Politics & Law
Laws and regulations shaping offshore wind development in Taiwan
By Owen Chio and Lillian Chen
The laws and regulations described below shape the Taiwan offshore wind industry's development. Rather than highlighting the broader laws and regulations generally applying to all electricity enterprises, the laws and regulations discussed in this article more specifically apply to renewable energy (including offshore wind) and the areas they cover may be categorized as follows:
• The sale (direct sale and wheeling) and wholesale (based on the feed-in tariff) of the power generated from renewable energy power generation equipment (please refer to the Electricity Act and the Renewable Energy Development Act).
• The large power user's obligation to install renewable energy power generation equipment, storage equipment or purchase power generated from renewable energy (please refer to the Renewable Energy Development Act).
• The process of obtaining official allocation of the installation capacity in Phase 3 (the current phase) of the Four-Year Plan of Wind Power Promotion ("Phase 3")1 (please refer to the directions for application for offshore wind zonal development, and the directions for allocating installation capacity of offshore wind zonal development).
• The localisation requirement of the zonal development application (please refer to the directions for allocating installation capacity of offshore wind zonal development).
This article is structured according to the above four categories in turn.
1. The Electricity Act (the "Act") (電業法) (last amended on 22 May 2019) and the Regulations of Electricity Enterprise Registration (the "Regulations") (電業登記規則) (last amended on 2 December 2020) – in relation to the sale and wholesale of the generated offshore wind power.
The Act regulates activities in relation to electricity enterprises. Under the Act, the term electricity enterprise refers to electricity generating enterprises (including renewable energy-based electricity generating enterprises), electricity transmission and distribution enterprises, and electricity retailing enterprises (including renewable-energy-based electricity retailing enterprises).
A renewable energy-based electricity generating enterprise is an electricity generating enterprise that operates renewable energy power generation equipment and sells the power generated therefrom. According to the Regulations, the self-owned capital of the renewable energy-based electricity generating enterprise should be at least 18% of the investment amount.
The renewable energy-based electricity generating enterprise is allowed to transmit the power generated by renewable energy power generation equipment to users by way of (a) direct power supply – through installed power lines connecting directly to users, or (b) indirect power supply or wheeling – through installed power lines connecting to power grids constructed and operated by Taiwan Power Company (a public utility company) and supplying power to users via the power grids.
A renewable energy-based electricity retailing enterprise is a non-public utility that purchases power generated from renewable energy power generation equipment for the purpose of reselling it to users. The renewable energy-based electricity retailing enterprise is prohibited from installing and owning major power generation equipment.
In order to operate an electricity generating enterprise, during the establishment and construction phase, an establishment permit, and a construction permit should both be obtained. Once the electricity enterprise license is issued upon completion of the construction, the effective term of the license is 20 years.
2. The Renewable Energy Development Act ("REDA") (再生能源發展條例) (last amended on 1 May 2019) – in relation to a large power user's obligation to install, store and/or purchase renewable energy (such as offshore wind).
The REDA regulates activities in relation to renewable energy.
The term renewable energy refers to solar energy, biomass energy, geothermal energy, ocean energy, wind energy, non-pumped storage hydroelectric power, energy generated by direct use or treatment of domestic general waste and general industrial waste, or other energy for sustainable use approved by the competent authority.
The power generated by renewable energy power generation equipment shall be purchased wholesale by the public electricity retailing enterprise, based on the feed-in tariff announced by the competent authority and in accordance with the power purchase agreement executed between the parties, except for the power that would be provided to the user by direct supply or wheeling, or for self-use, or sold to the renewable energy-based electricity generating enterprises prescribed under the REDA.
When the chartered capacity in electricity consumption agreements signed by the user reaches a certain capacity (known as a "Large Power User"), the Large Power User shall install on their own or provide space to (a) install renewable energy power generation equipment with certain installed capacity, (b) install storage equipment with certain installed capacity, or (c) purchase a certain amount of power generated from renewable energy together with a certificate; otherwise, the user shall pay a monetary substitution to the competent authority for the purpose of the development of renewable energy.
According to the regulations for the management of setting up renewable energy power generation equipment of power users above a certain contract capacity announced on 31 December 2020, the certain capacity refers to 5 megawatts ("MW").
Further, the application for and transfer of renewable energy certificates should be made in accordance with the implementation regulations governing renewable energy certificates, which was announced on 27 October 2017 and last amended on 16 April 2020. The applicant of the certificate can be a renewable energy-based electricity generating enterprise, a renewable energy-based electricity retailing enterprise or a self-use renewable energy power generation equipment setter, except for those participating in the feed-in tariff scheme and the greenhouse gas emission offset project.
As of 20 August 2021, all the purchases of power generated from renewable energy from the Large Power User are made by way of wheeling instead of direct supply 2.
3. The Directions for Application for Offshore Wind Zonal Development ("Directions for Zonal Development Application") (離岸風力發電區塊開發場址規劃申請作業要點) (announced on 23 July 2021) – in relation to the process of the Bureau of Energy's ("BOE") first review of the qualifications of the applicant of Phase 3 installation capacity allocation application.
The Directions for Zonal Development Application provide the criteria to be met by the applicant, including, among others, (i) the applicant should be the developer of an offshore wind zonal development, or the preparatory office of such a developer; (ii) at least 5% of the investment fund of the development project should be the applicant's self-owned fund; and (iii) the proposed development site should comply with certain requirements, including that the site cannot fall within a sensitive area as defined under Schedule 1 of the Directions for Zonal Development Application, and the proposed instalment capacity of each application cannot be less than 100MW.
In order to review the application, the BOE may invite relevant competent authorities, including the competent authorities of aviation, radar, prohibition or restriction of construction, military control, vessel safety, propagation conservation area for aquatic animals and plants, fishing rights, mineral rights, etc., to form a committee.
Once the application passes the committee's review, it would be recorded by the Ministry of Economic Affairs ("MOEA"), and the MOEA would further submit the environmental impact statement of the application case for the Environmental Protection Administration's ("EPA") review.
4. The Directions for Allocating Installation Capacity of Offshore Wind Zonal Development ("Directions for Installation Capacity Allocation") (離岸風力發電區塊開發場址容量分配作業要點) (announced on 19 August 2021) – in relation to the process of obtaining official allocation of the installation capacity in Phase 3.
The Directions for Installation Capacity Allocation confirms that 15 gigawatts ("GW") will be released for projects with a commercial operation date between 2026 and 2035, under which 9 GW will be released for projects with the commercial operations date ("COD") between 2026 and 2031 (divided into three portions; each portion is 3 GW) ("Stage 1"). The remaining 6 GW will be released for projects with COD from 2032 to 2035 ("Stage 2"), and the allocation rules for Stage 2 will be announced separately based on the experiences of Stage 1.
Among other requirements, the applicant should first obtain the MOEA's recordation under the Directions for Zonal Development Application, the review conclusion of the EPA preliminary committee and the synchronization evaluation letter issued by Taiwan Power Company.
In addition, only an applicant with a qualified application case can participate in the bidding process and the capacity allocation process. Whether a case is a qualified application case is subject to the capability review of the BOE (in relation to technical capability and financial capability) and the Industrial Development Bureau ("IDB") (in relation to the localisation requirement). Technical capability includes construction capability, engineering design, and operation and maintenance plan. Financial capability includes financial soundness and the shareholders' capital capability. The proposed industrial relevance programme should follow the localisation requirement, while the details of the content and form of the industrial relevance programme and the IDB's review standards and process would be issued by the MOEA separately.
Under the bidding process, the bidder that provides the lowest bidding price would be the first rank, and the bidder that provides the second lowest bidding price would be the second rank. This rule applies for ranking all bidders. Subject to the installation capacity to be released for each COD year, in general, the MOEA allocates the installation capacity in accordance with their ranks.
The maximum installation capacity allocated to each case is 500 MW, but the MOEA has the discretion to add an additional 100 MW for each case.
Owen Chio is a partner / senior legal consultant of K&L Gates who focuses his practice on Energy Projects, M&A, Compliance and Disputes.
Lillian Chen is a senior associate of K&L Gates who focuses her practice on Energy-related Regulations and M&A.
K&L Gates is a fully integrated global law firm with lawyers located across five continents. Our lawyers work with clients involved in every aspect of the global energy, infrastructure, and resources space through a variety of legal disciplines, including project development, finance, construction, energy and environmental regulation, government contracting, public policy, cross-border investment, acquisitions, and dispute resolution. We serve project sponsors and developers in power generation, renewable energy, oil and gas, mining, transportation, and social infrastructure, as well as investors, banks, manufacturers, and contractors involved in financing, building, and operating these projects. For more information about K&L Gates or its locations, practices and registrations, visit klgates.com.
[1] According to the Four-Year Plan of Wind Power Promotion announced by the Ministry of Economic Affairs in August 2017, the government planned to promote wind power in 3 phases: Phase 1 – Demonstration Inventive Program; Phase 2 – Zone Application for Planning; and Phase 3 – Zonal Development. Since the capacity allocation under the Phase 2 selection procedure and auction procedure was completed and announced in 2018, we here only introduce the rules for Phase 3 Offshore Wind Farm Policy.
[2] https://www.trec.org.tw/certification_trade_situation/direct_supply.
