Sustainability & CSR
Renewable energy shortage in Taiwan
Taiwan’s current renewable energy targets and roll-out plans are probably underestimating future demand
By ECCT staff writers
In July this year Danish wind energy developer Ørsted and Taiwan Semiconductor Manufacturing Company (TSMC) signed the world’s largest ever corporate power purchase agreement (CPPA). Under the agreement, TSMC will offtake the full energy production from Ørsted’s 920 megawatt (MW) Greater Changhua 2b & 4 offshore wind farm. The wind farm is currently under development and is scheduled to reach commercial operations in 2025 or 2026.
TSMC is taking advantage of changes to electricity legislation back in 2017 that allow private firms in Taiwan to either build their own renewable energy facilities or purchase power from private suppliers. TSMC’s move is part of a global trend towards renewable energy by large corporations. It is one of some 87 companies operating in Taiwan and 250 companies globally that are part of RE100 and have pledged to get 100% of their electricity from renewable energy sources.
Given the size of the PPA, it raises several questions about the capacity and cost of renewable energy in Taiwan. With a single company taking 900MW of capacity, this is very large chunk of offshore wind energy capacity, targeted to reach 5.5GW by 2025 and 1GW per year thereafter. Of course, solar energy accounts for the bulk of Taiwan’s targeted renewable energy capacity (20GW by 2025). However, it seems that even TSMC will struggle to meet its future renewable energy needs.
According to TSMC’s website, as of the end of July 2020, TSMC will have signed renewable energy purchase agreements bringing the company’s total renewable energy capacity to 1.2 gigawatts (GW). But despite the Ørsted deal, TSMC is still a long way from reaching its RE100 goal. According to its website, the company has updated its 2030 goals to target 25% of power consumed by TSMC factories to be supplied from renewable energy (although it is committed to reach 100% for non-fabrication facilities). While the price negotiated for the PPA was not disclosed, it appears that the supply shortage is a bigger issue. If a company with deep pockets like TSMC is unable to secure enough supply, imagine how much more difficult it will be for others.
TSMC’s move may be voluntary but many other large users in Taiwan will soon be required by law to use renewable energy. According to new legislation currently being drafted by the Bureau of Energy, large energy users will be required to purchase or provide renewable energy to cover at least 10% of their usage. According to the draft, which is still pending review and passage by the legislature, heavy users, defined as those which use at least 5MW, would have to purchase renewable energy for at least 10% of their total electricity consumption. It is estimated that just over 500 enterprises in Taiwan will be subject to the new rules.
According to the draft, there will be a five-year year implementation period whereby they need to meet half of the requirement (or 5% of power from renewables) within 3 years and 10% within five years. Those subject to the requirements have the option to install their own renewable energy facilities, purchase renewable energy, or purchase renewable energy certificates.
But there is another important driver of renewable energy demand that authorities may not be fully taking into account. While many companies are volunteering to increase renewable energy usage in order to improve their CSR or ESG credentials, many others may be compelled to do so by their customers. Considering that many SMEs in Taiwan are suppliers to the world’s large brands, sooner or later, they will be asked to comply with demands from their customers to reach RE100 across their supply chains. Hundreds of companies supplying products or components to European or American companies will be in this category. For example, there are something like four dozen Taiwanese companies in Apple’s supply chain alone.
TCI was one of the first Taiwanese companies to voluntarily join RE100. However, according to Remi Lee, the company’s Chief Sustainability Officer, it has been an uphill battle to secure renewable energy in Taiwan. Speaking during a webinar hosted by the Global Wind Energy Council (GWEC) earlier this month, he said that limited current capacity and huge demand is making it difficult for medium-sized enterprises like his to get renewable energy capacity.
One issue is that early entrants into the solar energy market in Taiwan secured high Feed-in-Tariffs (FITs) for supplying their energy and they are, understandably, unwilling to terminate these lucrative contracts. While new capacity is being added, according to Lee, private developers are asking a large premium to regular electricity rates for this. Even though onshore wind is much cheaper than solar energy, there is currently very limited onshore wind supply and also limited plans for expansion, which means that most companies will have to purchase solar power. Another issue is that private developers don’t want to bother dealing with small users and prefer to offer only sizeable allocations to large energy users.
Once the FIT system is phased out and existing contracts end, there will be more supply available and prices should get cheaper. However, this will take several years and many companies are not willing to wait. For them the only options are to compete with other companies for new capacity or certificates, and thereby expect to pay a high price, or build their own capacity.
After weighing the costs of outsourcing to a private contractor versus building its own capacity, TCI is now considering building its own solar plant. However, while on the surface, this may seem to be the cheaper option, it does not take into account the risks of building and operating a power plant. In addition to the high upfront costs, companies operating their own plants would also have to take on all the other administrative and financial tasks and risks associated, including hiring staff, negotiating contracts with banks, insurance companies and multiple suppliers for procurement and then overseeing the process of construction and maintenance. At best, taking this route is an unwelcome distraction from a company’s core business. At worst it could end up becoming a costly liability.