Matters:
Recently, the Information Office of Shandong provincial government held a press conference. According to the relevant introduction, Shandong will give subsidies of 800 yuan, 500 yuan and 300 yuan per kilowatt for offshore wind power projects completed and connected to the grid in 20222024, and the scale of subsidies shall not exceed 2, 3.4 and 1.6 million kilowatts respectively; Offshore wind power projects that are completed and connected to the grid before the end of 2023 are exempted from the construction or leasing of energy storage facilities; Power generation enterprises are allowed to invest in the construction of supporting transmission projects, which shall be repurchased by power grid enterprises in accordance with laws and regulations.
Ping An View:
The introduction of Shandong subsidy policy highlights the importance of offshore wind power to major coastal provinces, and the vigorous development of offshore wind power is expected to become the consensus of major coastal provinces. According to the Shandong offshore wind power subsidy scheme, according to the subsidy scale of 2 million kilowatts, 3.4 million kilowatts and 1.6 million kilowatts from 2022 to 2024, the provincial subsidies required are 1.6 billion yuan, 1.7 billion yuan and 480 million yuan respectively, with a total subsidy scale of 3.78 billion yuan. We believe that Shandong does not hesitate to provide a large number of subsidies to support the development of offshore wind power is the result of overall balancing. The factors comprehensively considered may include low-carbon energy transformation, independent energy supply, land resource constraints and industrial driving effect, highlighting the importance of offshore wind power for Shandong’s energy transformation and economic development. In 2021, Guangdong has introduced a provincial subsidy scheme for offshore wind power. Shandong and Guangdong support the development of offshore wind power through provincial subsidies, which is highly representative; According to the recently released action plan of Zhejiang Province to promote the steady progress and quality improvement of industrial economy, Zhejiang will also introduce support policies for the development of offshore wind power. We judge that promoting the vigorous development of offshore wind power through policy tools is expected to become the consensus of major coastal provinces. The result of this consensus is that China’s offshore wind power has a high growth rate with high certainty.
Provincial subsidies and the cost reduction of the industrial chain itself promote the attractiveness of offshore wind power at the yield level. The recent bidding of offshore wind power projects shows that the promotion of offshore wind turbines with large capacity and long blades has been accelerated, which has promoted the rapid decline of offshore wind power investment cost and the increase of utilization hours. In February 2022, the bid winning results of Shandong energy group’s 500MW offshore wind power EPC project in Dongying sea area were announced. Central South Survey, design and Research Institute Co., Ltd. of Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) group won the bid with RMB 5.63 billion, that is, the EPC cost of the project is RMB 11.3/w. Considering the preliminary costs of construction management, land and sea use, it is estimated that the total investment can be controlled at about RMB 12 / W; Assuming that the project will be connected to the grid with full capacity in 2022 and receive a Shandong Provincial subsidy of 800 yuan / kW, which is equivalent to a reduction of investment cost by more than 6%, the total investment IRR of the project is expected to reach more than 7%. Looking forward to the future, the large-scale wind turbine still has great development potential. The cost reduction driven by the technological progress of offshore wind power may be faster than the decline speed of provincial subsidies. The attraction of offshore wind power in terms of return on investment is expected to be further improved.
Shandong will soon become an emerging large offshore wind power market. Shandong’s offshore wind power development started late. The first offshore wind power project was completed in 2021. In 2021, two projects were connected to the grid, with a total scale of about 600MW. With the clarification of the provincial subsidy policy, Shandong offshore wind power is expected to accelerate its development, and the total installed capacity from 2022 to 2023 is expected to reach the maximum subsidy of 5.4 million KW; Although the probability of new installed capacity of offshore wind power in China declined in 2022, the growth of Shandong market can be expected to more than double against the trend because of the small base in 2021. According to the disclosed information, the total scale of offshore wind power planned by Shandong Province reaches 35 million KW, and the demand of Shandong offshore wind power market is expected to continue to grow in the future.
Investment advice. The introduction of Shandong offshore wind power subsidy policy shows that the vigorous development of offshore wind power is expected to become the consensus of major coastal provinces, and the certainty of industry growth is enhanced. Considering the counter trend growth of Shandong market demand in 2022, it is suggested to pay attention to relevant enterprises with advantages in Shandong market, including Dajin Heavy Industry Co.Ltd(002487) , Qingdao Tianneng Heavy Industries Co.Ltd(300569) etc. in pipe pile link, Baosheng Science And Technology Innovation Co.Ltd(600973) , Qingdao Hanhe Cable Co.Ltd(002498) etc. in submarine cable link, Ming Yang Smart Energy Group Limited(601615) etc. in complete machine link.
Risk warning. 1. The technological progress and cost reduction rate of offshore wind power are lower than expected. 2. In 2022, the new installed capacity of offshore wind power in China is likely to decline, and the performance of some enterprises may be under pressure. 3. Some manufacturing links may intensify competition and lead to lower than expected profitability.
