With governments in the Asia Pacific (APAC) increasing their focus on developing low-carbon economies, offshore wind is being included as a key component of their energy transition strategies. With supportive policy and regulatory frameworks, several Asian countries such as China and Japan have achieved early success in offshore development. China, which has already surpassed its 2020 target of 5 GW of offshore wind energy, is now looking to achieve 26 GW by 2024. Countries such as South Korea and Taiwan have set ambitious targets while Vietnam and Australia are actively putting in place regulatory frameworks to promote offshore wind.

However, several challenges still need to be addressed—one of them relates to the development of the corresponding transmission infrastructure, both offshore and onshore. This challenge, however, also presents the opportunity to deploy new and innovative technologies to develop a robust offshore transmission infrastructure with all stakeholders involved.

With this background, Global Transmission Report organised a one-day virtual conference on Offshore Wind Transmission in APAC on April 14, 2021. The mission of the conference was to present the plans, opportunities and technology solutions for the development of the offshore wind sector and the related transmission infrastructure in Asia. To this end, there were detailed discussions with policymakers, regulators, developers, transmission system operators, technology providers and industry experts to share their perspectives, learnings and issues.

The key takeaways from the conference are presented below.

Offshore wind – an emerging opportunity for APAC 

Chris Watkin, Global Marketing & Strategy Manager high voltage direct current (HVDC), Hitachi ABB Power Grids, presented the emerging opportunities and outlook for offshore wind (OSW) in APAC. He highlighted that the global energy demand is expected to increase by 1.3 per cent up to 2040. This requires decarbonisation strategies that focus on energy systems, across countries.

Mr Watkin further emphasised that the evolution of energy systems would involve utilities adjusting to new business models, enabling fully flexible power exchange with related data transfer, real-time control, higher security, and deploying artificial intelligence (AI) to enable complex autonomous processes.

He mentioned that for a smooth transition to a carbon-neutral energy system, OSW is gaining momentum around the world, with the APAC region having significant potential. The global installed offshore capacity stood at 35 GW as of the end of 2020, growing at a compound annual growth rate (CAGR) of 25.7 per cent during 2016–20; whereas about 30 per cent of the global OSW installations are located in APAC. The new installations for OSW capacity in APAC grew at a CAGR of 49 per cent, reaching 3,120 MW in 2020.

Figure 1: Recent developments in offshore wind capacity

 

Source: Presentation by Chris Watkin, Global Marketing & Strategy Manager HVDC, Hitachi ABB Power Grids

Particularly, China in the APAC region is progressing with rapid OSW capacity addition. The country has led the world in offshore installation in the past three years, adding close to 7 GW between 2018 and 2020. Meanwhile, countries such as Vietnam, Japan, South Korea and Taiwan have huge OSW development plans and targets, with South Korea planning an 8.2 GW OSW park by 2030; Taiwan planning to add about 15 GW by 2030; Japan targeting 10 GW by 2030; and the World Bank recognising the potential of about 10 GW of OSW capacity in Vietnam by 2030.

Lastly, he also emphasised that the development of OSW on a large scale leads to greater transmission requirements. Therefore, developing an interconnected grid network should be the focus rather than having a wide range of point-to-point or single connections. Technological advancements such as HVDC cable systems are effective in developing an integrated grid network for transmission of OSW to onshore substations.

Policies, plans and opportunities

Dr Chen Chung-Hsien, Director of Energy Technology Division, Bureau of Energy (BOE), Ministry of Economic Affairs (MOEA), Taiwan, discussed the status of OSW development in Taiwan, highlighting that the country has a three-phase programme underway to promote OSW development. In 2013, under Phase I, ‘Demonstration Incentive Program (DIP)’, three demonstration projects of offshore wind farm (OWF) development were approved, with a short-term goal of generating 238 MW by 2021. In 2015, under Phase II, ‘Zone Application for Planning (ZAP)’ was introduced with a mid-term goal of 5.5 GW of installed OWF capacity by 2025. Under this, the BOE identified 36 potential zones suitable for OSW project development near the west coast of Taiwan for site application.

Phase III, ‘Offshore Zonal Development’ is yet to be introduced by the MoEA. It will focus on a long-term goal of 10 GW of installed OWF capacity by 2030 to establish a self-sustaining market and domestic supply chain. The country plans to achieve 59 TWh of annual electricity production from OSW by 2035. A major project under construction is the Taipower Demonstration Wind Farm (109.2 MW), which is scheduled to be commissioned by end-2021.

Joseph Deng, China representative at the World Forum Offshore Wind, discussed the swiftness with which OSW is growing in the country, with the addition of 700 MW between 2020H1 and 2020H2 itself. Since 2018, China has employed an auction system for both onshore and OSW power projects. Large-scale OSW farms go through a competitive bidding process based on the cost of construction and power prices. The government then sets a tariff for the project, which cannot be exceeded.

The country has set a target of reaching 60 GW by 2030, for which about 5GW per year needs to be added. The OSW target in the country is driven by its economic growth, the cost and the maturity of the supply chain, and the 2060 carbon neutrality goal. About 4.4 GW, i.e., 44 per cent of the global OSW capacity, is currently under construction in China. On the technological front, floating OSW technology is also being explored. However, it poses challenges such as insufficient water depth, difficult design, cost-effectiveness and weather conditions.

David Wadham, Energy Partner, Ashurst, highlighted the steady growth of the Japanese OSW industry. The country has set a 2050 net zero target and a renewable energy target of 22-24 per cent by 2030 and 50 per cent by 2050. For this, Japan targets the addition of 1 GW OSW capacity each year until 2030 (10 GW target), with 30-45 GW capacity by 2040. The country has well established marine-service industries and a better supply chain infrastructure relative to countries such as Taiwan.

The Act on Promoting the Use of Marine Areas for the Development of Marine Renewable Energy Generation Facilities, which came into force in April 2019, introduced a new national framework for OSW in Japan. The Act sets out the process by which designated marine areas where OSW can be undertaken, known as ‘promotion zones’, will be identified and designated by the Ministry of Economy, Trade and Industry (METI) and the Ministry of Land, Infrastructure, Transport and Tourism (MLIT). Further, the Act establishes guidelines on the tender process for public tenders for projects within such promotion zones, indicating the process by which bidders will be able to compete to secure occupancy rights for OSW projects.

Presently, all OSW projects in the country employ 100 per cent Japanese equity—comprising of various Japanese utilities and regional energy companies. However, Japan wants to further strengthen the financing for OSW in the country. For this, it plans to increase the number of lenders—such as megabanks, regional banks, insurance companies, etc. To encourage new OSW development, Japanese financial institutions are adopting measures to attract investment by reducing the cost of equity, in turn, reducing the business risk of OSW and offering a better rate of return to investors post the completion of the projects.

Mai Nguyen Phuong, Deputy Chief of the Office Electricity and Renewable Energy Authority (EREA), Ministry of Industry and Trade (MOIT), Vietnam, discussed the scope for the future development of OSW in the country. As of 2019, Vietnam had only one operational offshore wind farm (OWF)—the 99.2 MW Bac Lieu near-shore OWF in the Mekong Delta region, which is connected to the grid via a 30-km-long transmission line.

She shared that in September 2018, the Prime Minister approved the increase of the previous feed-in-tariff (FiT) for OSW power projects. The tariff is currently set at VND1,928 per kWh (or 8.5 US cents per kWh) for onshore projects and VND2,223 per kWh (or 9.8 US cents per kWh) for offshore projects. However, such a tariff will only apply to projects that are ‘partially or fully operational’ before November 1, 2021.

As of March 2021, the country has 0.53 GW of installed capacity of wind power projects. Further, a target of about 11.8 GW of wind capacity has been incorporated in the draft Power Development Plan VIII (PDP VIII) and an additional 6.58 GW of wind power projects have been proposed to be added in PDP VIII. The government, recognising the efficiency of the private sector in delivering faster, is looking to promote private sector ownership of offshore and onshore transmission infrastructure.

Developers’ plans and perspective

Lucas Lin, CEO, Swancor Renewable, provided insights into offshore wind development in Taiwan and mentioned some key factors that are contributing to the development process. Currently, the country has 128 MW of offshore wind capacity with two major projects in the development pipeline with about 4,776 MW of planned capacity in various stages of implementation.

Mr Lin emphasised the fact that amalgamation of some key factors results in an efficient development cycle. According to him, factors such as a trusted legal framework, good stakeholder management, successful permit management, involvement of experienced contractors, regional supply chain and support of international banks contribute greatly towards an efficient project.

Bernard Casey, Development Director, Mainstream Renewable Power, spoke about the current offshore development in Vietnam. According to him, the offshore market in Vietnam is still in the early stages of inception, with new challenges and opportunities surfacing with time.

The Power Development Plan (PDP) 8 targets 3–5 GW of offshore wind before 2030 and 21–36 GW before 2045, which is not in line with the current transmission grid infrastructure. Extensive development of the 500 kV network in addition to introduction of an 1,100 kV or 800 kV HVDC system will be required for better transmission capacity.

Tim Sawyer, Director, Flotation Energy Plc, and Pelayo Rodríguez Alonso, Senior BD Manager, Ocean Winds, elaborated on the potential of floating offshore wind as the future technology in the OSW industry and its scope in the Asian market. They highlighted that many countries do not have shallow waters off their shores, so floating wind will be the only solution if these nations want to deliver offshore renewables.

Volcanic islands such as Japan are a potential market for this since it is very focused on renewable energy opportunities, following the nuclear incident at Fukushima in 2011. South Korea is already using floating technology with Ocean Winds developing the floating platforms for a 1,500 MW wind farm in the Ulsan region of the country.

Financing offshore wind

Daniel Mallo, Managing Director, Head of Natural Resources & Infrastructure, Asia Pacific, Société Générale Corporate and Investment Banking, explained that most large-scale projects across the globe are typically developed through a standalone project company, which is owned by the project investors with its own revenues and balance sheet and thus the ability to raise debt on its own merits.

As of now, offshore wind projects have attracted significant equity capital. Countries such as Taiwan have attracted investors from Australia, Germany, Japan, Denmark, Canada etc. Notably, as many as eight different export credit companies have been involved in financing the upcoming offshore wind capacity of 2,500 MW (under development) in Taiwan. However, despite being a highly liquid local banking marketplace, Taiwan has witnessed relatively muted participation by local financial institutions. The majority of the funds have been provided by international banks. This can be attributed to the fact that the offshore wind sector is considerably new for the local banks of the country.

On the other hand, in Japan, these projects have been financed largely by local utilities, energy companies, regional companies etc. This is also because Japanese investors (both equity and debt) have developed a body of knowledge in the asset class in other geographies. Another factor contributing to overwhelming local participation is that Japan is equipped with a more established marine services industry and supply chain infrastructure. However, going forward, the industry is expected to open up to external fund providers.

Mathew Taylor, Director, Green Giraffe, highlighted that broadly, there are only two discrete sources of funding. First is by the owners (directly via equity or shareholder loans, or indirectly via guarantees), and the second is by banks without recourse to the equity investors—this is also called ‘project finance’. Mr Taylor also discussed that offshore wind transactions are always heavily contracted. Major contracts include permits, licences, authorisations, etc. Parties with a stake in the financing and a say on the overall project structure may include sponsors/investors, lenders, contractors, insurers etc. Due to the participation and presence of numerous contracts and parties, offshore wind is a quintessential example of a comprehensive contractual structure. The way a project is funded has a material impact on how it deals with contractors.

Figure 2: Debt versus equity source of funding for offshore wind projects

Source: Presentation by Mathew Taylor, Director, Green Giraffe highlighted

Shinichi Yasuda, Senior Vice President & Co-Head of Renewable Finance Team, Development Bank of Japan, explained that in the case of debt funding, the major role of financing is to estimate and ensure the loan amount and interest rate required for the project. This entails increasing the number of lenders (mega banks, regional banks plus banks outside the region, insurance companies, etc.) and improving the interest rate and other terms through a deep understanding of business risk for offshore wind. From the equity side, the role of financing is about attracting investment with lower cost of equity by financial institutions. This is usually done by ensuring minimum business risk during and after completion of construction of offshore wind power.

Design and planning for grid integration

Dr Matthias Müller-Mienack, Managing Consultant, Global Service Line Leader DNV, talked about how it is not only technical parameters that impact offshore grid links, but there are many more components and parameters to be considered while building offshore grid links such as distance to point of connections (POCs) between the OWFs; OWF sizes, which limit connection capacity of POCs and/or of the onshore system; environmental restrictions, which limit the number of available cable trenches; capex, opex, reliability/availability and resulting levelised cost of electricity (LTCOE) of the offshore connections; and any market coupling opportunities.

Dr Matthias shared that in October 2020, DNV successfully put into operation an offshore grid link in the Baltic sea between Denmark and Germany.

Figure 3: DNV’s offshore grid project in Germany 

Source: Presentation by Dr Matthias Müller-Mienack, Managing Consultant, Global Service Line Leader DNV

Leena Mikkili, Electrical Engineer, Black & Veatch, shared that as the offshore wind industry has been growing over the past few years, designing the offshore grid has become more challenging than designing the onshore grid network.

An important fact highlighted by Ms Mikkili was that while building an offshore system interconnection, a defined process (which varies by country and region) with regular reviews and attempts to quantify risk and mitigation is required.

She discussed how OSW represents large generation injections, often in places where generation was not available previously. In the case of a modern grid network, additional generation can have a wide impact on the system, which can be significantly reduced by breaking up the injected power and further injecting it at multiple locations. Hence, it is common to have an interconnection system requirement for real power delivered along with a certain amount of reactive power support. Further, she shared that it is not common with large OSW for the reactive power support to be located in the offshore substation.

Leo Dalmar, Tendering & Maturation Engineer, SuperGrid Institute, highlighted that the two key challenges faced by SuperGrid while building offshore grids were the upgrade of the electrical grid and integrating renewable energy efficiently.

He discussed in detail the three grid reinforcement options—inland reinforcement of high voltage alternating current (HVAC), inland reinforcement of HVDC, and HVDC large power corridor. HVAC reinforcements have limited high power and have a potential impact on AC grid operations creating congestion and instability in the grid network. While HVDC grid reinforcements utilise the AC/DC interfaces, which allows advanced power flow management and support to the AC grid.

These days, an HVDC power corridor is a good reinforcement option as it can be used for direct integration for both offshore and onshore facilities. These corridors are either multi point-to-point HVDC or multi-terminal HVDC. They are well-adapted for stepwise development and the multi-terminal DC architectures and further allow reduction of capex and opex. But these HVDC power corridors have some limitations as well, including grid planning complexities, HVDC grid control and protection, interoperability of systems and technologies, adequate HVDC equipment development and qualification.

Figure 4: SuperGrid’s view of an offshore HVDC power corridor

Source: Presentation by Leo Dalmar, Tendering & Maturation Engineer, SuperGrid Institute

Technology and innovation

Dr Magnus Callavik, Global HVDC Engineering Manager, Hitachi ABB Power Grid, spoke about the various benefits of HVDC technology for OSW and its evolution in the past couple of years. He compared HVAC and HVDC, stating that HVDC technology is more suitable for the upcoming offshore capacity, which is expected to reach 2 GW in the coming decade.

The HVAC subsea cables are a well-proven technology, do not require converters and entail a lower capital expenditure. On the other hand, HVDC subsea cables involve a narrower corridor for submarine and land cables, reduced losses in cable system for long distances and no limitation in length. Compact and high power HVDC solutions ranging from 40 MW to 3,500 MW with high availability will drive down the cost/MWh and optimise levelised cost of electricity.

Figure 5: HVAC or HVDC with marine and underground cables

Source: Presentation by Dr Magnus Callavik, Global HVDC Engineering Manager, Hitachi ABB Power Grid

With the influx of new concepts and innovation in offshore in terms of artificial islands and floating installations, technological solutions that are more sustainable and cost effective will be targeted. To reduce costs, a meshed offshore transmission grid would be preferred, connecting several installations with both power producers and consumers directly without going through the onshore grid. Compared to a point-to-point cable, a meshed grid would have higher utilisation and reliability.

O&M of offshore grid assets

Etienne Rochat, Chief Technology Officer, Omnisens, presented on the offshore power cable condition monitoring system using a distributed fibre optical system. The fibre optic sensing technology uses temperature, strain and acoustic measurement for condition monitoring of grid assets. It is a proven technology for application in long interconnections, offshore wind transmission systems, and inter-array cables. The technology has a wide range of applications essential for cable monitoring systems including third-party intrusion, leak detection, hot spots, cable rating, erosion and depth of burial. Digital Fiber Optic Sensing (DFOS) is a versatile tool for offshore power cable monitoring. Using temperature (DTS), strain (DSS) and acoustic (DAS) technologies, it becomes effective for cable monitoring systems in offshore wind transmission systems. However, these technologies are not interchangeable due to their inherent nature and their select applications.

 Angela Lock, General Manager APAC, Tekmar Energy, gave an overview of the importance of cable monitoring by providing a business case for the cable monitoring solutions. Ms Lock detailed the share of the total cable package as 8 per cent of the total project cost and the cable protection system as 3 per cent of the total cable package (i.e 0.24 per cent of the total capital expenditure). However, in Europe, cables account for 80 per cent of the insurance claims, thus making a strong business case for a cable protection system package. 

Flexible solutions for offshore wind integration

Dave Walker, Offshore Grid Business Development Leader, GE Renewable Energy, gave an overview of offshore wind grid products and digital solutions. He detailed the growth of the offshore industry over the years wherein developers have come up with numerous solutions from open deck fully enclosed to floating solutions. He is expecting further innovative solutions and broader engagement from developers especially in the US and Europe, which have a large pipeline for offshore wind projects in the coming years. He further discussed the transition of the offshore power system to higher voltage ranges, the applicability of the HVDC solution to transfer power onshore, the use of digital control and protection systems, asset optimisation software solutions, and the use of SF6 alternatives to provide more eco-friendly solutions.

Outlook for offshore wind in APAC

Gayatri Prakash, Associate Programme Officer, Renewable Energy Roadmaps International Renewable Energy Association (IRENA), shared that the offshore wind market globally played a key role in driving the energy transition across the globe. The offshore wind capacity has increased from 3 MW in 2010 to 34.3 GW in 2020 (of which 9.4 GW is in China). Even during 2020, significant additions were made despite the pandemic and its implications.  Currently, the offshore market is dominated by European countries. However, Ms Prakash mentioned how Asian countries are also discussing ramping up offshore capacity and have set ambitious targets for the next 10 to 15 years.

Further, as per the REmap Case, annual offshore wind additions are expected to grow from around 6 GW in 2020 to 45 GW by 2050, close to an eightfold increase from the current levels. To reach these targets, the global average annual investments need to increase threefold from now until 2030 (USD61 billion per year) and more than fivefold over the remaining period up to 2050 (USD 100 billion per year), as compared to 2018 investments, i.e., around USD 19 billion per year.

Figure 7: Global offshore wind annual market will grow eightfold by 2050

 

Source: Presentation by Gayatri Prakash, Associate Programme Officer, Renewable Energy Roadmaps International Renewable Energy Association (IRENA)

The offshore wind capacity in Asia is expected to grow from 5 GW in 2018 to more than 600 GW in 2050, with almost 400 GW installed in China alone.

Ms Prakash stressed that we require systematic innovation beyond technology. A combination of affordable RE technologies, digitisation and climate change policies will act as the driving change that is required in the industry. The industry needs to complement technical measures with market design and regulations.

Ms Prakash averred that the pathway was challenging but achievable. Currently, there are several barriers in the global wind sector, including technological, environmental, economic, or social, but these can be mitigated. She highlighted a range of supportive policies and implementation measures including innovative business models and financial instruments that would be a boost for wind capacity. Hence, these barriers can be mitigated in order to accelerate the deployment of offshore capacity, which will help in meeting climate goals and 2050 wind addition targets.