Taiwan Offshore Wind Series Part 1 – Allocation of Offshore Windfarms in Taiwan

Taiwan's ambitious offshore wind power programme is now well known. However, what lies in the road ahead? What are the issues that have arisen so far? Where will the challenges be for the nascent industry? In this first of a two-part series, John Yeap, James Harris and Nick Wang, energy and finance lawyers with Pinsent Masons recounts where we are currently in the development of Taiwan's offshore wind.

In the promotion of offshore wind power the Taiwanese Government has adopted a 3 stage development plan of 1) Demonstration, 2) Zones of Potentials, and 3) Zonal Development, and prioritised shallow water over deep water. The initial target was an accumulated capacity is 520MW by 2020 and 3GW by 2025.

In Stage 1 (Demonstration), the Ministry of Economic Affairs (MOEA) promulgated the “Demonstration Incentive Program for Offshore Wind” on 3 July 2012. The Government selected three projects, two from the private sector, namely Fuhai with 120MW and Formosa 1 with 128MW, and a project from the state-owned company Taipower with 110MW.

In Stage 2 (Zone of Potentials), the MOEA promulgated “Directions of Zone Application for Planning” on 2 July 2015, along with 36 Zones of Potentials (please see diagram below) for reference of the developers.

In June 2017, the Executive Yuan passed the “4 Years Wind Power Promotion Plan”, which outlined the Government's plan to develop wind power and plan-of-action for the next four years, and created the single service window, so that the policy of "Nuclear-free Homeland by 2025" can be achieved. However, the referendum on 24 November 2018 repealed paragraph 1 Article 95 of the Electricity Act, hence removed the legal basis for requiring the Government to achieve a nuclear-free Taiwan by 2025. Under the promotion policy, twenty-two applications were received, with a total planned capacity of 10GW, of which domestic and foreign developers account for approximately half each.

Allocations under Stage 2
In January 2018, the offshore wind energy target was increased to 5.5GW by 2025. Under Bureau of Energy (BoE)'s plan, the targeted 5.5GW was allocated through two different procedures. An initial 3.5GW, of which 0.5GW is to be completed by 2020 and 3GW is to be completed by 2025, was allocated through the “Selection Procedure”, and the remaining 2GW, to be commissioned by 2025, was allocated through the “Competitive Bidding Procedure”.

Phase 1: Allocation of Capacity by Selection Criteria
On 30 April 2018, the MOEA allocated a total of 3,836MW of grid connection capacity to eleven offshore windfarms proposed by seven sponsors. Out of the 3,836MW, a total of 738MW is to be completed by 2020, which comprise of 360MW allocated to wpd and 378MW allocated to Swancor. 

The remaining 3,098MW is to be completed between 2021 and 2025, with wpd being allocated 698MW; Ørsted being allocated two projects totalling 900MW; CIP being allocated two projects totalling 600MW; China Steel Corporation being allocated one project with 300MW; Taipower being allocated one project with 300MW; and Northland Power and YuShan Energy being allocated one project with 300MW.

Local content consideration was an important factor in the selection of the winning projects for the 3,836MW allocated pursuant to the Selection Criteria. 

Phase 2: Allocation of Capacity by Competitive Bidding
On 22 June 2018, MOEA further allocated 1,664MW through competitive bidding. There was no local content requirement for this round of bidding, the main considering factor was the tariff; the bidder with the lowest offtake tariff wins. 

Five sponsors took part in the bidding, namely 1) Northland Power and YuShan Energy, 2) Swancor and Macquarie, 3) Ørsted, 4) Copenhagen Infrastructure Fund (CIP), and 5) Taipower. Two sponsors, namely Northland Power & YuShan Energy and Ørsted, and four windfarms were selected, with bidding price ranged from 2.2245 to 2.5481 TWD per kWh.

Together with the 3,836MW allocated earlier, 5.5GW was allocated. Ten windfarms by seven sponsors are scheduled to be completed by 2025, out of the eighteen windfarms with a combined capacity of 10.5GW that passed the Environment Impact Assessments conducted at the end of 2017. 

In Stage 3 (Zonal Development), the undeveloped offshore windfarms in Taiwan's territorial waters will be developed into blocks and integrated into the overall strategy. Also, the Government will be driving the development of the local supply chain, including key components of wind turbines (such as engine room assembly, generators, transformers, switchboards, power conversion systems, blades, etc.), towers, underwater foundations, submarine cables, marine engineering shipbuilding, and so on, to improve the offshore wind power industry supply chain in Taiwan. 

Feed-in-Tariff (FiT)
The offshore wind FiT for 2018 is NT$ 5.8498/kWh (US$ 0.1895/kWh), and is applicable to windfarms that have obtained the Establishment Permit and signed PPA with Taipower before the end of 2018. Six projects by four sponsors, namely Ørsted, CIP, China Steel Corporation, and Northland Power & YuShan Energy, in the Changhua area, did not obtain the consent from the local government, which is required to obtain the Establishment Permit, and thus were unable to sign a PPA with Taipower before the end of 2018. 

On 30 January 2019, after a few rounds of consultations, the MOEA announced that the applicable FiT for 2019 for offshore wind PPAs will be an average of NT$ 5.5160/kWh (US$ 0.1788/kWh) for 20 years, with the first 10 years being NT$ 6.2795/kWh (US$ 0.2036/kWh) and the remaining 10 years being NT$ 4.1422/kWh (US$ 0.1343/kWh). The FiT for 2019 equates to a 5.7% reduction from the FiT for 2018.

M&A Activities
There has been some M&A activities on offshore wind power in Taiwan over the last year, notable in August 2018 Mitsui acquired from Singapore-based Enterprisze Energy a 50% stake in YuShan Energy, the owner of a 40% interest in the 1,044MW HaiLong Offshore Wind Projects (3 windfarms). The controlling stake is held by Canada-based Northland Power Inc.

Also, in December 2018, JERA, a JV between TEPCO and Chubu Electric Power Company, acquired from Macquarie Capital and Swancor a 32.5% stake in the 128MW Formosa 1 windfarm.

Future Opportunities
On 15 January 2019, the BoE held a consultation meeting with industry players and experts to discuss the plan for Stage 3 (Zonal Development). BoE currently plans to release the 4.5 GW capacity across eight windfarms that has passed the EIA but has not been allocated, and incorporate certain industry-related benefits into the selection criteria. It is expected that after completing a comprehensive consultation with interested parties, the mechanism for promotion and the policies for development for the blocks will be announced in the first quarter of this year.

The phase 3 allocation will utilise the same competitive bidding method as phase 2, whereby the bidder with the lowest tariff wins. In the first two phases of allocations, water depth of the windfarms was less than 50 meters, but in phase 3, windfarms with water depth of 50 meters or more will be available for bid. The scheduled completion date for the projects from the phase 3 allocation will be after 2026.

In the second part of this series, our authors will share their thoughts on the challenges in taking the Taiwan offshore wind industry forward.