The low price, about half the UK's own offshore CFD price which is $262 per MWh, has raised questions about the viability of China's offshore market. However, conversely, the slow development of China's offshore sector had been blamed partly on the lack of an offshore wind pricing norm.
Most people agreed that the policy was a positive move that would usher in a new era of the wind sector. Speaking at the 2014 Offshore Wind China Conference (OWCC) Shanghai Electric general manager Jin Xiaolong said: "We wish offshore wind in this country progress in a steady and healthy manner."
However, many industry players and observers attending the conference felt the price level was inadequate. Offshore facilities are at least twice as expensive to develop as onshore project, but the government-set offshore FIT rates do not reflect this difference.
China introduced its first benchmark FIT scheme for onshore wind in July 2009. The measure divided the country into four types of regions according to different wind conditions, and awarded each prices of CNY 510, CNY 540, CNY 580 and CNY 610 per MWh respectively.
The low FIT price means there is a risk that offshore projects will suffer losses. "The time for offshore wind has not come yet," said Zhang Kaihua, deputy general manager of Shanghai Donghai Bridge Offshore Wind Farm, the first offshore demonstration project in the country, at a OWCC forum. Zhang called on fellow developers to be cautious in making investments in offshore wind.
Other industry watchers were more positive. After all, the unit price of CNY 800/MWh had been predicted and widely expected. Although offshore projects are more expensive to construct, the wind resources are generally better, making them more productive. The new price level might be low, but it could ensure an offshore developer a reasonable economic return if the installation and operational costs could be managed effectively.
Yu Chang, deputy chief engineer of the Southern Offshore Wind Joint Development Company, which was engaged in the 200MW Zhuhai Guishan offshore wind farm in Guangdong Province, questioned the clear-cut approach of the new price standard. The wind conditions of different sites could be very different, he pointed out. The offshore FIT rates failed to reflect these differences. Yu said they would continue pushing the Guishan project forward. But at the same time, they must also seek subsidies from the local government.
So far, only the Shanghai municipal government has announced a measure to give offshore wind power a subsidy of CNY 200/MWh. Some local governments in other regions are reportedly considering to follow suit.
Although material costs are lower in China, the costs can be higher in other areas, such as prior approvals from a slew of government departments such as military, oceanic, fishery, and maritime agencies.
Under the new offshore FIT system, developing an offshore wind project is anything but an easy undertaking, said a veteran industry watcher who preferred not to be named. "It is a test for the developer. To do or not to do? The risk is high. But investors in this country sometimes have other things to consider. They will go ahead even if the project clearly has no hope of making a profit."
The difficulty of making profit out of an offshore wind plant is making potential investors think twice before jumping in. Some analysts believe the NEA will be happy with this. Instead of a hasty boost of capacity the country has experienced in other sectors in the past, slow and steady progress in the preliminary stage is a better scenario.
Given the poor prospects of profits, the most sensible approach is to develop offshore wind first at sites that have the best wind resources. Solid experience will be gained and as the technology improves the domestic manufacturing industry will be better placed to reduce offshore wind's costs. When the time comes to exploit sites with inferior resources, the current pricing level may have become plausible and adequate.
The OWCC, which doubled as an offshore wind O&M conference and exhibition, was careful to label the FIT as a temporary rate. The FIT policy is valid for only two and a half years. It applies to offshore projects commissioned before 2017. A revised pricing scheme will be announced later for projects launched in or after 2017. The revision will be made by taking into considerations factors such as technological advancements, changes in project cost, and results of concession project tendering, the NEA notice said.
It is evident that the offshore FIT may fall short of kickstarting China's offshore wind sector. The tendered concession projects are not eligible to enjoy the new rates and have to sell electricity at prior tendered rates that are often much lower. Developers of such projects have little enthusiasm to move forward. Other projects that can be completed before 2017 may have reason to slow down the pace, too, in the hope that a better benchmark pricing standard may apply in the future. And potential investors will hesitate and wait for a more generous rates in the future.