Global offshore wind: Taiwan

Focus on Taiwan

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Market overview

The offshore wind market in Taiwan is in its infancy but is developing rapidly. The Taiwanese Government plans to have an energy mix comprised of 50 per cent natural gas, 30 per cent coal and 20 per cent renewable energy by 2025. To meet the renewable energy target, the Taiwanese Government is seeking to increase offshore wind capacity by 5.7 GW by 2025. 

Taiwan’s ambitious program to promote offshore wind power as a major energy source – installing over 700 turbines in the Taiwan Strait by 2025 - will require an estimated investment of US$20 billion. Lacking experience in the industry, Taiwan is relying heavily on the participation of global players by making firm policy commitments, offering attractive subsidized rates, and adopting new financing models. 

The re-election of President Tsai Ing-wen of the Democratic Progressive Party, a strong proponent of renewable energy, in January 2020 reinforced the Government’s commitment to renewable energy. The Ministry of Economic Affairs published new rules in August 2021 surrounding the development of the third phase of the offshore wind energy projects. Based on the foregoing, from 2026 to 2035, a capacity of 15GW should be realized and the island should expect to increase installed capacity by 1.5 GW each year. With intense competition among wind farm developers, all bidders in the third phase bid rounds had proposed their proposed power purchase agreement (PPA) price in NTD 0 /kWh or NTD 0.1/kWh to BOE to win the development rights. Further, the relevant costs incurred are thereby likely to be shifted from the developers to corporate buyers via corporate power purchase agreements (CPPA).  In other words, for the round three projects, the power generated will be sold mainly via CPPAs and wind farm development costs will be increasingly covered by CPPAs. Such trends are derived both from the global initiative to reach net zero carbon emissions and local corporate buyers’ huge demand for green energy.

Taiwan: Shareholdings in offshore wind projects

* These projects are in the third phase bid rounds and they had proposed their proposed power purchase agreement (PPA) price in NTD 0 /kWh or NTD 0.1/kWh to BOE.

Taiwan: Development process

Taiwan: Support regime and offtake

There are two principle support schemes for offshore wind:

Offshore Wind Power Demonstration Incentive Program (the “Program”)

The Program was introduced on July 3, 2012 in accordance with Para 3 of Article 11 of the “Renewable Energy Development Act” to encourage the development of demonstration offshore wind farms by providing a Government subsidy for selected demonstration offshore wind projects. Under the Program, the installation of offshore demonstration wind turbines was to be completed by 2016, with the development of the demonstration wind farms to be completed by 2020. Three demonstration offshore wind farms were selected and supported by the Program, totalling approximately 358 MW. The Program provides a subsidy of up to 50 percent of the installation expenditure for the installation of demonstration wind turbines. During the operation phase, the Program provides incentive fees of up to NT$250m.

Feed-in-tariff (FiT)

The Renewable Energy Development Act provides the developer with a 20-year guaranteed PPA with Taipower at a contracted FiT rate. The FiT rate which may be granted is set by the MOEA and is reviewed annually. In practice, in Q4 of each year, the BOE would publish the FiT rate applicable to the PPAs executed in the subsequent year. The 2020 FiT rate was 5.0946 (NT$)/kWh (roughly US$0.1691) (applicable to PPAs signed in 2020). The 2021 FiT rate was 4.6568 (NT$)/kWh (applicable to PPAs signed in 2021). The 2022 FiT rate is set currently at 4.5024 (NT$)/kWh (applicable to PPAs signed in 2022). The 2023 FiT rate was 4.5085 (NT$)/kWh (applicable to PPAs signed in 2023).

Options are also available to front-load the FiT rates during the first ten years or to back-load in the last ten years. In comparison with FiT rates in Europe in recent years (NT$ 2-3/kWh), the Taiwanese FiT rates are significantly higher, reflecting the relative inexperience of the market and supply chain.  

Grid auctions

Grid connection capacity is auctioned by the Ministry of the Economic Affairs. Whilst the first allocation round (April 2018) was awarded on the basis of FiT rates, the second allocation round (June 2018) was auction-driven and attracted seven participants for ten projects. For the third allocation round, BOE had announced seven offshore wind projects in Phase 1 of the third allocation round on December 30, 2022, which will add 3 GW of new offshore wind capacity in Taiwan. Taiwan expects to see offshore wind capacity increase by 15 GW between 2026 and 2035, with the expectation of installed capacity increasing by approximately 1.5 GW per year. Corporate buyers are being encouraged to enter into CPPAs to financially support the wind farm development.

Taiwan: Challenges

Legal risks and uncertainty

The EIA policy increases uncertainty for investors. Reasoning for this is that the EIA takes into consideration a number of factors that are not related to environmental impacts.

During the EIA process, this leads to concerns (potentially unrelated to environmental matters) being raised which, in turn, can lead to additional requirements being placed on developers.

Arbitrary fisheries compensation scheme

The “offshore wind power plant fisheries compensation formula”, applicable to fisheries affected by offshore wind power plants, has been described by some participants as arbitrary.

Fishery rights and fishing areas are poorly defined which has compounded the difficulties faced by developers seeking to engage with the local fishing industry.

Infrastructure and supply chain

As is to be expected from a new market, port and vessel availability is limited. Many Taiwanese ports are built as either commercial or fishing ports.

Grid capacity will also require upgrades to accommodate new connections in remote areas.

Financing issues

Due to the high development costs of offshore wind and investment risk, the Government is being called upon to provide funding so that the investors have more confidence in the industry.

Potential investors have been appealing to the Government to promote financing and credit guarantee mechanisms to support the industry. The Taiwanese Government is still trying to increase the flexibility of such finance.