China seeks FDI for offshore wind, but is there too much water under the bridge?

The onshore wind behemoth is beginning to wake up. China, the world’s largest wind power market since 2009 and now the location of about 35 percent of the world’s wind power capacity, wants to ramp up its fledgling offshore wind market. The catch? It needs foreign investors’ help in doing so.

China is already the third-largest offshore wind market in the world, according to the Global Wind Energy Council. The 1.2GW it installed in 2017 took its total installed capacity to 2.8GW, only behind the 5.3GW and 6.8GW installed by Germany and the UK, respectively.

However, the country has long wanted these figures to be larger, as it bids to surpass the UK and Germany by 2022. That hasn’t been easy, considering its plans have often fallen by the wayside. For example, a 2011 five-year plan to install 5GW of offshore wind was missed after responsibility for achieving that target was delegated to individual provinces. China’s installations to date have also largely been dominated by near-shore developments, rather than the deep-shore projects seen in Europe.

Building such projects, China realises, may require the help of foreign investors who have experience in their domestic markets; the kinds of investors China has watched flock to Taiwan. Steps were taken along these lines in June, when Denmark’s energy, supply and climate minister Lars Christian Lilleholt and the then Chinese energy minister Nur Bekri reached what was described as a “historic agreement”, positioning Danish companies in a market traditionally difficult to enter for foreign investors.

“China has huge ambitions for their offshore sector,” said Lilleholt at the time. “We now commit Danish know-how and technology to make a difference for China’s offshore wind sector. It is good for Danish companies, but it is also good for China’s green conversion, where offshore wind can play an important role.”

Alas, that agreement may be drowning in the water it was meant to build out from. Aside from Bekri’s resignation in September amid a corruption probe and his replacement by the former president of PetroChina, the country’s second-biggest oil producer, relations between the two countries have since deteriorated further.

The Danish government in September stepped in to prevent autonomous Greenland awarding a build-and-operate contract of its airports to China Communications Construction Company. Two weeks ago, ministers revealed plans to enact a new critical infrastructure bill, with defence minister Claus Hjort Frederiksen explicitly outlining Chinese companies as the cause.

“We want Denmark to be able to stop the sale of critical infrastructure if we do not trust the buyers,” added Kristian Jensen, Denmark’s minister of finance. “We also have the opportunity to say no to an investment if we do not trust that the investment is purely commercial.”

Western governments have long distrusted Chinese capital, but this has reached new levels in 2018. Germany’s explicit exclusion of China State Grid from 50Hertz was a high-water mark, while the chief of Britain’s MI6 this week warned its government about allowing telecoms group Huawei to participate in the country’s mobile network.

So too in the US, where its ambassador to Portugal, George Glass, said in September that it would not allow US energy assets owned by Portuguese group EDP to be sold as part of its takeover by China Three Gorges.

China’s ambitions to build a world-leading offshore wind market with the help of foreign know-how and equipment cannot be fulfilled if the counterparts do not trust that the technology sharing involved will not be leveraged against them or their domestic governments.

A wind-market expert we spoke to recently says Beijing is beginning to realise the predicament it faces in attracting investment from countries and companies that so explicitly distrust it. The question is: can anything realistically be done to change that?

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