In 2016, a landslide victory for the Democratic Progressive Party (DPP) in Taiwan ushered in a new administration under President Tsai Ing-Wen. A prominent frontline advocate for the vision of a “nuclear-free homeland,” President Tsai faced the challenge of phasing out nuclear power in a country where close to 98 percent of the power needs are met through imports. With scarce indigenous energy resources and minimal spare electricity capacity, and caught between a heavy reliance on foreign energy supplies and the socio-political backlash over the Fukushima incident, renewable energy has emerged at the forefront of energy and industrial policies in Taiwan.
As of early 2018, renewable sources—including solar, wind and hydropower—account for less than 5 percent of the total electrical generation in Taiwan. The government has high ambitions to hit a target energy mix of 50 percent natural gas, 30 percent coal and 20 percent total renewable energy by 2025. This is a grand and ambitious undertaking—the government itself has estimated that the total investment for green energy infrastructure (which include investments into solar and wind) can amount to NT$ 1.8 trillion (US$ 58.2 billion) by 2025.
In common with many other national energy strategies looking to move away from oil and coal, natural gas features prominently in Tsai’s vision for Taiwan’s future energy mix. Yet even higher dependence on liquified natural gas (LNG) imports for Taiwan can result in elevated security risks both in the short-term and long-term, with LNG markets possessing its own multi-factorial matrix of complexities around price volatility and any potential supply disruptions.
There are many reasons to consider offshore wind as a critical asset to any reasonable scenario of a low-carbon and secure energy future for Taiwan. Like other sources of renewables power generation, offshore wind is fraught with its own unique set of challenges. In adopting any blueprints to the future, a detailed cost-benefit analysis of all options is necessary, albeit never a straightforward one.
Road to Renewables: Solar
It is vital to first provide a quick overview of the other heavyweight in the discussion: solar. In all possible scenarios, solar will be a keystone to a low-carbon future in Taiwan. The south-western “sunbelt” of Taiwan holds particular promise, with the highest levels irradiation seen in this area of the world within 1,500 kilometres. Taiwan is the second largest PV cell maker in the world, and the government aims to increase national PV capacity to 20 GW by 2025.
While the signalling importance of ambitious targets is undeniable, Taiwan’s land regulations and constraints will create resistance for effective deployment and dampen the possibility of reaching the target. Two-thirds of Taiwan’s land surface is engulfed by mountainous areas that limit the economic and technical potential for large-scale solar. Meanwhile, the flatter, western coast of Taiwan is already relatively densely populated and soundly urbanized. Available and arable land are often earmarked and protected for the agricultural industry, making suitable land resources for large-scale, ground-mounted power plants hard to come by. Regulatory complexities for ground-mounted solar projects further diminish the attractiveness of projects.
Despite the obstacles, there are early signs that the government is keen to improve the situation. Promisingly, the government has also released 2,385 hectares of farmland in 2015 to 2017 to catalyse the growth of PV projects, and initiated a Feed-in Tariff (FiT) bonus for PV projects in the north and those with high efficiency modules. And through market consolidation and supportive energy and industrial policy, Taiwanese solar industry is likely to grind out its presence and relevance for a while longer on the global stage.
Is Offshore Wind the answer?
Taiwan’s excellent potential for wind power generation both onshore and offshore has bipartisan appeal. In 2012, the Executive Yuan under President Ma Ying-Jeou approved “The Thousand Wind Turbines Project” (千架海陸風力機), which precipitated early progress in onshore wind. However, the growth of onshore wind turbines has decelerated over time as projects run into constraints and regulatory complexities regarding land use, similar to that of ground-mounted solar. With decreasing viability and policy support, and having already installed 647 MW of onshore wind by 2017, the future of onshore wind generation now pales in comparison to offshore wind.
The rush to develop Taiwan’s offshore wind industry has not gone unnoticed by industry and policy experts. The industry fervour, particularly from foreign developers, led to an upward revision of Taiwan’s offshore wind target by Tsai’s administration from 3.0 GW to 5.5 GW by 2025, all of which was allocated in 2018. In the first stage, 3.836 GW of projects, across eleven wind farms, were allocated a generous FiT contract and grid connection capacity through a selection process, which also featured local contents requirement intended to spur on the local supply chain and domestic job creation. In the second stage, the remaining 1.664 GW was awarded following a competitive auction. If the projects are keyed up in time, Taiwan is on track to adding 4,066 MW of offshore wind by 2025.
This spectacular response from international developers to the offshore wind opportunity in Taiwan is driven by a confluence of many factors. Unbound by land constraints, the future of offshore wind shines bright in Taiwan. The industry also benefits from perceived strong commitment from government and local actors, abundant offshore wind resources, and an attractive tariff in the initial stage. Developers, however, are not ignorant of the headwinds facing this nascent industry in Taiwan.
First, project developers and technology suppliers are eagerly developing and sourcing solutions for geographical specificities, such as typhoons and earthquakes, as well as specific seabed conditions. In October 2018, for example, Siemens Gamesa announced that it would pursue a tailored turbine variant specifically for its Asia-Pacific markets, following closely on the heels of a similar MHI Vestas announcement in May. Such turbines are expected to address increased wind strengths and significant wave heights, and should increase confidence of projects drawn up for the region. Such development is likely to also benefit Japan, another country based in the active tropical cyclone basin of Northwest Pacific which sees its own share of typhoons.
Second, domestic infrastructure and energy financing for the offshore wind industry remain immature, and lenders (as well as other stakeholders) will need to rapidly upskill their understanding of this aspect of the industry. There is the possibility of facilitating knowledge transfer from experienced, vanguard international banks, particularly when regulatory constraints and commercial considerations hold back enthusiasm of local banks, and international banks could therefore lead the structuring process. The participation of export credit agencies should also unlock additional liquidity for projects and lend confidence to commercial lenders.
Third, the supply chain and necessary supportive infrastructure around offshore wind remain underdeveloped and would require significant further investments. In the first place, Taiwan will need to invest in fit-for-purpose ports and quay areas for efficient transportation, storage, construction and installation. There will be also other infrastructure needs. Beyond infrastructure, a conducive and competitive business environment is necessary for supplier and innovators of the offshore industry to thrive and to fully take advantage of the local content requirements. Such planning require entrepreneurial, cross-ministerial and future-looking industrial policy. Beyond business-as-usual, Taiwan could, for example, seek opportunities to develop supply chains that could become an integral part of the regional offshore wind industry in North East Asia, or seek early stakes in upcoming technologies. For example, due to the high wind speeds and relatively deep seas of the Taiwan Strait, Taiwan is particularly physically suited to the deployment of floating wind—a technology that is not yet commercialized, but could potentially catalyse a step-change in the technical feasibility and economics of offshore wind projects.
The Future of Offshore Wind?
There is no doubt that the technical potential of offshore wind resources in the Taiwan strait is significant, and that initial policy has successfully enticed foreign players to set up shops at this early stage. Going forward, however, the technological and commercial promise of offshore wind must be reinforced by decisive policy-making to allay frictions in the cogs of the energy transition. This applies, of course, to other renewables as well.
The promise of offshore wind would not be realised through siloed policy-making, and must be complemented by market reforms, whole-systems energy thinking, essential grid upgrades, and a comprehensive industrial strategy. A rigid and outdated electricity market should be steadily liberalised to encourage efficiency, flexibility, innovation, and security. Without this, low carbon generation and flexibility assets will not thrive. An ambitious and sustainable solution for the country should also include an honest look at Taiwan’s untenable and ill-afforded low user-power tariffs and as renewables take its place in the power mix, and discussions on demand-side solutions and conservation.
The main point: The potential of offshore wind resources for Taiwan is significant, but the full promise of offshore wind would only be realised through market reforms, whole-systems energy thinking, essential grid upgrades, and a comprehensive industrial strategy.