Is China opening up to European utilities?

‍Winter has given way to spring, which means that it’s time to look back at important project M&A deals in wind from the first quarter with our Q1 deals tracker.

We have seen continued activity in the Swedish market and completion of a sizeable deal by Ventient Energy to grow in Europe outside the UK. However, we want to focus on a buyout by EDF and what it tells us about the prospects for investors in offshore wind in China.

What does EDF’s Dongtai deal tell us about China?

Last month, French utility EDF agreed to buy a 35% stake in two offshore projects totalling 500MW from Chinese utility China Energy Investment Corporation.

The Dongtai 4 and 5 schemes are located off the coast of the Jiangsu province, with Dongtai 4 currently being built and construction at Dongtai 5 due to start this year. The utilities have agreed to work together to build and operate the projects, which are due to be completed in 2021. The wind farms are set to require total investment of CNY7.9bn ($1.1bn).

The interest of European utilities including EDF in entering China is clear. The country ended last year with 3.8GW of installed capacity and the Chinese government is aiming to grow to 5GW of offshore wind farms by the end of 2020, and a further 10GW in planning. It is set to take over from the UK as the largest offshore wind market, which makes it attractive.

But that doesn’t mean it will be easy: “China is by far the market with the highest trend of growth. However, entering China requires a complex evaluation and you need to do it with the right foot”, said Joao Metelo, CEO at Principle Power, who is talking at our Financing Wind North America conference in Denver this month. Foreign firms face challenges in obtaining and understanding information about the development and funding process.

This EDF deal is a sign that players in the Chinese offshore wind sector – both politicians and companies – are becoming more open to the outside world.

They want to learn from firms with offshore experience in order to reduce costs and boost competitiveness of projects since the Chinese government committed to large offshore wind auctions. EDF is a decent partner as it has worked on projects before and has 5.3GW in development globally.

There will also be no shortage of European utilities that want to enter the Chinese offshore market. Last month, the UK's Offshore Renewable Energy Catapult and government agency Innovate UK signed a deal with Chinese firm Tus Clean Energy to help British firms enter the country. The consortium opened a £2m research centre in the Shandong province to help British offshore companies to export to China, provide commercial support for Chinese offshore wind developers, and test new technologies on a 300MW project in the Yellow Sea.

However, we don’t expect a procession of foreign companies into China.

The investment by EDF in the Chinese offshore market comes after years of experience in the country’s wider energy market. EDF owns stakes in nuclear and coal power plants in China, as well as in 310MW onshore wind and solar projects. It is a trusted partner.

While others will want to emulate EDF, we are believe that foreign investment in China’s offshore wind market is set to remain a privilege for the few.