David Foxwell considers lessons learned from problems in Taiwan’s offshore wind industry and how they might be applied elsewhere in Asia
As previously highlighted, the Asia Pacific region as a whole is approaching a tipping point when offshore wind will take off, as it has in the last 12-18 months in the US.
Foremost among the front-runners in the region are China and Taiwan, the latter having received a lot of attention recently for all the wrong reasons.
In the near-term, Taiwan has come to be seen as the most important potential export market for offshore wind, but late 2018/early 2019 saw concerns raised about implementing projects in the country.
Deadlines for developers to secure PPAs by 2 January 2019 came and went without them being secured. The government in the country blamed local governments for sitting on their hands and not granting the licences that were needed. Whoever is at fault, the delay is compounded by the fact that developers will no longer be able to take advantage of the feed-in tariff the Taiwanese authorities proposed for deals signed in 2018. A proposed feed-in tariff for 2019 is significantly lower, despite the high cost of building projects in a country without an established supply chain.
These developments led Ørsted, the world’s leading developer of offshore wind projects, to revisit commitments it made to build offshore windfarms in Taiwan. Although the 2019 feed-in-tariff has not been confirmed yet, the offshore wind company said it would pause and revisit all project activity in Taiwan, the timeline of projects and supply chain commitments and contracts, all of which assumed signing of PPAs in 2018.
The company said it was “very concerned” about the suggested feed-in tariff level for 2019 as well as a newly proposed cap on annual full-load hours, and noted that the feed-in tariff needs to reflect the extraordinarily high costs faced by its projects in Taiwan, Greater Changhua 1 and 2a. These, it said, were mainly related to creating a local supply chain, reinforcing the grid infrastructure and building, operating and maintaining offshore windfarms in challenging waters.
Ørsted said the retrospective changes “jeopardise the creation of a local offshore wind supply chain, harm the planned transition to renewable energy and cause significant uncertainty among international investors looking to Taiwan.”
As I noted here, one danger inherent in the growth of the low and zero-subsidy market in Europe is that countries that are new to offshore wind will be lulled into thinking they can strike equally advantageous deals, even where there isn’t an established supply chain. They can’t, of course: it has taken Europe a decade to get to the point where costs have fallen sufficiently for zero-subsidy and low-subsidy bids to materialise. Costs will fall even further in established markets, but new ones need to be realistic.
Apart from Taiwan, a number of countries are approaching or have reached a tipping point for offshore wind. Japan is seemingly one of them, and South Korea is another, as Linklaters noted in a recent review of the potential market there.
Linklaters noted the South Korean Government’s commitment to the green energy transition and ambitious target of 12 GW of offshore wind capacity by 2030. Like other governments in the region, it said, a key challenge for developing offshore wind projects in South Korea is the lack of track record of large-scale commercial offshore wind projects, in particular, those with international participation. Most of the offshore wind projects developed to date have been led by the South Korean Government in a ‘top-down’ format.
Despite these challenges, the country’s offshore wind market remains attractive given the favourable topography, well-developed infrastructure and strong support by the South Korean Government.
Hopefully, the South Korean Government has taken note of the major hiccups in the Taiwanese process, and will design and implement a robust, realistic and achievable process for offshore wind that avoids the pitfalls that have made Ørsted and the other developers in Taiwan take a deep breath and reconsider their involvement in that market.