Sustainability & CSR

Reconciling Taiwan's offshore wind ambitions

20 March, 2024

Taiwan’s offshore wind Round 3 has hit a dead-end: global inflation, government focus on protecting local industries and a lack of common ground amongst industry players are likely to accelerate the market downturn. For the offshore wind energy industry to prosper again, all involved parties need to reconfigure and adjust their views.

By Raoul Kubitschek 

Is Taiwan’s offshore wind energy tale living through a modern version of Akira Kurosawa’s 1950 cinematic masterpiece “Rashōmon”? - a story told from different protagonists’ perspective, observing the same incident, but with everyone having their own truth. Only the outcome remains the same, a murdered Samurai. 

As early as 2009, Taiwan took its first foray into offshore wind energy. In 2016, the market took off. The promise of an attractive feed-in-tariff, an application with an Environmental Impact Assessment and future grid access in hand, attracted major European and Japanese players into the market. In 2018, 5.7GW of projects were awarded, in what has been dubbed Round 2. Taiwan was then the darling of the global offshore wind energy industry with a promise of a prosperous future. 

However, in 2018 we also saw the first foreshadowing of sudden policy changes which became a common red thread over the following years – an introduction of localisation requirements shortly before the auctions with no changes to the existing feed-in-tariff structures, introducing localisation escalating from 2021 to 2024. Only the 2020 and 2025 award winners did not have localisation obligations. The 2025 awards granted in 2018 turned out to be among the most competitive bids globally, projecting and hoping for significant cost reductions, going in at below half of the 2018 feed-in-tariff levels. An assumption that never materialized. 2018 also saw the first larger industry-government conflict, when administrative contracts did not proceed and were pushed over in a lower feed-in-tariff bracket for 2019.

2018-2022 were probably the golden years of Taiwan’s offshore wind market. While it’s never been easy, and Covid-19 did the rest, a vast amount of project developments and construction activity fueled the labour market, invigorated traditional local industries, led to infrastructure investment, and attracted significant European foreign investment along the whole supply chain. This all put Taiwan firmly on the global map for offshore wind energy.

In 2022 Taiwan finally decided to open a new round of bidding for 2026-2035, Round 3.

The industry welcomed the opportunity to develop more projects and increase Taiwan’s share of renewable energy. However, the design of Round 3.1 (awarded for 2026/2027) and for Round 3.2 (2028/2029) might have turned out to ring in the downturn of the Taiwanese market. It should have been the beginning of a subsidy free system, sadly chosen at a time when all other energy prices went through the roof and international markets got roiled by inflation.

As so often in life, all stakeholders in these developments hold to their own truth and versions of events:

The government’s perspective  
If you follow official government communications, you will be convinced that both offshore wind and solar PV are well on their way as planned for 2025. In the space of less than two years 5.7GW of offshore wind energy capacity will proudly stand in the Taiwan strait and during the hot summer months, 20GW of solar will cover major demand peaks. 

According to this view, localisation is by all measurements a success. During Round 2, prices have come down so much that in Round 3 they are so affordable and globally cost competitive that offshore wind energy prices are on par with or below fossil fuel energy prices. Projects can be built fast and efficiently: in 2026 we will reach 7.2GW and from there on each year add 1.5GW.

Unsurprisingly on 14 March this year, the Energy Administration (EA) in a meeting on Round 3.2 made it clear to a full room and over 200 online industry participants that the bidding deadline will remain.

The industry’s perspective  
If you follow the international and local press, industry statements from the different industry bodies as well as associations, you will be convinced that the industry is not in a healthy place at all – squashed between global inflation, Round 2 project delays and unviable frameworks for Round 3. Internationally, assumptions are that there has been a 40-70% cost increase of capital expenditure, which, among other factors, led to a failed auction in the UK and rising strike prices in the US.

Unable until now to find industry clients that are ready and willing to sign Corporate Power Purchase Agreement (CPPAs) at healthy prices with the winners of Round 3.1, there have been no CPPAs, no visibility on a business case, which translates into no success in obtaining financing, which might very well lead to a freezing of those projects, or at worst, aborting and writing off those projects altogether. 

The still ongoing Round 2 paints a bleak picture: a quick look on the Taipower website will show that only the two model zone projects, Formosa 1 and Taipower Phase 1 are officially fully registered. Fomosa 2 which is already finished, Greater Changhua which has installed all 111 turbines and are working at high speed on full grid connection, followed by the first power from Yunneng and Changfang Xidao are shown but not as “fully connected”. 

None of these projects has managed to connect within originally scheduled dates. Some have already been delayed significantly. Nearly all projects towards award dates of 2024 and 2025 are progressing with one having a shot at being on time. But there is surprisingly one project awarded for 2025, you don’t hear anything about. We stand at roughly at 2GW of installed capacity, a far cry from 5.7GW.From award to grid connection, it realistically takes 5-7 years, and not 2-3. Based on an educated guess on what you can read publicly in annual reports, and other discussions, Round 2 will slip into 2026, if not 2027. 

If in this truth none of the Round 3.1 projects has signed a Corporate Power Purchase Agreement, we will not see any of these projects begin construction activities before the tail end of 2026, realistically moving more towards finishing in 2028. If they move at all. 

The delay in Round 3.1 has also had serious knock-on effects on the supply chain – as major pre-construction activities run idle, and funds are not available to get to work. How much stamina has the industry in Taiwan to run on empty order books or unrealized contracts? The worry is that if Round 3.1 is not really working, how can Round 3.2 work?

Another complication is that project developers and the overall industry, which exist in a competitive environment and rely on different businesses models, find themselves unable to speak with one voice, posing a challenge for government decision makers. Testimony to this is an open letter asking to postpone Round 3.2, which was not signed by all potential bidders. As well as a statement from one of the global leading offshore wind developers on the heels of the 14th of March EA meeting, announcing that there are no significant challenges in Round 3.2 and they don’t see an argument for a bid delay.

This above “truth” is obviously a very different version from the government’s view of events.

The renewable energy buyer’s perspective
For the companies in Taiwan that are looking to secure CPPAs to satisfy international demand for using green energy in their manufacturing processes, finding the truth might prove rather irritating.

This observer of the market is trying to understand why prices have gone up. What are the drivers and when is the right timing to buy? Round 3.1 or Round 3.2? When will these offshore wind projects really connect to the grid? Will those dates overlap with their own procurement goals?

Part of their truth is that they are used to very cheap energy prices fueling their tremendous energy demand to churn out advanced semiconductor chips and other products for global markets. 

A way out?
Over the last year and months, it feels like those different perceptions of reality have become harder and harder to reconcile. Despite innumerable meetings convened, government agencies visited, interviews and thought pieces published, passionate public Line group discussions conducted, forums and seminars held and open letters sent, we seem to be far away from the actual true version of events. All major stakeholders are seemingly unable to convince each other of what the real version of events is. There is no common truth.

One of the protagonists in Rashōmon, the monk, listening to all the different versions of events that led to the murder of the Samurai, lost his faith in humanity, only to find it restored in the end.

There might be a version of this story where the new incoming government on 20 May 2024 will reassess the situation, but it will be harder and harder as time passes, especially as Round 3.2 bids will be going in before the new government takes office.

Raoul Kubitschek has worked in Taiwan’s renewable energy sector since 2008 and is currently the Taiwan Country Manager for NIRAS. He is concurrently Co-Chair of the ECCT’s Energy and Environment committee.

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