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Offshore Wind Journal

Taiwan steps back from the brink but hard bargaining required for subsequent projects

Fri 01 Feb 2019 by David Foxwell

Taiwan steps back from the brink but hard bargaining required for subsequent projects
Ben Backwell: “Taiwan has handled the process well and avoided potentially damaging changes”

Potentially disastrous changes in government policy on offshore wind in Taiwan have been averted, Global Wind Energy Council (GWEC) chief executive Ben Backwell told OWJ, although developers involved in subsequent projects will also face tough challenges.

Speaking exclusively to OWJ shortly after the Taiwanese authorities announced new levels for tariffs and for the structure of feed-in tariffs (FITs) for offshore wind projects in the country, Mr Backwell said the tariffs announced indicated that there had been a welcome shift in policy by the Taiwanese government. He said the changes will hopefully enable developers to press ahead with projects once they have renegotiated terms with their supply chains in Taiwan.

“The next challenge is to create an efficient local supply chain so projects can be built at viable cost, make sure the permitting process is managed efficiently and continue to build understanding of the many benefits of offshore wind for Taiwan’s economy and society,” Mr Backwell said.

Developers didn’t get everything they were asking for, but the reduction in the tariff for 2019 is much lower than had been mooted. Mr Backwell said changes to the structure of the tariff were also important.

The first change saw the cap on full load hours increased to 4,200 hours and 4,500 hours. Between 4,200 and 4,499 hours the FIT will be cut by 25%; above 4,500 hours the FIT will be cut by 50%. GWEC had argued that the cap on full load hours was a disincentive for developers in as much as they would not be rewarded for using the most efficient turbines.

“We argued that the cap should be removed altogether,” Mr Backwell said. “It wasn’t, but it has been raised, which will be beneficial for capacity factors.”

The second structural change to the tariff would have seen the ladder tariff removed, closing off an effective way to help developers attract project finance at the most competitive possible costs. “The change of heart about the ladder tariff is very helpful,” Mr Backwell told OWJ. “It will reduce developers’ financing costs.”

GWEC argued that, taken together, the proposed changes would have reduced project revenues by approximately 20% and made the projects non-investable, thwarting growth in the sector.

Mr Backwell said he could not speak for the companies involved in Taiwan but believes that they will be “cautiously optimistic” about the changes. “Taiwan has handled the process of starting an offshore wind industry very well, but it would have been a mistake to make big changes to tariffs at this point,” he said.

There was more good news from the country in late January when Ørsted, one of the companies involved there, confirmed that Taiwan’s Bureau of Energy had granted it an establishment permit for the Changhua 1 and 2a projects, a milestone that the company described as a significant one.

In the coming weeks, Ørsted and the other companies hoping to build offshore windfarms in Taiwan will work with the Taiwanese authorities and local stakeholders to enable them to reach outstanding key project milestones, such as completing a supply chain plan and signing a power purchase agreement. Ørsted said its board of directors will review the projects and decide on the final investment case once they have clarity on the outcome of contract renegotiations with its supply chain.

If the companies involved can renegotiate terms with their supply chains, the firms involved in the process should be able to sign power purchase agreements (PPAs) after the Chinese New Year. Originally, PPAs were due to be signed by 2 January 2019. Because Taiwan’s Bureau of Energy did not issue establishment permit for the projects in time, it was no longer possible for Ørsted and the Taiwanese utility Taipower to sign a 2018 PPA for Changhua 1 and 2a.

If PPAs can now be signed, that would enable developers to take final investment decisions within months and get projects back on track. However, Mr Backwell cautioned that although the initial round of projects in Taiwan may be getting back on track, a lot of hard bargaining will need to take place regarding later projects that received awards in a competitive auction process that followed the country’s initial allocation of 3.84 GW of offshore wind. The first allocation round in May 2018 was awarded on the basis of FITs, but the subsequent round was auction driven.

 

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