South Korea’s investment in a 9.2 trillion won ($8.4 billion) offshore wind farm may help domestic shipbuilders challenge Siemens AG (SIE) and Vestas Wind Systems A/S in the global turbine market.
Hyundai Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co., the world’s three largest shipyards, will likely bid next year for work making and installing turbines at the 2.5-gigawatt project, according to the Ministry of Knowledge Economy. The government will help pay for the offshore farm, the largest announced in Asia, to cut energy imports and promote local technology.
“The offshore wind farm is very important because it will let South Korean manufacturers showcase their products,” said Hur Sung Duck, an analyst at HI Investment & Securities Co. in Seoul. “It’s crucial to have a track record if you want to sell overseas.”
South Korea has also backed smaller wind farms at sea and on land as local companies try to break into the offshore-wind sector that attracted $11 billion in global investments last year. Shipbuilders are drawing on their technological expertise in building oil-rigs.
“South Korean companies can penetrate into this market quite fast because they already have some of the technology,” said Cho In Karp, head of research at Heungkuk Securities Co. in Seoul. “They can not only produce the turbines, but also install them at sea.”
1.39 million homes
The offshore wind farm, to be built at least 20 kilometers (12 miles) off the southern city of Yeonggwang, will have 500 5- megawatt turbines that will produce enough electricity to power about 1.39 million households annually, according to the ministry. As many as 20 turbines will be installed in the first phase by 2013, it said in November. The government also aims to seek private investment for the project.
The country’s three largest shipyards will compete for tenders, along with STX Offshore & Shipbuilding Co., the world’s fourth biggest shipyard, and Doosan Heavy Industries & Construction Co., according to the ministry. None of the likely bidders have supplied turbines for offshore projects yet, according to Bloomberg New Energy Finance. Overseas companies aren’t able to bid.
South Korea, which imports almost all of its energy needs, intends to spend 40 trillion won on renewable energy by 2015, according to the ministry. The plans also include a 60-megawatt offshore wind farm off Jeju Island, which will use Doosan Heavy turbines. The 250 billion-won project is due to be completed by June 2014. Doosan Heavy, Unison Co. and Seoul-based Samsung Heavy also supplied turbines for a 22-megawatt onshore wind farm near Incheon, which started operations in July.
Hyundai Heavy, based in Ulsan, South Korea, fell 2.8 percent to 295,500 won at 10:47 a.m. in Seoul trading. The company, Samsung Heavy and Daewoo Shipbuilding have all dropped about 30 percent in the city this year. Seoul’s benchmark Kospi Index (KOSPI) has fallen 13 percent in 2011, while the Bloomberg Wind Energy Index, which tracks 64 stocks worldwide, has dropped about 20 percent.
Global offshore wind farm capacity may jump to 20 gigawatts by 2015 from about 3 gigawatts last year because of a shortage of available sites on land, according to Bloomberg New Energy Finance. China may install 4.5 gigawatts of offshore wind capacity by 2015, the London-based researcher has forecast.
Offshore parks can generate more power than those on land because winds blow 40 percent more often at sea, according to the European Wind Energy Association. That can help offset construction costs that are generally more expensive than for on-land projects. A 2-megawatt turbine is about 120 meters tall, excluding any underwater support structures.
Risks to return on investment in the offshore-wind sector have deterred commercial lenders, Bloomberg New Energy Finance said in May. The global economic slowdown and European debt crisis may also damp investment and turbine-makers’ earnings. Onshore turbine prices have fallen for three years because of a slowdown in spending.
To help win offshore contracts, the Korean shipyards are touting experience from building structures for oil companies and from laying underwater pipes and cables. In the planned Korea wind farm, cables will need to stretch as far as 80 kilometers to get electricity from the turbines to the onshore substations. Hyundai Heavy has laid underwater gas and oil pipelines that stretch a combined 5,300 kilometers, according to the shipyard.
“That gives us an advantage over companies already in the offshore wind power market,” said Kim Kweon Tae, senior executive vice president of Hyundai Heavy’s low-carbon energy division. “We will be providing a total solution.”
Siemens retains an edge because of its track record in building offshore wind farms and connecting them to grids, as well as its range of support services, said spokeswoman Eva- Maria Baumann.
Experience is “absolutely paramount,” said Anders Soe- Jensen, president of Randers, Denmark-based Vestas’s offshore arm, when asked about competition from South Korean shipyards.
Hyundai Heavy has invested more than 440 billion won in its solar and wind-power businesses, including building factories in South Korea and China. It generated about 600 billion won of sales from renewable energies last year, compared with 11.3 trillion won from building ships, oil rigs and offshore units. It also makes excavators and power stations.
“Experience from the offshore and marine markets can represent a competitive advantage,” said Steen Broust Nielsen, a director at Hojbjerg, Denmark-based Make Consulting, which advises companies like General Electric Co. (GE) and Royal Dutch Shell Plc on wind energy. “It could also address some of the offshore supply-chain constraints, such as the bottlenecks we’ve seen in available vessels.”
Samsung Heavy is building a wind-power factory near its shipyard in Geoje, South Korea. Seoul-based Daewoo Shipbuilding has spent about 72 billion won on buying turbine-maker DeWind Inc. and building a turbine plant in Trenton, Canada.
“Offshore wind power is just getting started,” said Daewoo Shipbuilding’s Chief Executive Officer Nam Sang Tae. The Seoul-based shipyard is also working with local companies on designing products, he said.
Hyundai Heavy is developing a 5.5 megawatt turbine, suitable for offshore farms, and it may make a 10-megawatt unit, Kim said. It is also considering opening wind farms and turbine factories in the U.S. and South America. In the solar-power sector, it has formed ventures with Saint-Gobain Group and KCC Corp.
“This is an inevitable direction we all have to take,” Kim said. “It’s just that it could be bumpy along the way.”
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