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China changes rules to prevent offshore price war

CHINA: China is trying to avoid a cut-throat price war for its first offshore wind tender - by axing the cheapest bidder from the race.

The move comes as the Far East superpower attempts to avoid replicating mistakes from its onshore wind tenders in the mid-2000s, whereby a raft of cut-price bidders accepted untenably low prices for their output.

Consortia comprising wind farm developers, turbine producers and equipment installation firms will contest the tender for space off the coast of Yancheng City. Although those offering lower prices will still be at advantage, the Chinese government is taking steps to ensure that other factors will be taken into account.

China kicked off public tender for its first offshore wind farm concession projects this spring. The tender is due to be completed during September.

But a government official, who does not wish to be named, reveals that both the most expensive and the cheapest offer will be eliminated. The source adds that the power prices developers said they would accept for their power output would account for only 60% of all criteria used to decide the winners. The other 40% will be based on whether bids are technologically robust and have reasonable operational management plans in place.

"This mechanism will help ensure we will not repeat the old story of land-based public tenders for concession projects, in which the businesses offering extremely low power prices will win the tender," says the unnamed source.

Once the highest and lowest bidders are eliminated, the average offered power price in the overall public tender would be calculated. Then, a target power price will be determined by reducing the average price by 10% (see chart). The tenders would enjoy higher scores for their power price if their offer is close to the target price.

In July 2009, China's National Development and Reform Commission issued a circular on improving the prices of onshore wind farms to access power grids. This stipulated four benchmark prices from CNY0.51-0.61/kWh ($0.075-0.09/kWh) for wind farms in different regions to access power grids. But the post-tax power grid access price for China's only pilot offshore project, the Shanghai East Sea offshore wind farm, is much higher, at CNY 0.978/kWh.

This round of public tender for offshore concession projects are all located in Yancheng City, in east China's Jiangsu province. They are split into 300MW in Binhai, 300MW in Sheyang, 200MW in Dafeng and 200MW in Dongai. Binhai and Sheyang are offshore wind farms; the other two are inter-tidal projects. The deadline for submitting bids is September 10.

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