Strong Offshore Winds: Developing countries present a huge untapped potential

Developing countries present a huge untapped potential

Offshore wind power is emerging as the most rapidly developing source of clean energy globally, with increasing maturity and a promising future. The global offshore wind market has grown exponentially since 2011, reaching 23 GW of installed capacity by the end of 2018. The year 2018 witnessed record-high capacity addition, low price bids and a rapidly changing technological landscape. Earlier, in 2017, the first zero-subsidy bids were witnessed in Germany and the Netherlands. According to the World Bank, $26 billion is invested annually in the segment, which translates into 8 per cent of new global investments in clean energy. Its contribution is forecast to increase significantly with about $500 billion expected to be invested in the offshore wind segment by 2030. So far, Europe has led the development of offshore wind projects worldwide, accounting for close to 85 per cent of the global installed capacity. China (15 per cent) and the US (0.2 per cent) also have a sizeable volume of planned projects. Outside of these, only four Asian countries – Vietnam, Japan, South Korea and Taiwan – have some installed offshore wind capacity.

Considering the recent and projected cost reductions, the distinctive advantages of offshore wind and the need to decarbonise electricity systems, there is a case for accelerating the expansion of offshore wind in developing countries. However, the challenges associated with the introduction of new technologies and creation of new markets have to be handled appropriately. In this context, in March 2019, the World Bank announced a new $5 million Offshore Wind Program to accelerate the adoption and expansion of offshore wind energy in developing countries. The idea is to help emerging markets evaluate their offshore wind potential and provide technical assistance to develop a pipeline of projects that are ready for investment by renewable energy developers.

Some of the developing countries with a strong offshore wind potential are Brazil, India, Indonesia, the Philippines, South Africa, Sri Lanka, Taiwan and Vietnam. These countries can utilise offshore wind to expand energy reach and provide clean energy to those without access to reliable electricity. According to the World Bank, Brazil and South Africa have a technical offshore wind potential of 526 GW and 356 GW respectively. Vietnam’s technical potential for fixed and floating offshore wind is 309 GW. This represents a huge opportunity for cost-competitive, large-scale offshore wind projects located close to areas of high power demand.

The World Bank programme is led by its Energy Sector Management Assistance Program (ESMAP) in partnership with its sister organisation, the International Finance Corporation (IFC). The $5 million programme was initiated with the support of a GBP 20 million grant to the ESMAP from the UK government to help low and middle-income countries implement environmentally sustainable energy solutions. The World Bank will administer the programme in close cooperation with the Global Wind Energy Council (GWEC) and its recently formed Offshore Wind Task Force, which brings together leading offshore wind developers, equipment manufacturers and service providers.

Over the next five years, the World Bank will work with the governments of developing countries, commercial developers, development partners and wind energy experts to raise awareness around offshore wind opportunities in emerging markets and lay the groundwork for a pipeline of new projects that could be funded by the World Bank or the IFC. It will work with public and private sector players to undertake technical studies and develop national strategies to facilitate the adoption of this technology.

The three key focus areas of the programme are:

Knowledge generation, dissemination and information exchange – This includes the publication of the assessment of the prospects for offshore wind in emerging markets, the expected costs, regulatory shortfalls, environmental and social issues, as well as recommendations for better coordination and cost reduction.

Upstream country studies and planning work – The World Bank will support demand-driven work at the country level with an initial focus on upstream studies to assess the potential of offshore wind, develop roadmaps and carry out planning studies.

Investment plan to finance downstream feasibility studies – Based on country demand, it will help prepare investment plans to seek financing for pre-development projects to identify prospective sites. This could eventually lead to World Bank financing to support infrastructure investments, with IFC financing provided to the winning developers, together with other development partners and commercial finance.

A look at the offshore wind potential as well as recent policy and market developments in the offshore wind segment in key developing countries…

Key developing countries

Brazil: Brazil’s long coastline, comprising 7,500 km of shallow shores with water depths of 30 metres, makes it an ideal candidate for offshore wind capacity development. In December 2018, Brazil’s senate approved a bill authorising concessions for offshore wind generation. As per the bill, power regulator Aneel will conduct auctions for projects of over 5 MW capacity. Smaller projects of less than 5 MW capacity will only require authorisation from Aneel. While the bill is still in the lower house, it paves the way for establishing the legal ground for tendering blocks for offshore wind development.

The country is also working on an offshore wind roadmap, expected to be unveiled this year, prior to allowing investigation work along its coastline. Brazil-based oil and gas company Petrobras is developing a 6-10 MW pilot offshore wind farm off the Guamaré municipality of Rio Grande do Norte, with expected commissioning in 2022. In 2018, Pertrobras entered into a three-year MoU with Norway’s Equinor to collaborate on offshore wind development in Brazil.

South Africa: There is fair potential for wind energy along the country’s entire coastline, with certain areas such as coastal promontories showing strong potential. Recent reports indicate that the government has expressed interest in exploring the possibility of developing offshore wind generation in the country. South Africa is a leader in the development of onshore wind in the African region with an installed capacity of 2.1 GW as of 2018 and ambitious plans to allocate an additional 8.1 GW by 2030. It could benefit from the World Bank’s programme in assessing its offshore wind potential as well as market development.

India: According to various studies, India has a high offshore wind potential in the southern region of the peninsula and along the western coast. In mid-2018, the country announced ambitious targets to tap 5 GW of its offshore wind potential by 2022 and 30 GW by 2030. In February 2019, the Ministry of New and Renewable Energy (MNRE) notified draft offshore wind energy lease rules, lending greater clarity on the government’s policy stance. According to the draft rules, no project development activity or site survey to assess the potential of offshore wind in the Indian exclusive economic zones can be undertaken without a lease, which will be granted by the MNRE. The area covered by the lease would be specified and the term of the lease would initially be valid for five years for prospecting and 30 years for the establishment of offshore wind projects. Subsequently, the nodal agency for the development of offshore wind energy, the National Institute of Wind Energy (NIWE), reinvited bids for conducting offshore geotechnical investigation in the Gulf of Khambhat, off the coast of Gujarat, for developing 1,000 MW of offshore wind projects. Earlier, in December 2018, the NIWE had invited bids for conducting environmental impact assessment (EIA) studies for offshore wind measurement at proposed Light Detection and Ranging (LIDAR) locations in the Gulf of Mannar, off the coast of Tamil Nadu. Separately, in April 2019, India signed an agreement with Denmark for strategic cooperation in the field of offshore wind.

Sri Lanka: Wind resources in the north-western and northern regions of the country are good for development. Offshore wind development in the waters of the Gulf of Mannar look promising. For now, the country is focusing on harnessing a part of the 20 GW onshore wind potential to develop 375 MW in Mannar between 2018 and 2025. As part of this, the Ceylon Electricity Board recently awarded a large-scale wind park contract for the 104 MW Mannar wind power project.

Vietnam: Vietnam has abundant wind power potential owing to its 3,000 km coastline. In the offshore space, Vietnam is the first Asian country to install close to 100 MW, which it did in the Bac Lieu offshore wind farm that has been fully operational since early 2016. Another 100 MW is under construction and there is potential for another 200 MW to be developed at the same site.

In November 2018, Vietnam’s Ministry of Industry and Trade issued revised feed-in tariffs (FiTs) for domestic wind projects. For the first time, the FiT for offshore wind projects was fixed at VND 2,223 per kWh (US cents 9.8 per kWh), which will be applicable to projects scheduled to start commercial operations until November 2021. The government plans to shift to an auction mechanism for wind power development beyond 2021. The Vietnamese government aims to add 1 GW of wind capacity (onshore and offshore) by 2020 and 6.2 GW by 2030.

Taiwan: This is one of the most promising countries in Southeast Asia for offshore wind development. Taiwan has set a target of reaching 520 MW by 2020, 5.5 GW by 2025 and 10-17 GW by 2030. The country offers a mixed tariff system for offshore wind projects. Projects under the initial offshore wind target of 3 GW by 2025 will benefit from the government’s generous FiT regime while the remaining 2.5 GW will have to compete to sell power at a lower price in a tender held by the state-owned utility Taipower. Under the FiT regime, developers can either choose TWD 5,740 per MWh for 20 years or TWD 7,108 per MWh for the first 10 years and TWD 3,459 per MWh for the subsequent 10 years.

The country’s first commercial-scale project went online in 2017 with the commissioning of the 8 MW first phase of the Formosa I project located near Miaoli on the west coast. The 120 MW second phase is under construction and will be completed by the end of 2019. The major development area is located off Changhua county, where the Formosa I project is located. Several other projects are in the pipeline and development is taking place in the area with the backing of nearby Taichung Harbour, which is becoming the main port to provide support for offshore development. Taipower has plans to invest TWD 100 million in what will be Southeast Aisa’s largest offshore wind port facility at Taichung to link it with Taiwan International Ports.

Indonesia: The country’s onshore wind power potential is limited because of its location along the equator. Some of the higher wind speed regions areSumba, West Timor and the coastal areas of South Java. The windiest regions in Indonesia lie in the eastern islands, which are less populated and lack adequate transmission infrastructure. Transmission systems would need to be built in these regions to facilitate the development of large wind farms.

The Philippines: The northern and north-eastern regions of the country have the highest wind resources, while the southern and south-western regions have the lowest available wind resources. In 2017, there were reports that equipment manufacturer Siemens Gamesa Renewable Energy was undertaking studies to assess the country’s offshore wind potential in the province of Ilocos Norte and that the preliminary data indicated huge potential. Recent reports suggest that power utility Manila Electric Company is contemplating a foray into offshore wind power generation.

Thailand: Thailand has low wind speeds throughout the country. For offshore wind, areas with high wind speeds include Bandon Bay in Surat Thani province, Pattani Gulf in Pattani province and Songkhla Lake in Songkhla province.

The way forward

Given the shift in focus away from carbon-emitting fossil fuel-based generation and the economics favouring renewable sources of energy, investors, globally, are keen to explore new avenues for clean investments. In light of the recent developments in offshore wind, this space presents one such attractive investment opportunity. The huge untapped offshore wind potential in developing countries could be harnessed with some guidance and hand-holding from the more experienced players in the sector. The World Bank programme offers such services in prospective countries. To begin with, proper policy and regulatory frameworks have to be put in place in the developing countries looking to develop offshore wind. Further, government support as well as participation by major local conglomerates is expected for the first projects.

The challenges facing the sector include significant costs (despite the recent decline) as compared to onshore wind, difficulties in obtaining the requisite clearances (from military authorities, port authorities and other government agencies), financing and evacuation facilities. Inadequate grid infrastructure is also a challenge for offshore connectivity.

Notwithstanding these challenges, offshore wind still promises to be a potential mainstream source of energy in the coming years.