State bank interest is a good sign for Taiwan

For the Taiwan Offshore Wind Summit in March 2018, we took a look at how state-backed finance could help facilitate the growing Taiwanese offshore wind market.

March 2018 was a busy month in Taiwan’s burgeoning offshore wind sector – or, at least, that’s how the manufacturers made it look. They’re rarely shy about self-promotion.

MHI Vestas picked up orders totalling 1.5GW from Copenhagen Infrastructure Partners and China Steel last month; and Siemens Gamesa won a 120MW order for the second phase of Swancor’s landmark Formosa 1. That shows that the market is moving.

And it wasn’t just turbine orders: we saw Marubeni and Taiwan Green Power link up to develop a $3bn 600MW scheme. In total, there are offshore wind projects totalling over 10.5GW planned in Taiwan’s waters, and the government has now started its tender to award support for 5.5GW of them, between May and July.

But, in our view, the most interesting deal revealed in Taiwan’s offshore wind sector last month was one with the lowest profile.

New state-backed investments

On 23rd March, the Taipei Times reported that German developer Wpd has secured $2.8bn backing from 12 domestic banks for the offshore projects it is planning in the country: the 700MW Yunlin and 360MW Guanyin schemes. As part of this, it has won funds from two state-backed banks.

Wpd Taiwan chairwoman Yuni Wang announced the funding package at an offshore wind workshop, and it gives a strong indication that there will be state-backed money to support the commercialisation of offshore wind farms in Taiwanese waters. It is a good sign at a time when some investors have questioned the government’s approach.

For example, we wrote in February 2018 that Taiwan’s leaders needed to give developers confidence over the long-term stability of the power purchase agreements it is set to award over the next few months. And the government’s Ministry of Economic Affairs has also been criticised for being too passive, and not doing enough to reduce risks that would deter overseas investors – although this appears less of an issue now.

Wpd said it attracted interest from 39 investors, including 12 local banks and 15 overseas institutions, and secured funding from the likes of Cathay United, CTBC and E.Sun. This investor interest follows big moves in the sector by established offshore wind players including CIP, Macquarie, Northland Power, Ørsted and Wpd. Interest from both industrial and financial players gives us confidence in the sector’s long-term prospects.

But these investors still need government guarantees if they are to build a stable supply chain, and bring the cost of offshore wind down to the levels we are seeing in Europe. The presence of these unnamed state banks could provide the same state-backed support as the UK Green Investment Bank did in Europe.

The problems of securing state-backed investment

And getting these banks to invest is no small feat. Wpd said state-backed investors in Taiwan have been nervous about getting into the fledgling offshore wind sector as a result of a high-profile loan fraud involving Ching Fu Shipbuilding. In February, the Kaohsiung District Prosecutors’ Office charged four Ching Fu executives and one consultant over fraudulent loans they took out after winning a government contract.

Now, if you don’t recognise the name Ching Fu or the case, then that’s no surprise. The case didn’t relate to offshore wind, and Ching Fu isn’t an established player in the offshore wind sector.

Even so, it has made the banks warier about doing deals in untested sectors, and with offshore firms. Wpd said it was able to help state-backed investors overcome their reticence about offshore wind as it’s been working in Taiwan for over a decade.

There’s still a long way to go before Wpd can wow these investors with completed projects, though. First, it has to be among the winners in a highly-competitive tender process, and then it has to deliver two large projects in a market that is still untested.

But, if it can help entice state-backed investors into offshore wind, then it means they can gain confidence in the sector – and other firms should also be able to benefit.

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