SOA, meanwhile, is pursuing its own goals.
Luneng supports the nationwide wind power goal and has shown a willingness to cooperate with SOA to move forward with its Dongtai wind farm.
For example, to comply with an SOA regulation implemented in July, Luneng has pushed its planned site 15 kilometers east into the sea and away from a tidal zone targeted for other developments, said a Luneng official named Xu, who only gave his surname.
SOA has ordered offshore wind farms to be built at least 10 kilometers from the coastline to maximize the region’s economic potential.
Still Fang told Caixin, while pointing to the sites on a map in his office, that the area proposed by Luneng has been designated by the Jiangsu provincial government for ecologically friendly agriculture, aquaculture and eco-tourism projects – not wind farms.
Big stall
In addition to power companies’ wind farm applications, SOA’s current agenda includes Jiangsu’s proposed 10-year plan for coastal water utilization. Fang said SOA will not necessarily support wind farms at the expense of the economic interests of local governments.
Wind power, though a promising alternative energy, does not appear as financially lucrative to local governments as other coastal development options, a source said.
Some 37 percent of the Jiangsu plan area encompasses Dongtai’s 85-kilometer coastline, which grows every year as the seaside changes. Fang said it would be “better to not to build offshore wind farms until the city’s tideland project is completed.”
However, Dongtai already has at least one wind farm: Guohua Energy Co. built a facility off the city’s shore in 2006.
Guohua lost last year’s NEA tender for a Dongtai site to Luneng for a reason that points to another challenge facing the offshore wind energy sector: Grid power prices.
Guohua’s bid was 0.738 yuan per kilowatt hour, compared with 0.6235 yuan offered by Luneng. “We feel sad that we lost the bids,” a Guohua executive said, “but the bid winners may not feel better either.”
That’s because Luneng is likely to lose money on the project, the executive said. Several industry insiders told Caixin wind energy generated on the Dongtai coast should be priced at 0.8 yuan per kilowatt hour, while energy generated farther offshore should be up to 0.9 yuan per kilowatt hour.
“Building wind farms on the sea is much more difficult than on land,” said the Guohua executive, who estimated a 4 billion yuan investment for Luneng’s project in Dongtai, while 1.7 billion yuan would be sufficient for a similar project on land.
“Even after the offshore wind farm is put into use, operational costs are a cause for concern,” said the Guohua executive.
For example, he said, half of Guohua’s 79 Chinese-made wind turbines at Dongtai must be repaired or replaced on average every month. And it’s not a cheap fix.
“To replace a (wind turbine) gearbox at sea, you have to ship a 600-ton crane to the site,” he said. “It’s an extremely complicated and costly task.”
Nevertheless, power companies such as Luneng have been willing to bid low for the opportunity to expand into strategic, offshore wind power. These price offer have been a key criteria for NEA in deciding who wins tenders, even though officials such as Li Yuqi, energy bureau director for Jiangsu Province, say bidding too low does not encourage growth for the industry.
Although no one knows when SOA might act on Luneng’s proposal, Fang thinks eventually the regulator will give the go-ahead after ensuring that the wind farm won’t hinder other local economic activities.
For now, though, power company executives apparently have no choice but to live with the delays and frustrations for offshore wind development. Indeed, China Renewable Energy Society Chairman Shi Pengfei said it may be hard to reach national goals for offshore wind energy development given the lack of progress so far.
