The 2020 European financial services outlook
For all financial services practitioners, 2020 will be a year of dynamic developments.
In 2017, we witnessed in Europe dramatic falls in the price of offshore wind, with governments now looking at “zero subsidy” projects. Governments in Asia have taken notice.
The second “Offshore Wind Day 2017” was held by the Asia Wind Energy Association in Seoul, South Korea on 27 September this year – coming on the back of a similar event in Taiwan earlier in the year. Its success demonstrated a rapidly increasing interest in the development of offshore wind in Asia-Pacific, notably in China, Taiwan, Korea and Japan.
The issues facing the growth of the offshore wind industry in the region are significant, with only very early stage projects currently under development. But the opportunities are enormous.
There is no doubt that governments are now seeing the benefits in supporting the development of the industry in the region, whether from the perspective of energy security, to meet global emissions reduction commitments under the Paris Agreement or simply to facilitate the development of a new industry integrated into global supply chains.
For example, the Taiwanese Government has a very ambitious target of having 20% of its energy coming from renewable sources by 2025, in an environment where currently only 5% of its power is sourced from renewables and the government is looking to phase out nuclear power. While solar energy will play an important part of this, the government is now looking to support potentially as much as 5.5GW (an initial commitment was 3GW) of offshore wind by 2025, much of which will be developed in the Straits of Taiwan, according to the presentation by MAKE Consulting at the conference, having an average water depth of approximately 38m and strong average wind-speeds of 8.6m/s. Blocks have been allocated amongst a number of key developers.
The South Korean Government also has a very ambitious offshore wind target of 10.6 GW by 2035 despite the size of offshore wind currently installed in Korea is only 5 MW. The South Korean Government is looking to support a pipeline of 2.5GW in the Southwest Corridor and around Jeju Island, according to MAKE, having an average depth of 7m with average wind speeds of 7m/s. Under the Renewable Portfolio Standard, for offshore wind, 2.5 Renewable Energy Certificates are issued for each MW of electricity generated, higher than other countries having a similar system. Japan has a sophisticated supply chain, a high Feed in Tariff and particularly around Hokkaido, has good offshore wind resources. However a combination of grid constraints and significant water depth means that Japan has more modest targets.
Of course, the development pipeline in China is significant with plans for some 19GW of coastal offshore wind, according to MAKE.
Despite the enormous opportunity in North Asia, the conference did hear about the real complexities developers are facing in the region. They include:
According to various presenters, financiers are also looking closely at the market. While in some markets such as China, Japan and even Korea where local liquidity will play a very important part of the financing of these projects, we heard from the bankers in the audience of the importance of the international Export Credit Agencies which, at least based on the European experience, will help bring additional liquidity to these projects.
All of the financiers, domestic and international, developers and prospective equity investors continue to focus on some of the important project issues that are emerging and how they are to be managed (or insured against). These include:
That being said, the excitement was clear amongst the developers, financial investors, banks and advisers. There are many years of development ahead and many opportunities. It just requires people such as those who were at the event, to harness their expertise so as to deliver on the promises of regional Governments.
Offshore wind is here to stay. The dramatic reductions in cost witnessed in Europe over the last year have spurred activity globally. The event was very well-attended with participants from local and international utilities, strategic investors and industrial players. Korea has the opportunity to become a key part of the supply chain for the region by building on its existing offshore industries. I expect that the offshore wind industry in the Asia-Pacific will benefit from the region's competitive advantages in areas such as steel, shipbuilding and logistics.
Simon Currie, Global Head of Energy, Norton Rose Fulbright
It is an exciting time for the offshore wind industry in North Asia, as demonstrated at the event so well organised by the Asia Wind Energy Association. The development of the National South West Project and sites near Jeju Island in Korea, and sites in the Straits of Taiwan, along the coast of China and around Hokkaido in Japan are opening an enormous new industry in the region. With such rapid growth, the industry is going to have to build capacity quickly and intelligently. Fortunately the region’s supply chain is well accustomed to delivering on complex infrastructure. When integrated with key global expertise and innovative financing, we will see gigawatts of new offshore turbines installed, delivering low-carbon energy and energy security to the region.
Vincent Dwyer, Head of Energy, Asia-Pacific, Norton Rose Fulbright
The 2nd Asia Offshore Wind Day has been the most successful international event in recent years not only because of high attendance from 198 companies but it successfully conveyed the reason why Asia, including Korea, has great potential for offshore wind power generation and how we should capture these great opportunities. It is certain that the Korean government will expedite renewables development over the next 4-5 years at least - given its commitment at COP21 in Paris to reduce carbon emissions and its aim to pursue a fundamental transition of energy source from nuclear and coal to natural gas and renewables.
A vast majority of people in the room were invigorated by the presenters' positive views around great opportunities in the Korean offshore wind market. This event reinforced market interest and demonstrated the huge potential in offshore wind in Asia, particularly in Korea.
Melissa Park, Senior Associate, Norton Rose Fulbright
The 2nd Asia Offshore Wind Day 2017 ended successfully with strong interest from many participants. It was particularly surprising that such interest came more from the foreign participants rather than Korean participants. Only a short amount of time was given for technology panelists, but still it was enough to realize that there is rapid improvement in Offshore Wind Power technologies. The Korean Government has paid great attention to renewable energy and introduced various supporting policies for decades. The 2012 change into RPS from the FIT scheme was one of the examples demonstrating the Korean Government’s efforts to achieve development and improvement of renewable energy technologies through private parties’ active investments. The Korean Government aims to raise the portion of renewable power production up to 20% of the aggregate power production by year 2030, but given the difficulties in locating appropriate project sites relating to onshore wind farms and solar PV plants, success in offshore wind farm projects with large capacities would be essential to achieve the challenging goal. I believe that we are going to see successful cases of offshore wind farms in Korea as well in a not too distant future.
Insoo Kim, Partner, Lee & Ko
The senior leader panel members' responses to the question "which country would you invest into if you had $100 million and why" were an insightful summary of the event. While Taiwan still appears to be the most attractive offshore market in Asia, other countries such as South Korea and Japan are quickly rising up as rivals. With the Korean government's plan to install roughly 15GWs of offshore wind farms by 2030 and the decreasing Capex for the development, it would be interesting to see how the offshore market in Asia transforms in the coming years.
Peter Jang, Senior Associate, Norton Rose Fulbright
For all financial services practitioners, 2020 will be a year of dynamic developments.
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