An agreement for China's Ming Yang Smart Energy Group Ltd. to install its giant 18.5-MW offshore wind turbines at a project in Germany could reignite the race for scale among turbine manufacturers, according to industry observers, who added that the order comes with bankability and deliverability risks.

Ming Yang and German asset manager Luxcara GmbH announced a preferred supplier agreement July 2 for 16 of Ming Yang's huge turbines to be used at Luxcara's Waterkant project in the German North Sea.

The deal — the largest agreement to date for Chinese wind turbines in the EU — occurred despite a concerted effort by policymakers in Brussels to boost the domestic wind supply chain. Less than three months ago, the European Commission launched an inquiry into Chinese wind original equipment manufacturers (OEMs) on competition grounds. The industry has also voiced concerns about cybersecurity.

Still, the prospect of Chinese OEMs in Europe has grown recently, partly due to notable progress by the companies in emerging wind markets and partly to Western OEMs raising prices in light of rising raw materials costs.

Both developments have made cheaper Chinese alternatives more attractive, with major European wind developers seen publicly courting Chinese suppliers. On the same day that Luxcara announced the agreement with Ming Yang, a delegation from Germany's RWE AG — led by Offshore Wind CEO Sven Utermöhlen — visited Ming Yang's operations in China.

"It was always a matter of 'when' rather than 'if' the first order would come through, especially given the price gap between Chinese and Western turbines," said Indra Mukherjee, associate director of global clean energy technology at S&P Global Commodity Insights.

Race for scale reignited

At 18.5 MW, the turbines set to be delivered by Ming Yang to Luxcara are notably bigger than any of the products offered by the major Western offshore wind manufacturers including Siemens Energy AG, Vestas Wind Systems A/S and GE Vernova Inc., whose product suites top out at about 15 MW.

Earlier this year, GE Vernova decided to scrap plans for 17-MW or 18-MW versions of its Haliade-X offshore turbine, instead focusing on its 15.5-MW "workhorse product."

Jefferies analyst Lucas Ferhani described the GE Vernova decision as "positive news for the entire sector," helping stem the race for ever-larger turbines that the industry said has put undue stress on the supply chain.

However, that race could restart if Luxcara's experience with Ming Yang in Germany proves to be a success.

"If the project goes well and the wind farm delivers on its promises then the Western OEMs might be forced to develop and commercialize an 18-MW turbine product, which is costly and risky," Ferhani said in an email. "It could also lead to issues in the supply chain as we have seen with the rapid upgrades in technology platforms recently."

The short-term risk for Luxcara is the ability of Ming Yang to deliver the project.

"Will we see for the first time Chinese vessels installing turbines in European waters, or will we see European contractors installing for the first time very big Chinese turbines?" said Adrian Bucica, senior adviser at offshore wind consultancy Green Ducklings.

Long-term risks stem from how the wind farm operates and whether the developer receives the operation and maintenance services it needs from Ming Yang, according to Ferhani. The latter has been a cause for concern regarding Chinese turbines installed in Europe and a reason for going with Western suppliers offering greater on-the-ground support.

'Ming Yang turbines or no project'

Luxcara's Waterkant project, at less than 300 MW, is smaller than most offshore wind farms being developed in Europe today, at a time when observers noted high interest rates and capital costs make it harder for smaller projects to pencil out.

The project is "likely not viable" from a returns standpoint with turbines from Western manufacturers like Siemens Energy or Vestas, according to Christian Busdiecker, managing partner at consultancy Greentech Partners.

"From Luxcara's perspective, it is Ming Yang turbines or no project," Busdiecker said in an email.

At the same time, the project's small size allows it to be a test for Ming Yang's technology in Europe.

"Chinese OEMs, especially Ming Yang, are very interested in proving their capabilities in European projects, and are willing to take even smaller projects with favorable conditions for developers," Bucica said in an email.

"A smaller project is not a bad thing when you want to test new technology," Bucica added. "We can see that deploying new technology by less experienced OEMs in very large projects ... could be quite challenging and costly for OEMs."

Beyond technology and installation, another major question is how the Waterkant project will be financed, with Mukherjee pointing out that Ming Yang's 18-MW to 20-MW turbines are "relatively untested with no established track record, which financiers will likely consider during the final investment decision."

Bankability is so far an "unresolved topic" for Chinese turbines in Europe, according to Busdiecker, adding that substantial warranties would be needed, possibly at a state level. Alternatively, Ming Yang itself could provide financing for the project.

"Then Ming Yang is substantially on the hook," Busdiecker said.

Either way, developers and OEMs alike will be keenly observing Waterkant's development to see whether Luxcara and Ming Yang's pioneering venture can be replicated, according to Bucica.

"The whole industry will watch this project to learn more about the Chinese wind turbines," Bucica said.