United Kingdom

United Kingdom

Korea gets set to dip its toe in Scottish offshore waters

SCOTLAND: East-Asian companies want to break into the European offshore wind sector and Europe is extending a hearty welcome. Wind firms from China and South Korea are still only setting up shop, but hopes are that they will quickly come up to speed.

"Europe's offshore wind industry will benefit from the presence of Asian manufacturers as they will bring competition, challenge pricing and make offshore wind power generation more cost effective," says Allan MacAskill, co-founder and director of SeaEnergy Renewables (Serl), a subsidiary of Scottish offshore wind development company SeaEnergy.

Scotland has opened its arms to Asian wind firms the widest among European countries. National policy states that 80% of all energy must come from renewables by 2020, an obligation that Scottish wind insiders say requires 7,000-8,000 wind turbines installed offshore by the target year. They say that only through economies of scale - fanned by Asian newcomers - can installed costs be reduced to a desired level of £2 million/MW (EUR2.3 million/MW) from the current level of about £3 million/MW. MacAskill particularly wants Asian firms to apply their expertise in shipbuilding, offshore platforms and vessel construction to Scottish and wider EU offshore wind.

Ties appear to be growing fastest with South Korea. The Asian country targets as much as 10% of the global wind-technology supply chain by 2020, with a focus on offshore, according to global consultancy IHS Emerging Energy Research. But although South Korean manufacturers are developing multi-megawatt turbines for offshore wind, they must work fast to make up for a relative lack of experience in manufacturing wind turbines or developing projects, says Soomee Moon, trade and investment manager at the British embassy in Seoul. This creates a big opportunity for Scottish and other UK companies to train Korean firms in offshore wind-turbine installation, operation and maintenance, grid connection, design and engineering.

Europe as beachhead

Howard Jang, country manager for Scottish Development International (SDI), which facilitates foreign investment, says Korean companies consider Scotland an ideal base for offshore wind operations - and not only because of the availability of demonstration sites. Just as important is the strong support Korean companies are receiving from Scottish government and the freedom to collaborate with the country's suppliers of core technologies.

The UK offshore wind energy industry is certainly a big enough market in itself, but Jang and others expect South Korean companies in Scotland to launch into other European offshore markets - and even into US offshore wind.

One company to watch is Doosan Power Systems, the UK subsidiary of Doosan Heavy Industries & Construction, which in March announced plans to invest up to £170 million in Scotland's wind industry over the next ten years. Doosan is marketing a 3MW offshore wind turbine and developing a 6MW machine. In a memorandum of understanding with economic development agency Scottish Enterprise, Doosan outlined intentions to set up a research and development centre at its current site in Renfrew, near Glasgow, creating up to 200 jobs. A Doosan delegation also visited the Beatrice deepwater demonstration wind farm off the Scottish coast in 2010.

In addition, Doosan has proposed a wind-turbine manufacturing plant in Scotland, a move that gives its arrival deeper implications. "The UK ... has no indigenous turbine manufacturer and it has some of the largest offshore resources to develop," notes MacAskill. He believes Doosan - through its acquisition of British industrial-boiler technology and engineering firm Babcock Energy from Japan's Mitsui in 2006 - can make a case for being the closest the UK has to a home-grown turbine supplier.

Even though, unlike its European competitors in the offshore sphere, Doosan has no operating machines, MacAskill believes that South Korean companies have a deep understanding of the technology needed for harnessing energy offshore. "They understand marine environments, through ship and offshore oil and gas platform construction, and have the necessary cabling and electrical knowledge," he says.

Chinese players Sinovel and Goldwind are also quickly coming up to speed, he adds. The first large-scale offshore wind farm outside Europe, China's 100MW Shanghai Donghai Bridge project off Shanghai - using Sinovel turbines - went online last June.

SDI last year organised a seminar in Seoul to bring together Korean industrial conglomerates - known as chaebols - and Scottish offshore energy companies such as Serl and utility SSE to discuss opportunities for South Korean shipmakers and heavy industries working with Scottish partners to develop offshore wind projects in both Scotland and South Korea. Among the big South Korean participants were Doosan, Samsung, Hyundai and Hyosung, as well as independent South Korean wind-turbine, component and tower supplier Unison.

Offshore in South Korea

Meantime, Korean firms are getting ready at home. "Unlike typically small-scale onshore wind power projects, offshore projects are seen by large Korean companies as appropriate to deploy their financial and engineering capabilities, as they are sizeable and repeatable," says Kwan Jeong, a Seoul-based expert on offshore floating-vessel design and a consultant on renewable-energy projects. For chaebols, these are the main criteria for entry into new strategic industries and manufacturing, he explains. In addition to Doosan's foray into wind turbines, Samsung and Hyundai are expected to develop 5MW machines by 2012.

A sprawling 2.5GW offshore wind project in the Yellow Sea announced by South Korea's Ministry of Knowledge Economy in November is certain to be a testing ground for such large turbine technologies.

The three-phase project - to cost KRW 9.2 trillion ($8.5 billion) - will begin construction of a test site for 20 5MW turbines by 2013. An additional 180 turbines will be installed by 2016 in the second phase, followed by 300 more turbines by 2019, all with a capacity of 5MW. Suppliers have yet to be announced, but domestic firms Hyundai, Samsung and STX are expected to develop 5MW turbines by next year.

The government is expected to publish more detailed plans later this year. "They are likely to include details of government support and opportunities for different players as a way of achieving a balance among the chaebols," says Kwan.

South Korean companies have good reason to look offshore. South Korea's complex permitting processes, vigorous public opposition to wind power and a lack of grid infrastructure in the regions where the best onshore wind resources are located have all contributed to a lacklustre onshore wind energy industry. The country has developed about 5% of its estimated 5.93GW of onshore wind resource potential and has not brought any new capacity online since April last year.

The government sees real potential in offshore wind and other types of large-capacity renewable-energy generation. A feed-in tariff (FIT) will be replaced with a renewable portfolio standard next year, setting minimum portions of energy procurement that must be met by renewables. According to Kim Gang-won, specialised sector officer at the Ministry of Knowledge Economy, with the introduction of the RPS, 10% of national power supplies will need to be generated from renewable-energy sources by 2022. Under the present FIT regime the figure is 1%.

To achieve the higher renewable-energy target, power producers are expected to favour large-scale generation projects such as offshore wind, tidal power generation and large onshore wind. "This government is supportive of green economic growth engines where civil engineering-based industries such as construction can be involved," says Kwan. "Large-scale offshore wind makes more economic sense over smaller and medium-scale distributed energy projects." More than ten offshore wind projects, ranging from 30-600MW and in total exceeding 4.7GW, are planned in South Korean coastal waters. The developers include Korea Electric Power Corporation and its subsidiaries, as well as construction firms Hanwha, Dongyang and Posco E&C. Several of these projects are expected to come online by 2015.

Two-way street

While the Scottish government, businesses and universities are eager for Asian firms to invest in Scotland, they also want access to this burgeoning South Korean offshore market and have launched an aggressive search for partners there, says Kwan. The prospects are bright for some. Kim says Scottish companies have much to offer South Korea in terms of construction and operation of offshore wind farms, given their knowledge of power systems and the offshore climate. Kwan predicts that the South Korean government will encourage international collaboration as a means of minimising offshore risk - most immediately at the 2.5GW Yellow Sea wind project.

Managing expectations

However, experts cautions that any foreign participation in the giant project will probably be limited to component supply and possibly services.

Foreign turbine suppliers are unlikely to be awarded contracts. Only the most established foreign component suppliers can expect favourable treatment, and their wares will still need to be tested under South Korean conditions, says Kwan. "It will be managed in a way that Korean manufacturers dominate," he says. For their part, Scottish companies are primarily seeking partnership with "nascent developers"

- independent companies with established channels of finance to build offshore projects, says MacAskill, who attended the Seoul workshop and similar events elsewhere in Asia. He acknowledges that there are fewer opportunities at big sites such as the 2.5GW project.

Elsewhere in Asia, Serl has struck up partnerships with developers and other industrial partners to develop offshore wind. These activities include an agreement with Taiwan Generations Corporation (TGC) in 2009 to jointly plan, construct and operate offshore wind farms in Taiwan. "TGC is interesting because it has taken proactive steps in offshore, like setting up a met mast and collecting data," MacAskill says. Serl is also in the process of evaluating a possible joint venture with China's Nantong Cosco Ship Steel Structure Company, the world's second-largest shipbuilder after South Korea's Hyundai Heavy Industries China Ocean Shipping. Nantong is interested in supplying jacket foundations together with Serl, which was in turn contracted by SSE and other partners to help develop the Beatrice demonstrator wind farm 25 kilometres off Scotland's east coast - the first offshore wind farm to use 5MW turbines and jacket foundations.

With Europe hoping to install 40GW of offshore capacity by 2020, China targeting 25GW by 2025 and South Korea itself eyeing nearly 5GW offshore in coming years, the avenues are many for international collaboration by wind businesses at sea.

SCOTTISH DEAL TAKES WIND SECTOR BY SURPRISE - RELATIVE UNKNOWN COMES OUT OF THE WINGS

The announcement in March by Doosan's UK business to invest up to £170 million (EUR192 million) in Scotland's offshore wind power industry with the support of economic development agency Scottish Enterprise came as a surprise for the sector.

For many observers, the one to watch has been South Korean industrial giant Samsung. The past 12 months in wind have been busy for Samsung. The company has gained certification for its 2.5MW wind turbine, completed a turbine factory in South Korea, pursued wind farm opportunities in Canada and Macedonia, worked on a 5MW turbine for offshore wind and, in February, won a contract to design and build a vessel for transporting and installing turbines for Swedish offshore wind farm developer Vattenfall.

Doosan became a leading global player in steam power-plant, boiler, turbines, nuclear and carbon capture technology through its acquisition in 2006 of British industrial boiler engineering firm Babcock from Japan's Mitsui and of Czech transmission equipment manufacturer Skoda Power in 2007.

Like Samsung and other Korean industrial conglomerates - or chaebols - Doosan sees wind, and offshore wind especially, as a strategic market with high growth potential that complements many of its existing industries. In 2006 Doosan was picked by the Ministry of Knowledge Economy to develop a 3MW turbine technology in a state-funded project, installing and testing a prototype on Jeju Island after development was completed in 2009.

In March 2011, on receiving international certification from the Offshore and Certification Centre - a subsidiary of German wind energy institute Dewi - for the turbine, Doosan raised the stakes, announcing it will aggressively ramp up its wind power business both in South Korea and foreign markets. The recent announcement with Scottish Enterprise could result in Doosan building a prototype 6MW offshore turbine now in development.

According to Kwan Jeong, a Seoul-based independent adviser on renewable energy who trained as an engineer and started his career in offshore floating-vessel design, chaebols such as Doosan need assurance that potential markets abroad can sustain investment. But developers in the UK and other offshore markets likewise need to be certain that Doosan will be able to meet their challenges.

Allan MacAskill, co-founder of Scottish offshore wind developer SeaEnergy Renewables, is confident. "Europe's offshore wind industry is very much open," he says. "Despite having no operational turbines to refer to, a company like Doosan will potentially be able to leverage its existing relationships with utilities and offshore players established by other divisions of the business to help it break into offshore."

BIRTH OF OFFSHORE SECTOR
Some offshore wind projects in South Korea
Location Developers Capacity
Incheon Kosep1, Hanwha Construction 97.5MW
Jeju KHNP2, Doosan Heavy Industries 30MW
Chunnam Posco E&C 3 600MW
Chunbuk Posco E&C 3 100MW
Chungnam Taeahn Wind Develop 97MW
Chunnam Dongkuk S&C, DMS 93MW/100MW
Chunnam Posco E&C, Kosep 360MW
Chunnam Dongyang Construction 210MW
Busan Kospo4 350MW
Kyunggi Posco E&C, Kosep 150MW
Total 2,187.5MW
1 Korea South East Power Company; 2 Korea Hydro & Nuclear Power Company;
3 Posco Engineering & Construction Company; Korea Southern Power Company
Source: UK Trade & Investment, South Korea

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