What you need to know
Massive investment in solar and wind power will be needed if Taiwan is to phase out nuclear energy at the same time as meeting its carbon abatement commitments.
The “Energiewende” – energy transformation – of Germany’s power supply has vaulted that industrial giant to the forefront of global renewable energy development. Anxiety about nuclear energy in the wake of the Chernobyl disaster, as well as concerns with global warming and energy security, led Germany in 1991 to enact the Feed-in Act, the world’s first national Feed-in-Tariff (FiT) employed to stimulate investment in alternative energy.
Germany now generates some 30% of its total electricity from renewable energies, including solar, wind, biofuels, and hydro. It is also a leader in the manufacture, design, R&D, and installation of renewable energy facilities, and its renewable energy policies serve as reference for the rest of the world.
Taiwan is now on the path towards its own Energiewende that is in some ways even more ambitious than Germany’s.
The Tsai Ing-wen administration that took office this May has vowed to eliminate nuclear power in Taiwan, while simultaneously slashing greenhouse gas emissions by 20% from 2005 levels in line with both domestic law and international commitments. At the same time it pledges to maintain an adequate, reliable, and affordable electricity supply to power Taiwan’s industrialized economy.
More than replacing the 16% of electricity currently generated by nuclear power, the government aims to see 20% power generation from renewables, based on a planned 20GW of installed solar power capacity and 3GW of offshore wind power. The administration also expects energy conservation efforts to save the equivalent of generation from two nuclear power plants, and envisions investments in renewable energy as sparking new global business opportunities for Taiwan’s industrial sector. And all of this is to be achieved in less than a decade – by 2025.
“Taiwan has the necessary conditions to develop all kinds of green energy,” Tsai told the media during her campaign for president, touting the island’s wind and solar resources as well as its technological capability. “Integrating resources could shape Taiwan into the next research and development center in the Asia-Pacific region.”
More recently, Tsai told the International Semiconductor Industry Association (SEMI) and the Taiwan Semiconductor Industry Association (TSIA) on September 8 that in light of global green energy trends, “the provision of adequate, transparent, and green electricity at competitive prices” is “a prerequisite for investment” in the nation’s industrial sector. Those global trends can be seen from a 2015 forecast by the International Energy Agency (IEA) that renewables will account for 50% of power generation in Europe by 2040, with China and Japan at 30% and the United States and India at 25%.
For Taiwan, the 20% level by 2025 is a bold plan that many feel stretches credulity, but the administration is sticking with it. In fact, the government has taken concrete steps to clarify regulations and policies to give confidence to investors. In addition, an Office of Energy and Carbon Reduction (OECR) was established under the Executive Yuan this summer, tasked with coordinating efforts across ministries and agencies aimed at realizing these goals.
Yang Jing-tang, OECR’s chief executive officer, confirms that the government will invest NT$1.3 trillion (US$41 billion) to fund renewable energy development, but adds that details of how this money will be spent won’t be finalized until year’s end.
Response from the global renewable energy industry has been highly favorable. In August, the Swiss investment firm Partners Group, together with local solar developer Sinogreenergy, announced a US$200 million project for 500 megawatts (MW) of domestic solar power to be installed over the next three years. Sinogreenergy is Taiwan’s largest solar power producer with 10% of existing solar installations. Cathay Life Insurance is committing an additional US$20 million to the project, and Sinogreenergy president K.H. Chen adds that another US$700 million will be financed through debt, for total project cost of over US$900 million.
The Equis Fund, a global private-equity firm that has invested heavily in renewable energy and infrastructure across the Asia-Pacific, is reportedly planning on investing NT$15 billion (US$473 million) in Changhua County to build renewable-energy power plants, including both solar and wind, with a capacity of 250MW.
Taiwan’s budding offshore wind-power market is also attracting broad interest. More than 100 companies and organizations from Europe and around the world attended the 2016 Taiwan Wind Power Investment International Conference and Green Energy Expo, held August 24-25. Expo attendees noted the enthusiasm for wind power in Taiwan, and were very impressed that Vice President Chen Chien-jen toured the venue and expressed his support to the exhibitors.
“There are a lot of positive attitudes towards offshore wind here,” observes Matthias Bausenwein, general manager in Asia for Danish offshore wind firm DONG Energy, which has been looking closely at the Taiwan market. “Targets are set, the subsidy is there, and you have authorities that are dealing with it.”
Taiwan is further along the development path towards deploying offshore wind than many of its neighbors, notes Bausenwein, who considers Taiwan a comparatively mature market. “Our analysis is that this is a very good working environment to do offshore wind,” he concludes.
Yet during the same week as the offshore wind expo, Danish offshore wind-installation firm A2SEA failed in efforts to install two monopiles – cylindrical steel tubes pounded into the seabed to serve as support structures for offshore wind turbines – ordered by Taiwanese wind-power developer Swancor Renewable Energy Co. as part of its Formosa 1 Offshore Wind Farm (OWF) pilot project. According to media reports, the monopiles built by Chinese firm ZPMC were made unusually large to withstand the harsh conditions of the Taiwan Strait. Reportedly they are each 90 meters in height, spanning nearly seven meters in diameter and weighing some 700 tons.
Industry sources say those dimensions may have exceeded the capacity of the ships tasked with installing them. During the first week of September, A2SEA withdrew from the project, citing “technical failure of equipment and project delays from the foundation contractor aboard the vessel.” The project has reportedly been taken over by Singaporean firm GO Offshore, a subsidiary of Otto Marine Ltd., but is again running into issues, this time regarding the critically endangered Taiwanese humpbacked dolphin. Environmental groups allege that the company is violating rules on when it can operate the pile drivers, which can endanger the hearing of the dolphins, and is threatening to force Taiwan’s Environmental Protection Administration to take action.
This US$8.33 million pilot project, Taiwan’s first foray into offshore wind power, was to have begun supplying power to Taiwan’s grid by the end of 2016, but that now that seems improbable.
Clearly, the administration’s goals for transforming the energy sector are likely to be challenged by facts on the ground and in the water. Offshore wind-power development, for example, must take into account the frequent earthquakes and typhoons that occur in this area. Additionally, in densely populated Taiwan it is hard to find sufficient open areas for installation of the largescale solar farms that will be essential to reach 20GW of installed solar capacity.
Even bigger obstacles, however, might be bureaucratic red tape, a frequent lack of coordination among relevant government agencies, and an overly complicated approval process for renewable energy projects. “There is a lack of certainty, stability, and planning in the renewable energy sector,” observes Robert Herzner, vice general manager of DEinternational Taiwan Ltd., a service unit of the German Trade Office.
Sinogreenergy’s Chen describes the application process for solar-power installations as “very, very complicated,” requiring months of in-depth analysis of the impact of the power source on the grid. He says he has had to recruit retired engineers from the state-owned monopoly electricity utility, the Taiwan Power Co. (Taipower), to do the analyses.
On the other hand, firms with global experience in renewable energy downplay these concerns. “You don’t have a one-stop shop yet like we have in other markets, but it’s okay,” says Bausenwein. Comparing Taiwan’s current situation to that of Germany in the early 1990s, he notes that the bureaucratic process is generally more complicated in the early stages of development as governments seek to incorporate a variety of views into their decision-making.
As of 2015, according to Bureau of Energy (BOE) statistics, Taiwan already had 642MW of installed onshore wind-power capacity, but considering Taiwan’s limited land area and the frequent opposition from nearby communities, little opportunity is seen for further expansion. Attention has thus turned to offshore wind power, which offers a substantially higher FiT – but also poses substantially greater risk. Onshore wind pays some NT$2.88/kWh, while offshore offers NT$5.98/kWh.
The government-backed Industrial Technology Research Institute (ITRI) estimates the potential offshore wind power capacity in the Taiwan Strait at 15.2GW. The wind speeds, averaging some 11 meters/second, are considered to be among the best in the region.
Although the Tsai administration is committed to building 3GW of offshore wind power by 2025, and a total of 4GW by 2030, industry professionals say that even more would be desirable. But Taiwan is short of the experience and resources needed for offshore wind development. Necessary research into environmental, geological, and other conditions has yet to be completed, and the regulatory regime remains only partially developed.
To bridge these gaps, Taiwan has been inviting experienced offshore-wind developers, primarily from Europe, to participate in building the market. For example, the foundations for all 32 of the offshore wind turbines planned for the Formosa OWF 128MW offshore wind farm being developed by Swancor were designed by Danish engineering consultancy group COWI. As mentioned above, Swancor is currently trying to install two monopiles in the Taiwan Strait that would eventually support two 4MW Siemens turbines on 100 meter-tall masts, which will serve as prototypes for the entire project.
The European firms express confidence that offshore-wind facilities in the Taiwan Strait can be designed to withstand the strong typhoons and earthquakes that the area is subject to. While wind speeds can reach 250kph or more during a typhoon, experts say the bigger danger is from massive waves that can pummel the windmills’ substructures. But research indicates that waves in the Taiwan Strait reach a maximum height of 19 meters during a typhoon, similar to those in the North Sea where offshore wind power is already being deployed. Earthquakes are another factor, but developers are also confident that they can engineer windmills sturdy enough to withstand seismic events.
“We know that these are different conditions than in Europe, but we think that there is no issue in designing against typhoons or earthquakes,” says Bausenwein of DONG.
In early September, a group of American companies that included ABSG Consulting group, a marine and offshore certifications firm, along with Keystone Engineering from Louisiana and California’s Principle Power Inc., signed an MOU with representatives from Taiwan’s China Steel Corp., Taiwan Wind Turbine Industry Association, and the CR Classification Society under the auspices of the Industrial Development Bureau. The MOU is intended to apply the offshore wind technologies developed by Keystone Engineering and Principle Power to design offshore wind foundations better able to withstand the impacts of earthquakes and typhoons in the Taiwan Strait.
According to ITRI, some 60% of Taiwan’s total optimal offshore wind zones are located in waters deeper than 50 meters, which is the limit for fixed-foundation offshore windmills. At the wind energy expo in August, French energy firm EOLFI therefore proposed the use of floating turbines, a technology that has only recently become commercially viable. Besides enabling wind power generation in deeper waters, the floating turbines have less impact on marine ecosystems, and they can be built onshore and towed to sea, reducing installation obstacles, says E. Joél Cicérone, EOLFI’s Greater China head.
One of the central questions surrounding offshore-wind facilities is the possible impact on fisheries and marine ecosystems. Passing the required environmental impact assessment (EIA) is therefore another one of the challenges these projects face. For example, the recently identified subspecies of the Chinese white dolphin, the Taiwanese humpback dolphin, is critically endangered and may stymie development efforts in certain parts of the Taiwan Strait.
In expectation of potential opposition from politically influential fishery organizations, developers recognize the importance of engaging with these groups and coastal communities early in the process to win them over by offering social benefits or creating funds to compensate for losses.
Taiwan is already relatively strong in a number of industries relevant to the offshore-wind business, including steel, shipbuilding, and carbon fiber for the blades, but meeting the exact needs of offshore wind developers will require investment in specific capabilities. The short timeframe set by the government, less than the eight to nine years typical in Europe, means that suppliers need to start investing now.
“We’re hoping to see a variety of players, including local players, engaging in offshore wind, but it’s crucial to start investing now,” says Bausenwein. “But in order to invest, you need some contract demand. Otherwise, who will invest in the installation vessel, who will invest into the monopile manufacturing, or electrical components?”
Offshore-wind developers emphasize that in the current market-building phase, a stable regulatory framework is the key to success. Such a framework is described as necessary to give developers the confidence to enter the market, and their entry then creates demand to be met by local suppliers. Already local resources are being employed in the data-collection phase for feasibility studies and EIAs.
Industry players also see a strong need for redevelopment of industrial harbors in Taichung and Changhua to meet the scale of offshore wind turbines that can stand 100 meters above the sea and have rotor diameters of 120 meters. Upgrading and expanding the grid will likewise be necessary to ensure the viability of offshore wind.
While offshore wind has taken the limelight, Bart Linssen, head of German wind-turbine maker Enercon’s local subsidiary, SolVent, remains committed to onshore wind. “Offshore is not going as smoothly as anticipated and we expect a return interest in onshore,” he noted in an email.
Linssen says SolVent is proposing a 10GW onshore wind-power project that would seek to overcome any community resistance by offering local investment as well as employment for around 2,000 people. The project would place Enercon’s 4MW turbines in areas where wind speeds average 7 meters/second, generating sufficient return on investment off of Taiwan’s onshore FiT of NT$2.88/kWh.
Like many of the offshore-wind developers, Enercon looks at Taiwan as a potential hub for regional development and manufacturing. Taiwan offers “the right location, capable manpower, and acceptable labor costs,” Linssen notes. He says the company would consider investing in blade, generator, and assembly facilities on the island “if there is a market.”
“What the Taiwan government has to do is to create structures for easy setting up of community-invested windfarms and speeding up the permitting process,” he wrote. He suggests guaranteeing connection to the grid and eliminating the need for a separate EIA for each project, since “all wind-turbines are basically the same, so you can do a general EIA for the whole area along the coast, excluding certain areas.”
While wind power is attracting much attention from international investors, the Tsai administration is planning an even bigger deployment of solar photovoltaic (PV) facilities – 20GW of installed capacity by 2025. The island currently has some 962MW of installed solar PV (according to the Million Solar Rooftop program website), which may exceed 1GW by the end of 2016. The government recently announced a short-term goal of 1.44GW of additional capacity by mid-2018.
Is Taiwan ready for such a rapid and massive ramp-up of solar power?
So far, the result of the government’s Million Rooftop initiative is that nearly all of Taiwan’s current solar-power capacity is installed on rooftops, where it enjoys substantially higher FiTs. Ground-mounted solar arrays will receive FiTs of NT$4.35/kWh in 2017, while rooftop arrays will get NT$6.02/kWh. As rooftop installations are generally smaller, typically under 500KW, they are designated as “Type 3” under Bureau of Energy regulations, avoiding the onerous regulations covering larger Type 1 “solar power plants.”
All of the 70MW solar capacity owned by Sinogreenergy is placed on barn rooftops in rural areas of southern Taiwan, particularly in Yunlin County. Many factories and government-owned buildings also have installed solar power arrays on their roofs.
But solar developers acknowledge that to reach 20GW – or even 2GW – Taiwan will need to start installing ground-mounted systems. Securing the necessary land will be a tremendous challenge. Two-thirds of Taiwan’s land mass consists of steep mountains, which for the most part are off-limits to development because of the risk of landslides due to earthquakes and typhoons. Some 23 million people live, work, and farm on the remaining one-third, and Taiwan consequently has some of the highest real estate prices in the world.
The Council of Agriculture, in cooperation with the Bureau of Energy, has set aside for solar-power development around 803 hectares of agricultural land that is considered no longer arable due to land subsidence from overuse of groundwater. Another 1,200 hectares is reportedly also under consideration, mostly in rural Yunlin and Changhua counties. Specific EIAs would not be required for these installations, but as nearly all of the designated land is privately owned in thousands of small holdings, obtaining agreement for even a few hectares of solar development might mean negotiating with hundreds of landowners.
Sinogreenergy’s Chen says that obtaining leases on enough land to develop around 100MW of solar power (roughly 100 hectares) required negotiations with 700 landlords. As a result, “we spend a lot of time in Yunlin County holding public hearings with local villages,” he says. “We especially have to convince the village head that we are the right investor to do the solar system.”
Despite individual farmers standing to earn NT$350,000 annually in leasing terms for each hectare employed for solar energy, many agricultural organizations remain opposed to solar power development. And while the land currently being developed is considered non-arable, there are a variety of opinions on how Taiwan should best use its open spaces.
Another question will be the cost of connecting the facilities to Taipower’s grid. From most of the approved land, developers will need to build their own substations and transmission lines.
Just a year ago, the amount of money being poured into solar power in Taiwan would have been inconceivable. The change reflects both the surging demand for solar power around the world and the strong commitment shown by the Tsai administration. EnergyTrend, a division of local analytics firm Trendforce, estimates that worldwide demand for solar power reached 56.4GW in 2015 and will likely rise to 63.4GW in 2016. Investment in renewable-energy installations now exceeds new investment in conventional power, and investors are actively seeking new markets around the world, including Taiwan.
Sinogreenergy’s Chen says that when he was first approached by Partners Group for possible investment, he originally considered an amount between US$30 million and $40 million as realistic. Partners Group rejected the proposal, saying it was too small for them to bother with. Chen adjusted the plan from rooftop-mounted to ground-mount and raised the scale to 300MW. Even this proved insufficient, and negotiations eventually led to 500MW for an investment of US$200 million.
Along with wind and solar, Taiwan is also envisioning adding geothermal energy to the mix, and increasing the amounts of biofuel.
Will all this add up to 20% power generation from renewable sources? The timeline is extremely short, but the investments are huge and government and industry players seem “energized.” Taiwan might indeed be on its way to being Asia-Pacific’s leader in renewable energy.
This is part one of a three-part story on Taiwan’s energy situation
(Taiwan Business TOPICS is published monthly by the American Chamber of Commerce in Taipei.)
Editor: Edward White