Analysis of Asia Pacific Offshore Wind Market-Taiwan
August 30, 2021 Wind InfoLink
Renewable energy development
Amid energy transition, Taiwan has originally set a target of sourcing 20% of electricity from renewables by 2025, translating to around 27.4 GW of total installed capacity. The figure is expected to reach 30.2 GW, as offshore wind target was revised upwardly from 3 GW to 5.7 GW. Solar power accounts for the majority of the share, aiming at 20 GW of capacity. However, the Taiwanese authorities planned to allocate at least 1.5 GW of offshore wind capacity annually from 2026 to 2035, totaling 15 GW in a decade, indicating the government’s active attitude towards offshore wind policies.
Offshore wind development in Taiwan
As of June 2021, Taiwan has connected 128 MW of offshore wind capacity to the grid. Originally, the Ministry of Economic Affairs (MOEA) planned to connect 933 MW of capacity to the grid by the end of 2021, as 2020 and 2021 were supposed to be the pivotal years for Taiwan’s offshore wind development. However, the world-ravaging COVID-19 pandemic disrupted constructions and productions of the wind power industry worldwide, limiting the dispatch of construction crafts and delaying deliveries of key components. Doubled with Taiwan’s boarder control in response to the pandemic, which affected the arrivals of foreign technicians, delaying progresses of wind farms.
Hit by the pandemic, three wind farms, Taipower Phase-1 (109.2 MW), Yunneng Phase-1 (320 MW), and Formosa 2 (376 MW), which should have been connected to the grid by the end of 2020 applied to the MOEA for extensions, as per administrative contracts. Taipower Phase-1 has completed turbine installation and is pilot running. Yunneng Phase-1’s developer, wpd Taiwan Energy, will apply for the extension; it expects to install a maximum capacity of 160 MW this year. Formosa 2 is applying to the MOEA for a second extension, postponing grid connection to 2022.
With construction being completed by far, Taipower Phase-1 may see 109.2 MW of installed capacity in 2021, according to neutral forecast by Wind InfoLink. Yunneng Phase-1 has turbine installation partially completed and is laying submarine cables. However, construction crafts can hardly put to sea, due to the worsening sea state from the later part of September onward. As a result, installation capacity is unlikely to surpass previous forecast. In the best scenario, half of the turbines of Phase-1 will be connected in series this year, totaling 269 MW of grid connected capacity in 2021
Greater Changhua 1, Greater Changhua 2a, and Changfang Phase-1, which were originally scheduled to complete constructions by the end of 2021, seem unable to be connected to the grid as expected. Still, none of them have applied for extensions. After Greater Changhua 1 passed the “investigation and analysis of difference on the environment before and after the development activity,” Ørsted, developer of the two Greater Changhua projects, declared to complete constructions by the end of 2022. The Bureau of Energy (BoE) holding doubts about their ability to complete grid connection this year. CIP has not made any announcement of advancing or to revising its original schedule to complete construction in mid-2022. Construction of Changfang Phase-1 may not be completed this year, as Boskalis HC Offshore Wind Taiwan (BoWei), the project’s offshore engineering contractor, only planned to finish installing and transporting jacket foundations by the end of the year. Therefore, grid connections of the two projects are temporarily set in 2022.
Forecast for cumulative installed offshore wind capacity in Taiwan by 2035 by Wind InfoLink:
Taiwan offshore wind policies
Phase 1: Demonstration Incentive Program
The development of offshore wind in Taiwan began in 2012, when the BoE published the Four-year Wind Power Promotion Plan, under which the Demonstration Incentive Program plans to complete construction of demonstration wind farms by 2020. Stage 1 included two demonstration wind farms. One was the Swancor-led Formosa 1, which was connected to the grid and entered commercial operation in 2019. Formosa 1 is by far the first commercially operating offshore wind farm in Taiwan. The other one was Taipower’s demonstration project, which has 109.2 MW of total capacity.
Phase 2: Zone Application for Planning
In 2015, the BoE selected 36 potential sites for offshore wind development, officially initiating Stage 2: Zone Application for Planning (ZAP program). Developers are required to conduct environmental impact assessment for interested sites, and only those pass the assessment are eligible to apply. Stage 2 has 5.5 GW of total capacity, of which 3.8 GW are awarded through selections. Aggregately, 3,836 MW of capacity were allocated to seven developers and ten wind farms. Winning developers are allowed to adopt FIT rates, while fulfill industrial relevance requirements in different stages. The remaining 1.7 GW were auctioned, with two developers and four wind farms winning the bids and being awarded with a total of 1,664 MW of capacity. Phase 2 included 14 projects, with a total capacity of 5.5 GW
Among all potential wind farm sites, four wind farms of Ørsted has a combined capacity of 1.8 GW, the greatest. Followed by CIP, whose allocated capacity would reach 900 MW if capacity of Zhongneng offshore wind farm jointly developed by China Steel Cooperation was included. Foreign developers accounted for 90% of allocated capacity, suggesting Taiwan’s friendly environment for foreign investors in this phase.
The widely heeded demand for localization was made from an industrial development perspective, in the hope to complete the Taiwanese industrial chain, propelling future transformation and upgrades, and exporting technologies and professionals to overseas markets. According to regulations of the Industrial Development Bureau, industrial localization of potential wind farm sites shall take place in three stages: lead time, stage 1, and stage 2. During the lead time from 2021 to 2022, constructions shall be finished for ten subitems out of the four major items: underwater foundations, power facilities, turbines, and maritime engineering. Stage 1 will start in 2023, in which constructions for all items in lead time and new items added in this stage shall be completed. Stage 2 will start in 2024, with new items such as gear box, PCS, and blades. By stage 2, constructions for a total of 27 items shall be completed.
Projects of Northland Power and Ørsted secured the bids in Phase 2, with the latter signing a 920 MW corporate power purchase agreement (CPPA) with TSMC. The CPPA is by far the world’s largest renewables contract, setting a milestone for business offshore wind power purchase in Taiwan. Wind InfoLink believes there to be great possibility for Hai Long offshore wind farm, led by Northland Power, to sign CPPA with businesses. Although bidding progress continues in Phase 3, most businesses in Taiwan, with long-term demand for renewables, tend to sign CAPP and are less likely to sell electricity back to Taipower.
Phase 3: Zonal Development
The MOEA recently issued “Guidelines for Offshore Wind Zonal Development Capacity Distribution,” finalizing process of the Zonal Development Round. It will release 15 GW of capacity during 2026 to 2035, of which 9 GW will be awarded in the first stage during 2026 and 2031, and the remaining 6 GW during 2032 and 2035. The Zonal Development Round will be initiated in August 2022. Selected developers will have four years to prepare for gird connection scheduled between 2026 and 2027. For each wind farm or a single developer, there is a capacity cap of 500 MW, which could be lifted up to 600 MW.
The Zonal Development Round consists of eligibility evaluation and price assessment that follows the former. The eligibility evaluation is twofold. Firstly, 60% of technology score and 40% of finance capability score should average more than 70 points. Secondly, key development projects shall have 60% of capacity fulfilling industrial relevance, whilst scoring bonus points higher than 10. Those passing the evaluation will compete for the determination of allocation sequences. Sequences of those with the same score will be decided according to their scores in localization.
In terms of industrial relevance, the government continued key development projects of the previous stage and added flexible mechanism upon wide request. The flexible mechanism includes project flexibility and quantity flexibility. Project flexibility allows developers to change projects with difficulties in localization to bonus projects, whilst quantity flexibility means that only 60% of capacity of a project is required to pass the industrial relevance review. That is to say, a wind farm with 30 turbines is only required to have eighteen of them passed the industrial relevance review. Three engineering design services were added in the industry relevance program of zonal development, including designs regarding offshore substations, submarine cable laying, and wind turbine substructure, expanding the original four major categories and 26 services to five major categories and 29 services.
The bid cap regulation sparked controversies. The original draft planned to take Taipower’s fossil fuel generation costs in the recent year as the bid cap (NTD 2.18/kWh). However, given renewable energy generation costs and the maturity of private renewable trading market, bid cap of the first round was raised to NTD 2.49/kWh, the sum of capacity-weighted average bid winning price of four wind farms selected in Phase 2 to be connected to the grid in 2025. Henceforth, the sum of capacity-weighted average bid winning price of the previous round of auction will be taken as bid cap of the next. Yet, as previously stated, Wind Infolink believes most businesses will be signing CAPP during this phase 3.
MOEA published “Guidelines for Offshore Wind Farm Site Application.” The guidelines touch upon application qualification and, as public expected, sensitive areas that are prohibited from wind energy development, namely the “red line zone.” Phase 3 has been opened for applications after the announcement of guidelines, allowing businesses as much time as possible to prepare for the auction next year.
Prospects of offshore wind energy in Taiwan
Many developers have shown interest in participating in Phase 3 auctions, including foreign investors Ørsted, CIP, Northland Power, which had taken part in the first two phases, and local developers such as Foxwell Energy and Taiya Renewable Energy, subsidiary of Taiwan Cement. However, some wind farm sites were required to be revised or revoked after announcement of the guidelines. For instance, six sites of InfraVest covered sensitive areas. Sites of He Er South, He Er North, and Heyi wind farms, each located at three northern islets, belongs to fishing grounds, whilst Chung Mei, Mei Sen, and Chung Chien off the shore of Hsinchu County and Miaoli County overlapped with sailing routes.
Developers will accelerate localization, as Wind InfoLink projects. Following the announcement of guidelines, EnBW Asia Pacific, Ørsted, and wpd were all posed to bid for No. 16 and No. 17 wind farms, with the former two vying for No. 11 wind farm at the same time. Given heated competitions and current vendor selection mechanism, developers are likely to propose larger scale localization and bid more aggressively.
In Stage 3, manufactures of key development projects will have bigger bargaining chip, not only because offshore wind industrial chain in Taiwan gradually matured, but that the key to winning wind farm auctions lies in establishing fair bonds with local industrial chains. Meanwhile, the 500 MW capacity cap leads to increasing number of developers, preventing monopoly, undermining the stance of developers, and empowering local businesses when negotiating with them.
Therefore, the previous dominance of foreign investors may be overturned in the Zonal Development Round. Capacity allocation allows private Taiwanese developers to join the game. Presently, Taiya Renewable Energy and Foxwell Energy, parent company of Shinfox Energy, have declared to participate. Both are well-experienced in renewable energy construction; Foxwell Energy has even undertaken construction and O&M projects of Taipower Phase-2. Additionally, with advantages in mingling with local community and businesses, Taiwanese developers are more of a match with foreign investors, heating up competitions in Phase 3.
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