Taiwan: Risks grow for 8.7GW winners

Taiwan has long been seen as an example of how developers and investors could expand into Asia-Pacific from European offshore wind markets. Sure, it had challenges – natural disasters, pool soil conditions and tensions with China – but it has kept growing.

Yesterday, the industry got another boost as the Taiwanese government revealed the winners of its round three tender. The government has backed ten projects totalling 8.7GW by a handful of large offshore developers. They are:

• Copenhagen Infrastructure Partners' 1.8GW Feng-Miao
• Corio Generation's 732MW Hai-Ding 2 and 720MW Hai-Ding 3
• Northland Power's 1.2GW North-Wind and 602MW Can-Wind
• Skyborn's 700MW Da-Tian, 700MW Yo-Der and 300MW Hai-Xia Phase 2
• Synera Renewable Energy's 1.5GW Formosa 4
• Taiya Renewable Energy's 440MW Huan-Yang

The results took us a little by surprise. Even when we were contacting local experts on Monday, they did not know this announcement was imminent.

But the results show that developers and investors are confident in a process where talk has, in recent months, focused more on who wasn't bidding. In September, Ørsted said it would not bid in this auction because it could not make projects investable due to local regulations, high inflation and rising interest rates.

Yet while it is great to see the government award support for these ten projects, the hard work starts now for developers as they grapple with potentially punitive policies.

Ministry micromanagement

In November, the Taiwanese government set out plans it said could reduce development delays in offshore wind by hitting developers financially. The Ministry of Economic Affairs revealed an administrative agreement on 4th November that would boost its oversight of projects and fine developers who miss deadlines.

Developers have been vocal about the problems of this approach.

Their arguments against these proposals are that problems leading to delays should be fixed by developers working in harmony with government agencies; that delays are often caused when local interest groups and politicians pressure developers to increase local development; and any threats that push up development costs would make it harder to secure competitive bank funding.

The fact is that developers do not want delays because they already face pressure from banks to deliver projects on time. Making it more difficult for them to secure competitive loans would only increase uncertainty through the whole supply chain.

We understand Taiwan’s thought process. The island state is seeing delays at high-profile projects and it wants to achieve its installation targets. But if its proposed solutions raise risks for developers then the sector could fall further behind.

Development delays

The statistics tell the story. Taiwan's 273MW operational offshore wind at the end of June is far less than the 24.9GW in operation in mainland China. That is no surprise given their comparative sizes. However, Taiwan was also overtaken in the first six months of 2022 by Vietnam, which raised its operational offshore wind capacity to 396MW. The Taiwanese government wants to reach 15GW of offshore wind by 2035, so it makes sense to give more developers more motivation to pursue their projects.

Taiwan's challenge is that current headline projects have faced delays.

Ørsted has delayed commissioning at the 900MW Greater Changhua 1 and 2a projects until next year due to challenges caused by Covid-19; and the 640MW Yunlin project by Total, Wpd and EGCO was due to complete in 2020 but has also been delayed to 2023 due to technical and operational issues caused by challenging soil conditions. These delays are frustrating for all concerned.

And yet, we cannot see how the proposal to financially clobber the companies behind new projects will fix the problem. The government wants regular progress reports that assess projects against 25 criteria, and could lead firms to rack up penalties on multiple projects. There is little potential to transfer those financial risks to contractors.

Essentially, the government is seeking to gain control by turning itself into the political version of a meddling middle manager. This could detrimental and deter investment.

There are other risks to the offshore wind industry too. There appears a greater danger of China looking to seize Taiwan, and the Chinese government’s response to a visit by UK politicians to Taiwan in October to discuss collaboration in sectors including offshore wind shows that tensions are growing. Taiwan’s local content rules also remain strict.

This 8.7GW tender announcement is positive in that it shows there is still great appetite from overseas investors. Even so, it appears those investors are likely to face tougher political headwinds in the coming years unless the government changes tack.