New Energy Investment Opportunities Series 2 Potential Investment Opportunities in Offshore Wind P

Background

As of 2022, China's cumulative installed wind power capacity is 391GW, including 360GW of onshore wind power and 31GW of offshore wind power, but in the context of "dual carbon", according to the calculation of the Global Energy Interconnection Development and Cooperation Organization, China's wind power installed capacity is expected to reach 2,500GW in 2060, with an ambitious goal. At the same time, the onshore wind turbine market is in the ascendant, and offshore wind power is in the ascendant, which is a must for leading enterprises.

As an important incremental market for wind power in the future, what are the uniqueness of offshore wind power?What are the future trends?What are the potential opportunities?

China's first offshore wind power project was put into operation in 2015, while the world's first project was put into operation in Denmark in 1991. Combined with the National Meteorological Center's assessment of offshore wind power installed potential and the analysis of cumulative offshore wind power installed data, 99% of China's wind resources still need to be developed. At the same time, the sea wind resources are better than the onshore wind resources, and the annual utilization hours of offshore wind power in China are generally 2,000 to 3,000 hours, while the annual utilization hours of onshore wind power are 1,800 to 2,400 hours. More than 10 provinces and municipalities along China's coast have successively announced new offshore wind installation targets and subsidy policies during the 14th Five-Year Plan (Figure 1), among which Guangdong, Jiangsu and Shandong provinces are leading the way and developing more resolutely.

Figure 1: Summary of new offshore wind power installation targets in the 14th Five-Year Plan period and relevant policies for offshore wind power and deep-sea projects in some provinces and cities.

Second, the front and back investment is heavy.

The fixed investment in the early stage is high. The initial development investment of offshore wind power is about 16,000-18,000 kW, while onshore wind power is only 4,000-7,000 kW, which is three times that of onshore wind power, mainly due to the significant increase in the requirements for materials and performance of wind turbines in the special offshore environment, as well as greater challenges in wind power foundation, installation engineering, transportation, etc., which bring significant cost investment (Figure 2).

Figure 2: Unit investment and share of offshore and onshore wind power.

The cost of operation and maintenance in the later stage is high. Compared with the flexibility and autonomy of onshore wind turbine maintenance, the planning and implementation of offshore wind power O&M are also affected by the offshore meteorological environment, environmental protection events, and the dispatchability of O&M vessels, as well as higher requirements for O&M software, hardware, and personnel levels, so the O&M cost of offshore wind power is high throughout its life cycle, accounting for 20%-30% of the total life cycle cost, which is 2-3 times that of onshore wind power O&M costs [1].

Third, the technical difficulty is high.

The construction involves a wide range of difficulties and is high. As the offshore environment is more difficult than the onshore environment, the requirements for corrosion, waterproofing and durability of offshore wind turbines and other key components are also extremely high. In addition, in addition to the installation of wind turbines, offshore wind power construction also involves the installation of submarine structure foundations, submarine cable laying and offshore substation construction.

The O&M environment is complex. China's offshore wind power started late, and unlike the international leading wind power companies that already have experience in the operation and maintenance of offshore wind farms throughout the life cycle, we are currently in the exploration period of offshore wind farm operation and maintenance. Complex sea surface factors such as offshore distance, sea conditions, wind speed, wave height, etc., and meteorological factors will affect the accessibility of offshore wind farms, and the accuracy of the above factors is low and the working conditions during the actual implementation of maintenance are more precipitous.

Fourth, the process is more complex.

The early approval process is complex, and there are many factors to consider in the later stage of operation and maintenance. Compared with onshore wind power, offshore wind power has more pre-construction approval procedures, involves many departments, and needs to obtain approval for the right to use sea areas, and needs to communicate and negotiate with relevant national departments such as the Ministry of Ecology and Environment, the Ministry of Natural Resources, and the Ministry of Communications to evaluate the navigation and environment of the project, and the overall process is complex, and there are many relevant parties, which increases the difficulty of review and approval, according to incomplete statistics, the 10 projects approved in 2018 were clearly postponed for one year in 2020 due to various reasons. At the same time, the operation and maintenance planning, maintenance plan and implementation should give priority to the impact of meteorology, environmental protection, fishery and animal husbandry, and navigation activities, and the coordination of operation and maintenance is difficult and time-consuming.

Looking to the future, the development of offshore wind power presents three trends.

First, it is urgent to continue to reduce costs, and there is a certain amount of room for cost reduction and efficiency improvement in all links.

Compared with onshore wind power, photovoltaic power generation, thermal power, and hydropower, the levelized LCOE of offshore wind power is about 10-60% higher (Figure 3), and its competitiveness is obviously insufficient. At the same time, the national subsidy for offshore wind power has been fully reduced, and only some provinces with abundant offshore wind resources have issued local subsidies, and the pressure on offshore wind power parity is high, and it is urgent to reduce costs. According to the Global Wind Energy Council**, the cost of offshore wind is expected to fall by 23% by 2030, mainly due to cost reductions in wind infrastructure, construction and installation, mainframe and power generation (Figure 4). In the future, cost reduction will be an urgent and long-term issue for offshore wind power, but it is likely that it will not be able to meet the LCOE of other renewable energy sources in any way, and offshore wind power, as a necessary component of China's diversified green energy structure, will not only rely on cost reduction, but also need innovation and assistance in other aspects such as policy and business.

Figure 3: Offshore wind LCOE compared to other power generation routes.

Figure 4: Offshore wind cost reduction path in 2030.

Second, the advent of the singularity of large-scale offshore wind power requires policy breakthroughs and business innovation.

In the future, the key to the sustainable development of offshore wind power lies in two aspects. On the one hand, we should broaden the profit model through policy breakthroughs and business innovation, for example, encourage offshore wind farms or offshore wind-solar-storage integration projects to participate in electricity spot trading and ancillary power services through policy opening-up, and give better arrangements for the priorities, specific thresholds and conditions in the implementation rules, and improve the profitability of offshore wind power through commercial innovation and development of "offshore wind power, fishery and animal husbandry integration" and "offshore wind power + green hydrogen and green ammonia". On the other hand, if the policy arrangement can be prioritized to open up the green power green certificate of offshore wind power and CCER, and even with the clean development mechanism and other international carbon credit mechanisms, there will be more medium and large enterprises in high-energy consumption segments to give priority to the procurement of offshore wind power with better quality, and further better cultivate the development of offshore wind power.

Third, the deep coupling of local consumption and green power + industry is more conducive to sustainable development.

According to the national plan, by 2030, the proportion of green electricity consumption in all provinces and cities needs to reach 40%, and the consumption level of these coastal provinces is still between 20-30%. Combination of energy consumers such as chemical plants (Figure 5). It is estimated that by 2050, the demand for green electricity in the coastal steel industry and the chemical industry will reach 900-100 billion kWh and 3000-600 billion kWh, respectively.

Figure 5: Schematic diagram of the integration of offshore wind power and coastal economy.

Offshore wind power will make great strides in the future. From the perspective of pure market, the software and hardware technologies and equipment of many key links of offshore wind power have great potential for incremental growth in new areasThese include: offshore floating wind power foundation (semi-submersible, monopile, barge, tension leg, etc., more suitable for deep sea), submarine cable (market size of about 52 billion yuan in 2030), systematic offshore wind power implementation-planning and transportation installation (market size of 25 billion yuan in 2030), offshore installation and operation and maintenance ships (cumulative investment of more than 45 billion yuan by 2030).

Although many of the above fields can usher in significant growth in the future, driven by offshore wind power, many of these subdivisions are relatively closed or difficult for most investors to enter. The reason is that the main market participants in these segments (such as floating wind power foundations, submarine cables, and systematic offshore wind power implementation, installation, operation and maintenance vessels, etc.) are all traditional industry players with strong relevance, and can enter the offshore wind power market through their own technology upgrades or product improvements, and have deep accumulation and high barriers. Therefore, for the majority of investors,The technology, AI, system operation and maintenance and other related topics involved in the process of new energy moving towards intelligence are emerging fields of fair competition between traditional market participants and emerging market participants, and cross-border technology-based enterprises may have more advantages, which are subdivisions with long-term investment value and worth cultivating.

First, digital operation and maintenance technology and systems.

Unlike onshore wind turbines, which can be stationed at any time or go to the site for monitoring and maintenance, offshore wind power O&M urgently needs remote digital O&M technology to reduce the workload and personnel load of offshore O&M operations. Digitally-driven O&M technologies and systems include six aspects, namely, passingTestingGrasp the "raw" status and performance data of components and system modules, and install various sensors (temperature, vibration, displacement, etc.).DetectionOperating condition data (units, foundations, submarine cables, etc.) and environmental data (sea breeze, waves, ships, etc.), and then the health status of operation is carried outAnalyticsand carry out anomalies and failuresEarly warning, for O&MPlanning (time planning, route planning, etc.).and maintenance decisions, ultimately to extend the operating life and improve the efficiency and effectiveness of the whole life cycle of offshore wind farms (improve power generation and stability, reduce maintenance costs, etc.).

At present, digital O&M is in its infancy, and "testing-detection-analysis-early warning" is the main practice area of various market participants, while "intelligent O&M planning and decision-making" is the high-level stage in the future. According to the Global Wind Energy Council**, China's offshore wind O&M market will reach nearly RMB 13 billion by 2030 and RMB 75 billion by 2050. Due to the high requirements of digital and intelligent operation and maintenance for enterprises in data processing and analysis, large model construction, AI algorithms, etc., a number of third-party operation and maintenance innovation enterprises with scientific and technological backgrounds will be derived in the future, which are good potential investment targets, and the investment strategy suggests that you can invest in early-stage incubation projects and empower them in industrial resources to help enhance their value.

Figure 6: Digital O&M technology and system capability model for offshore wind power.

Second, O&M robots.

O&M robots can realize intelligent inspection of offshore wind farms, and realize intelligent management of offshore wind power through data collection, remote monitoring, and simple maintenance (such as cleaning, rust removal, etc.), which is expected to replace some professional O&M personnel of offshore wind in the future, reduce the risks brought by offshore O&M, and improve the O&M efficiency of offshore wind turbines. There are certain cutting-edge explorations in this field both at home and abroad. Internationally, typical products include a hovering autonomous launching vehicle owned by a Singapore company, which can provide functions such as transmission and sonar image drawing in high-risk, high-pollution and low-visibility waters, as well as a "hexapod robot" developed by a British company, which can crawl on blades and carry out detection and other work. China will also realize the first application of wheeled robot inspection at offshore booster stations in 2023, and drones will also participate in the inspection of offshore wind turbine blades and other components.

At present, the offshore wind power operation and maintenance robot is in the experimental research and development and early test stage, investors can pay close attention to its commercialization process, technology upgrades, product iterations, etc., for the offshore wind power operation environment has a deep understanding and has sufficient robot software and hardware innovation capabilities of enterprises can be used as potential innovation investment targets, investors can identify the best value investment objects by judging their multi-technology integration capabilities (image recognition, AI, unmanned driving, material science, etc.) and system solution capabilities.

Third, third-party offshore wind farm operation and maintenance services.

Third-party offshore wind farm O&M service providers operate offshore wind farms through service output, and achieve full life cycle extension and reduced O&M costs. The business model of third-party offshore wind farm operation and maintenance services mainly includes operating income by guaranteeing power generation, obtaining power generation revenue sharing through excess power generation, or earning service fees by providing maintenance and micro-upgrading services. Driven by the European market, the design life cycle of offshore wind power will become longer and longer in the future, and offshore wind power OEMs generally only provide 5-year warranty services, and in the remaining life cycle of offshore wind power, they need to be met by third-party offshore wind power operation and maintenance services.

At present, the market share of third-party enterprises in the offshore wind power operation and maintenance market is only 10-20%, which is still small, but with the future development, the market space for third-party offshore wind power operation and maintenance services will be gradually released. Investors can focus on O&M teams that are independent of large wind power companies and have a deep understanding of the offshore wind operating environment. In addition, the target needs to have certain customer resources (such as host manufacturers, wind power developers), and it is better to have a strategic cooperative relationship. Investors can also identify the unique investment value of high-quality targets by evaluating the target's operation and maintenance capabilities and systematic service capabilities in various aspects of offshore wind turbines (main engine, blades, towers, etc.).

In addition to the three investment directions mentioned above, in the future, more new materials, new equipment and new fields related to intelligence will emerge in the development process, among which the potential subdivision of the "little giant" is a good investment opportunity and deserves long-term attention.

Conclusion

Wind power is one of the important ways to help China achieve the "double carbon" goal and even the world to achieve carbon reduction, and the exploration and development of offshore wind power is the only way, and it is also an important area for us to catch up and surpass

Material**:1].Research Status and Prospect of Offshore Wind Farm Maintenance and Management Technology, Liu Yongqian et al.

This article is for general information purposes only and is not intended to be relied upon as accounting, tax, legal or other professional advice. Please ask your advisor for specific advice.