On 22 January 2010, the State Energy Administration (the "SEA") and the State Oceanic Administration (the "SOA") jointly issued the Interim Measures on the Administration of Development and Construction of Offshore Wind Energy (the "Measures"). The Measures came into effect on the date of issuance.
Comprising 10 chapters and 38 articles, the Measures set out the procedures for offshore wind energy planning, the procedures and requirements for the grant of development rights, the application and approvals process for project construction and the use of sea space, oceanic environmental protection obligations, construction completion inspection procedures and ongoing reporting obligations of project developers to the relevant supervising authorities.
The most notable points of the Measures include the following:
- The provincial level Energy Administration Department is responsible for drawing up plans for local offshore wind energy development, whilst the provincial level Oceanic Administration Department is to provide preliminary opinions on the use of sea space and on a project's impact on oceanic environments.
- The SEA is responsible for national wind energy planning and management and the examination of planning for each province which possesses offshore wind resources. All offshore wind projects will be subject to the approval of the SEA.
- Project developers will be selected from a concession scheme. Bidding feed-in tariff, construction design, technological capability and performance record will be the elements affecting the Energy Administration Department's decision.
- Unlike onshore wind energy projects, the Measures rule out the possibility of a wholly-foreign-owned enterprises developing offshore wind energy projects. The Measures provide that "developing and investing companies should be Chinese funded companies or Chinese-controlled joint venture companies (in which the Chinese party holds at least a 50% stake)".
- Financial compensation from the winner of the concession will be awarded to those who fail in the concession process but who have conducted work on offshore wind energy projects previously. Such compensation is to be based on the fee standards verified by the Energy Administration Department at the provincial level.
- The right of development will be cancelled if no construction of a project has been started within two years after the granting of approval. The right of use of sea space will be withdrawn by the SOA.
- Project developers are asked to report relevant data, such as operational and meteorological data, to the State Wind Energy Information Centre and the local Energy Administration Departments.
Background of Offshore Wind Power in China and Impact of the Measures
The China Metrological Administration foresees that the total installed capacity of China's near-sea wind energy will reach 200 million KWH lang="EN">and offshore wind energy possesses certain key advantages over its onshore counterpart. For instance, the speed of offshore wind is much higher and is more consistent than that of onshore wind. In addition, the total utilisable hours of offshore wind are also much longer.
Further, and most importantly, the current major obstacle encountered by onshore wind energy is not an issue in the case of offshore wind energy. A report from the Xinhua Agency revealed that last year less than 2 gigawatts of electricity was fed into the grid from Inner Mongolia's 7.05 gigawatt capacity wind power turbines due to the grid's limited transmission capacity. Offshore wind energy, however, is close to the areas of high energy consumption and therefore no long distance transmission is required.
For the above-mentioned reasons, major energy players in China such as China Huaneng Group, China Datang Corporation, China Guodian Corporation, China Power Investment Corporation and lang="EN">China Guangdong Nuclear Power Holding Corporation have been actively working with costal provinces with the aim to secure their positions in offshore wind energy. However, compared with the development of onshore wind projects, offshore wind project development in China is still in its infancy. Early in April 2009, the SAE issued a notice requesting the relevant provinces to draw up offshore wind energy plans, prioritise several wind farms with installed capacity of over 1 gigawatts and submit phase-by-phase construction proposals for approval. Offshore wind planning was reported as being almost completed by now and in early February of this year the SAE instructed 11 costal provinces to launch the first batch of concession offshore wind projects.
The issuance of the Measures is therefore timely. It is widely believed that the Measures will regulate the warmed-up investments in offshore wind energy and build a more healthy and sustainable development environment. By supporting the traditionally under-developed offshore wind power industry, the Measures have been viewed as a step forward the booming wind power sector in China as a whole.
To many industry insiders, the express barring of 100% foreign-owned project developers came as a surprise. No statutes relating to onshore wind energy require developers to be at least 51% Chinese-funded, although, due to restrictions requiring this for CDM eligibility, no onshore wind farm is in reality solely invested in by foreign developers.
Although some experts believe that the new restriction in offshore wind projects will have little impact on foreign investment, many more regard this new restriction as a means of protection for local companies as foreign investors looking at opportunities in this sector will have to cooperate with Chinese partners and give the role of majority shareholder to the Chinese parties to play with. In any case, according to the Chinese media, an official from the SAE indicated that such restriction has been introduced to avoid sensitive information, such as oceanic and ocean current data, being leaked to the outside world.
The introduction of concession scheme developer selection criteria, nevertheless, has been perceived to be more encouraging as construction design, technological capability and performance record will have to be considered in addition to feed-in tariff. China adopted the concession scheme system for onshore wind projects over 50 MW in 2003 and, as of now, 5 rounds of concessions have been held. Although the fifth concession round saw some improvement on pricing, the selection of those offering extremely low wind power prices was criticised by investors. If concession schemes for offshore wind still adopt the rule of "Pricing Determines", offshore wind projects will not survive as the cost of offshore wind projects is more than double that of onshore projects and the technology involved is more complicated. Experts believe that the express reference to three other criteria for consideration in the selection process indicates that the SAE will consider the overall capability of bidders, instead of simply focusing on low price as they did before. This is certainly a positive move.
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