Energy & Resources

Offshore entity

Wind power firm’s IPO surges in Shanghai debut


10GW of these to be added in 2021

Protecting five islands from erosion by the sea was a challenge for the Jade Emperor in ancient times, according to Chinese mythology. The emperor called in Yuqiang, the god of sea breezes for advice. Yuqiang summoned 15 giant turtles and tethered the islands to their backs, guaranteeing their protection for the next 60,000 years.

In modern times the sea breeze is part of the solution to China’s efforts to become carbon neutral by 2060. Companies are investing heavily in renewables, but offshore wind power projects have lagged onshore ones because of the cost and complexities involved.

While China leads the world in onshore wind capacity, it is number two to the UK in offshore power. One company that hopes to change that is Shanghai Electric Wind Power – a subsidiary of state-owned conglomerate Shanghai Electric Group – which has just listed on Shanghai’s STAR Market.

In mid-May, the group completed a Rmb3.1 billion ($451 million) initial public offering that was oversubscribed 2,400 times. Unsurprisingly, the stock swiftly traded up from its Rmb5.44 issue price to close its first day of trading at Rmb11.75.

Since then it has slipped back, dropping to Rmb10.1 yesterday. However, investors clearly believe the company is going to be a leader in China’s clean energy revolution.

Until 2020, Shanghai Electric Wind Power had a dominant market share in local sales of offshore wind turbines. According to Research in Futures Industries data, it made the turbines that powered 2.9GW of the country’s 6.9GW cumulative installed capacity at the end of 2019.

In 2020, China installed a further 3.1GW offshore, according to Global Wind Energy Council data, up more than a fifth year-on-year. But that figure is much less than the 48.9GW of new capacity installed in onshore locations, an increase of just over 100% on 2019.

As we reported in WiC528, Chinese wind farm operators and turbine manufacturers have rushed to get orders completed and capacity installed before the central government’s subsidy scheme comes to a final halt at the end of this year. This has prompted concerns about whether sales and margins will hold up when the scheme comes to a close. For example, there were tenders for 14.1GW of new wind power projects during the first quarter of 2021. They were all for onshore installations but many of the tenders included projects that had not yet been approved by local authorities.

Analysts have also noted a widening gap between the highest and lowest bid prices, suggesting growing competition. Shanghai Electric is set for an increase in competitive pressures too, not only from other state-controlled enterprises like Dongfang Electric and Harbin Electric but also from private sector firms such as Xinjiang Goldwind and Ming Yang Smart Energy.

Shenzhen-listed Goldwind said recently that it expects about 35GW to 40GW of new capacity to be installed in China this year, compared to 52GW in 2020. It predicts that offshore windpower will account for (at most) 10GW of that total.

That proportion might change as offshore projects become more cost-competitive. Proponents of offshore power also say that it has an advantage in being concentrated on coastlines nearer to the majority of China’s energy demand. But Goldwind still doesn’t expect offshore windpower to start reaching grid parity until the middle of the decade.

However, there are signs that the government intends to maintain its policy support for the sector. The National Energy Administration wants wind and solar power to account for 16.5% of the country’s energy mix by 2025, up from 9.5% in 2020 and a targeted 11% in 2021. To achieve these goals it said that it intends to establish a “diversified guarantee mechanism to help more projects access the grid”. A number of coastal provinces (Guangdong, Jiangsu and Zhejiang) have also said that they will subsidise offshore wind projects beyond 2021. Likewise the first turbines were installed at another new project off the Shandong coast this month, after its local government announced plans to introduce 12.6GW of offshore wind capacity by 2030.

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