Rush to beat subsidy end puts the squeeze on supply chains

China might struggle to meet growing offshore demand, while construction and connection bottlenecks could lead to project cancellations in the US.

China’s supply chain has dealt with annual onshore installations of 30GW before (pic: LM Wind Power)
China’s supply chain has dealt with annual onshore installations of 30GW before (pic: LM Wind Power)

China is on course to install more than 60GW of new capacity in 2019 and 2020 combined, while the US also faces a record year in 2020, as their onshore industries race to complete projects before federal subsidies are cut off in 2021. But can the supply chains cope with the influx of demand?

China ups the ante

New regulation introduced in China earlier this year will end subsidies for onshore-wind projects approved from 2021.

Projects approved this year or next must be online by the end of 2021 as auction ceiling prices also fall, ahead of being phased-out completely.

As a result, the Global Wind Energy Council (GWEC) expects a rush of installations as operators maximise support payments.

According to GWEC’s latest figures, China added 9GW of onshore capacity in the first half of 2019 and is set to reach 25GW for the whole year.

A further 28GW could be added in 2020, with another 7GW installed offshore over the next two years.

Given that China previously installed more than 30GW in a single year (2015), GWEC is unconcerned about the supply chain being able to handle this rapid growth.

Feng Zhao, strategy director at GWEC, said the Chinese supply chain was set up to install similar levels of turbines as expected over the next two years, and pointed out that most machines are still in the 1.5-3.0MW range.

Tariff changes

But the timing of the rush is unfortunate for the offshore industry, he warned.

The phase-out of the onshore subsidy coincides with the auction ceiling price for offshore wind falling to CNY 750/MWh ($119.5/MWh) for projects approved in 2020, although bids are expected to come in far below this.

Currently, projects approved before the end of 2018 will receive a feed-in tariff of CNY 850/MWh, provided they are fully commissioned by the end of 2021. This means some of the 40GW of already-approved capacity will miss out on the higher tariff.

GWEC thinks China’s current offshore supply chain can support around 3GW of new capacity a year.

Growing pains

Zhao said there are concerns over how the supply chain in China could cope with the offshore wind rush to 2021 before it is established on a larger scale.

This significant ramp-up could squeeze the manufacturing supply chain, particularly for the supply of blades, bearings and cables, he added.

Vessels could be another critical issue, with not enough available to cope with the larger turbines.

There are far fewer offshore-sector suppliers, and onshore firms are reluctant to invest in upgrading their facilities while their onshore order books are full.

However, in a sign that China is getting ready to go big on offshore wind, Zhao said the vessel fleet had increased from just five in 2015 to more than 30 today.

From 2021, GWEC predicts an annual offshore wind market of around 5GW. By then, the supply chain will have built up to accommodate the larger offshore wind turbines and balance-of-plant assets.

It is also being whispered within the industry that by 2025, offshore wind in China could reach grid parity, just two years behind Europe.

Boom and bottlenecks in the US

The US, meanwhile, is facing its own installation boom.

With the production tax credit finally set to expire, the US could see up to 14.6GW of new onshore wind capacity added in 2020 alone, according to the latest research from Wood Mackenzie Power and Renewables (WMPR).

However, this is likely to lead to bottlenecks and interconnection queues.

"The lack of available logistical resources will begin to cause schedule rearrangements and delays that will grow more apparent during the first and second quarters of 2020," WMPR senior analyst Anthony Logan said.

As a result, some 6.6GW of new capacity planned for completion in 2020 might not begin operating until 2021, while a further 1.5GW might be cancelled altogether due to the expected delays in construction.

WMPR forecast the US to add 12.3GW in 2021 but then fall to 5.9GW in 2024 — at which point different questions will be asked of the supply chain.

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