Taiwan promotes green power through T-RECs
Renewable energy certificates generate opportunities in Taiwan’s renewable energy sector
By Tim Ferry
Taiwan has huge goals of supplying 20% of its electricity needs through renewable energies such as solar photovoltaic (PV) and offshore wind by 2025. To get there, it is deploying policy initiatives that have been used to great effect around the world, such as Feed in Tariffs (FIT), and more recently, Renewable Energy Certificates (REC).
RECs are financial instruments that both track and certify ownership of power generated through renewable energy systems, including solar, wind, biomass, and other technologies. Because renewable power sources generally supply power to a common transmission grid that includes non-renewables such as fossil fuels and nuclear, regulators need a way to track how much renewable power has been generated. RECs are used to track this power production, with one REC issued for every megawatt hour (MWh) a green energy generator such as a wind or solar farm feeds into the grid. This REC can then be sold by the renewable energy generator to buyers such as power utilities, corporations, and other buyers. RECs are typically deployed in tandem with Renewable Portfolio Standards (RPS) or other quota systems that mandate that a minimum amount of green power in the mix. RECs can be used in lieu of actual ownership of a green energy power system or a direct, long term contract with a green energy supplier to satisfy the quota.
Taiwan released its version of this instrument, called the Taiwan Renewable Energy Certificate (T-REC for short) in May 2017 by the National Renewable Energy Certification Center (T-REC Center), a unit within the Bureau of Standards, Metrology and Inspection (BSMI). While uptake was initially slow, interest has since surged and so far, 800,000 T-REC certificates, representing 800,000MWh of renewable power, have been issued, according to an email from a T-REC Center representative.
Media reports indicate that market reception for the T-REC programme exceeded government expectations.
“We knew that a lot of deals were coming, but somehow we were still taken by surprise,” division director Huang Chih-wen (黃志文) told media on 24 November, when T-REC sales had only reached 700,000.
Taiwan’s technology sector is a key driver of demand for T-RECs. Taiwan’s technology manufacturers, including semiconductor foundry TSMC and electronics manufacturer Hon Hai, are major suppliers to global IT brands such as Apple, Microsoft, Google, and others. Many of these companies are members of organizations such as RE100, which aim to reduce carbon footprints through the displacement of polluting power generation sources such as coal-fired power plants with renewable energies. RE100 is pushing for 100% renewable energy in its member companies by 2030. Consequently, these global brands are putting pressure on their suppliers to likewise go green. While many companies have installed their own rooftop solar systems or entered into long term corporate Purchasing Power Agreements (CPPA) with green energy providers, these are often insufficient to meet their ambitious goals. T-RECs are purchased to fill the gap.
Demand for T-RECs is also being driven by amendments to the Renewable Energy Development Act in April 2019 which mandate Renewable Portfolio Standards (RPS) requiring large electricity consumers, mostly industrial firms, to source a certain percentage of their power consumption from renewable sources. Again, T-RECs are used to fulfill these mandates when actual ownership of renewable power sources and contracted green energy falls short of the mandate.
While technology firms spearheaded the drive into the T-REC market, the field of T-REC buyers is diverse, with many firms looking to augment their brand appeal, fulfill Corporate Social Responsibility (CSR) requirements, and sincerely reduce their greenhouse gas emissions. Finance, real estate, biotech companies, and even law firms are among the numerous companies that have purchased T-RECs. Winkler Partners law firm, for example, purchased 55 T-RECs at the end of 2020 when its efforts to go 100% carbon neutral fell short. According to a company representative via telephone interview, the law firm had already taken measures to decrease its power demand, installed rooftop solar panels, and entered into direct purchase of solar and wind energy through a Corporate Power Purchase Agreement (CPPA). Yet some of the wind energy it contracted to buy was not available for 2020, but the T-REC programme enabled it to achieve its goal anyway.
To participate in the T-REC programme, renewable energy generators are required to undergo a rigorous inspection by the BSMI, which includes an onsite audit of power generation and metering equipment before approval. Upon receiving approval, metering of the green energy being fed into the grid begins and once 1MWh has been achieved, a T-REC is issued by the center. The T-REC Center likewise provides an online platform upon which T-REC buyers and sellers can meet to engage in transactions. https://www.trec.org.tw/certification_trade
Each T-REC can only be purchased once and can be used by the buyer to satisfy Carbon Reduction Programme requirements or other voluntary and mandatory requirements. According to Steven Chen, a partner in global financial advisory firm KPMG and its head of Renewable Industry, T-RECs have been selling for somewhere around NT$2,700, equivalent to NT$2.7 per kilowatt hour (kWh), higher than Taiwan’s FIT for onshore wind, which stands at NT$2.2~2.3/kWh, but lower than the FIT for large scale rooftop solar, at NT$3.9~4.0/kWh. As participation in T-REC precludes participation in other programmes such as FIT or greenhouse gas mitigation, T-REC generators are typically manufacturers who use most of their green power for their own operations and sell T-RECs as a sideline.
With demand for green energy rising but new supply of solar power and offshore wind experiencing delays, demand for T-RECs is burgeoning. Winkler Partners’ representative noted that the law firm spent considerable efforts acquiring its T-RECs as they were consistently outbid by competing buyers.
Unlike many other markets, T-RECs are directly bundled with the generation of green power, meaning that they can only be sold by the generator. By contrast, in more developed markets such as the US, unbundled RECs can be purchased from a dealer who is not the generator of the power. This adds flexibility to the market, enabling the purchase of large volumes of RECs which have been generated across numerous markets. It likewise enables REC arbitrage in which a dealer can purchase a REC in a low demand market and sell it in a high demand market. According to the US EPA, however, unbundled RECs are difficult to track and can lack specificity. KPMG’s Chen expects that going forward, the T-REC will be unbundled, allowing for third party transactions that will supply liquidity to the market as part of the overall trend towards liberalising Taiwan’s power sector.
The T-REC programme is only one of a series of policy initiatives that Taiwan has taken to promote renewable energy and mitigate carbon emissions. The Executive Yuan is considering a carbon tax on emissions and even stronger mandates on green energy procurement, according to sources. KPMG’s Chen noted that while these measures will “add the financial burden for the existing heavy users which will be an impact on their cost structures and their competitiveness… (they) can increase their competitiveness in the global supply chain because… they will be more appealing to international companies.”
Tim Ferry is an American journalist covering Taiwan’s energy transition