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For China's offshore wind projects, failing to connect to the
grid by 31 December 2021 means losing the entitlement to the
national renewable subsidies. Without subsidy, the project tariff
revenue from 2022 onward will benchmark the prevailing coal-fired
power tariff only, equivalent to being cut by half from the feed-in
tariff level of 850 yuan per MWh by 2021. IHS Markit expects close
to 9 GW of offshore wind projects under construction are unlikely
to commission timely. Offshore wind project developers will face a
more than 10% cut on projects' internal rate of return (IRR) upon
the national renewable subsidies cancellation. This was further
complicated by the ambitious capacity build-out targets indicated
by each coastal province's 14th FYP as well as state-owned power
generation companies' climate commitment timelines.
Following the expected learning rate trajectory, the IHS Markit
base case scenario suggested a 3.2% year-over-year reduction in the
offshore LCOE from 2020 to 2030. This means the offshore wind LCOE
will only catch up with coal-fired power toward 2030, allowing it
to reach grid parity in 2028.
A combination of the right measures will bring the nationwide
grid parity timeline forward. Designating offshore resources
development with a scale at a minimum of 1 GW will potentially save
8% in capex, equivalent to 29 yuan per MWh in terms of LCOE.
Splitting interconnection works, such as power substations and
transmission, from offshore wind project developer's scope can take
away as much as 56 yuan per MWh. In this case, such interconnection
works is assumed to be handled by grid operators, following the
common practice in other variable renewable projects. Combined with
the investment reduction from gigawatt-level development and
interconnection works, the 1% cheaper loan interest rate will
contribute 35 yuan per MWh to the LCOE reduction. We consider the
aforementioned measures, as defined in the aggressive scenario,
will save as much as 120 yuan per MWh together in project LCOE,
bringing national grid parity timeline forward to as early as
2024.
In the aggressive scenario, Jiangsu has the potential to reach
grid parity in 2023 as the pioneer, while Guangdong will not lag
behind thanks to the stimulus of provincial capex subsidies.
Provincial level capex subsidies alone in Guangdong will not be
able to close its gap toward parity with coal. However, the
aggressive scenario implies that the journey can be shortened by
five years for both provinces.
Chengyao Peng is Director for Greater China power and
renewables research and analysis at IHS Markit, and a member of the
thought leadership group in global power and renewables, with a
focus on Asia Pacific and China in particular.
Bing Han, Senior Research Analyst, IHS Markit, works on
Greater China power and renewables research and is a member of
Asia's research and consulting team.
Lara Dong, senior director, IHS Markit, leads Greater
China power and renewables research and is a member of Asia's
research and consulting team.
Posted on 08 September 2021
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.
