Quarterly Update on the Asia-Pacific Wind Industry
Q1 2019 February 20, 2019
The Asia Wind Energy Association and Wood Mackenzie Power & Renewables are initiating a collaboration to share their research findings on the APAC wind market and technology trends through a quarterly industry update.
Winds of change blowing offshore in Asia Pacific
Introduction
According to research findings from Wood Mackenzie Power & Renewables, Asia Pacific’s offshore wind capacity will rise 20-fold to 45 GW in 2027.
Significant growth in China and Taiwan
Leading the charge is China, which offshore wind capacity is expected to grow from 2 GW last year to 31 GW in the next decade. Next is Taiwan which will account for 20% or 8.7 GW of offshore wind capacity by 2027, making it the largest offshore wind market in Asia-Pacific excluding China (APeC) by 2020. Currently, Taiwan relies heavily on coal, gas and nuclear for power. Despite public push back on denuclearisation, the government still intends to reduce nuclear capacity in the long term. Renewable energy such as offshore wind is poised to help fill this gap – as more than 5.7 GW of offshore wind projects have been approved by the central government.
Note: This market outlook is updated on a quarterly basis and Wood Mackenzie is planning to publish its updated version in March 2019.
East Asia needs large-scale investment
Driven by declining prices, a few markets in Asia Pacific have set ambitious offshore wind targets. However, not every market is set for success as a stable domestic offshore supply chain and strong government support are needed to sustain growth in the long term. Together with South Korea and Japan, East Asia needs upwards of US$37 billion in investments to meet the mammoth growth in offshore wind capacity over the next five years.
Costs to fall as infrastructure improves
The good news is that prices are coming down. Globally, future offshore wind prices are projected to be competitive with traditional thermal prices by 2025 driven by auction mechanisms. 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.
Despite the enormous potential of offshore wind in Asia Pacific, key challenges around technology maturity and limited regional offshore wind supply chain remain. Mainstream offshore technology used in China still lags that of European offshore. For example, leading Chinese offshore turbine supplier Shanghai Electric has largely relied on technology licenses from European turbine supplier, Siemens-Gamesa Renewable Energy, and regional turbine suppliers still do not offer offshore wind turbines in the >8MW class which are now preferred by leading offshore wind developers.
Challenges remain in tech and supply chain
Outside of China, local turbine suppliers in Korea and Japan are investing in new and larger offshore machines comparable to western turbines. This will take time as it will require more research and development, testing new demonstration units, and establishing developer buy-in.
In addition, to support the ambitious growth in offshore wind capacity, a robust supply chain needs to be developed. Maritime infrastructure, establishing a local vessel fleet to install and service offshore wind power plants, and upgrades to transmission systems will take time to be built up. This will require strong commitments by regional governments to support and invest in the growth of offshore wind.
Wood Mackenzie data to share on APAC offshore wind sector:
- 45 GW –Forecast APAC offshore wind capacity in 2027
- 31 GW– Forecast China offshore wind capacity in next ten years
- 7 GW– Taiwan’s contribution to offshore wind capacity by 2027
- US$37 billion– East Asia’s required investment to grow offshore wind capacity
Fortunately, the experience in Europe is that when such support systems are in place, growth will be exponential given the increasing competitiveness of offshore wind prices, and developers eager to take advantage of economies of scale, local suppliers and opportunities in new markets.
New technology investments to boost growing global wind market
Wind turbines are set to become even bigger and better in an effort to maintain consistent downward trends of Levelized Cost of Electricity (LCOE), according to new research by Wood Mackenzie Power & Renewables.
Rapid technology developments have been a large driver of elevating wind to a competitive source of power generation globally. The latest edition of the Global Wind Turbine Technology Trends report forecasts rapid innovations up until 2027. These innovations are reducing LCOE on latest turbines, while at the same time improving performance and reliability.
The research shows “Now that auction systems are driving down power prices worldwide, product and service evolution is paramount. While the shift away from generous incentive mechanisms leads to a short-term market dip, the forecasted growth over the next decade makes the market ripe for innovation.”
To withstand the increasing price pressure associated with a stream of headlines heralding plummeting power price bids, turbine OEMs are being forced to make large investments in technology. Companies with global operations, strong financial capabilities, and relationships with leading asset owners will harness these commercial advantages to cement their leadership in critical wind markets.
“We expect the global market share of the top five turbine OEMs to rise to more than 73% come 2027, compared to just 54% in 2016.
“Fierce competition is also leading to shorter product lifecycles, as turbine OEMs introduce new product platforms to increase efficiency and performance. Our research predicts the newest platforms will have fewer product variants delivering the same demand volume, reinforcing the evolutionary product strategy approach many turbine OEMs are pursuing.
“The rapid pace of new product introductions will only begin to slow down post-2020. In recent years, new products were released at an accelerated pace, with OEMs embracing an evolutionary strategy that led to the new breed of 4.X MW turbine platforms. This left a series of 3.X turbines in their wake with barely a chance to recoup their tooling costs,”
According to the research, the U.S., Latin America and eventually smaller emerging wind markets will transition to 4.X turbines, which were previously expected to be limited to the European market, in the next two years.
The turbine ASP (Average Selling Price) per MW has declined by 28% since 2010, however the AEP (Annual Energy production) per MW has increased in excess of 50% during the same period. As developers are showing proclivity towards merchant PPAs (Power Purchasing Agreements), turbine OEMs are working towards sub EUR 30/MWhr LCOE turbines to address this demand.
For further Information, please contact:
Wood Mackenzie Power & Renewables APAC team:
Angel.hang@woodmac.com
+86 21 5286 0153
Asia Wind Energy Association
Lidya@asiawind.org
+65 (65) 6679 6071
Wood Mackenzie, a global natural resource research and consulting firm for more than four decades, is now specializing in Power & Renewables and covers energy transition, markets, technology, supply chain and more. With an unparalleled level of depth, our integrated power, solar, wind, storage and grid edge market intelligence services enable you to make strategic decisions and forge the path toward a decarbonized and decentralized electricity market.
Established in December 2016, the Asia Wind Energy Association is the leading industry association for the wind energy sector in Asia-Pacific. The Asia Wind Energy Association acts as the regional platform for all wind power industry stakeholders to collectively promote the best interests of the wind power sector. Members include power project developers, turbine manufacturers, technical consultants, financial institutions, regional associations and other institutions in the wind energy sector.