From a position of having a relatively low profile in the regional and international renewable energy community, Taiwan has fast become a focus of developers, investors and others as it seeks to pursue an ambitious agenda of rebalancing its energy mix away from largely imported fossil fuels and towards home grown wind, solar, hydro and other renewable energy sources.
The key driver of this is the government’s decision to phase out nuclear power (which currently accounts for approximately 10% of Taiwan’s installed generation capacity) as well as to reduce its reliance on imported coal.
Taiwan’s geographical characteristics and relatively friendly investment environment make it a particularly attractive target for inbound investment from foreign investors.
In particular, the recent award of 5.5GW of grid capacity to new offshore wind projects is expected to result in a high level of activity for this market in the coming years. The successful financing in June 2018 of the 128MW Formosa 1 project, Taiwan’s first utility-scale offshore wind farm, demonstrates the appetite of the local and international bank market to provide long term project finance for offshore wind projects in Taiwan.
Key developments in renewable energy in Taiwan*
Select tab below to explore the key developments in renewable energy in Taiwan
Which sectors are active?
Taiwan’s gross energy production was 270,278.7GWh in 2017.1 Taiwan’s main source of energy is thermal power with coal, nuclear and gas (including LNG) representing the most important sources of fuel in the island’s energy mix. The composition of installed generation capacity as of 2017 is as follows:
In 2016, the government announced that, by 2025, it would phase out nuclear power generation. To plug this energy gap, the government announced ambitious targets to increase the amount of electricity generated from renewable sources to 20% of the island’s energy supply.
Switching to renewable energy
The composition of Taiwan’s renewable energy generation capacity as of 2017 is as follows:
The government aims to achieve the increase in renewable generation by developing the following sources of renewable energy generation capacity:
Solar: 20GW by 2025 Offshore wind: 5.5GW by 2025 (see below) Onshore wind: 1.2GW by 2020
To support the development of renewable energy the government in 2009 passed the Renewable Energy Development Act (“REDA”) which provides for a feed-in tariff system (see further details below) and offers a range of incentives to renewable power producers. The REDA is currently under an amendment process in the legislative yuan (legislative assembly).
The Electricity Business Act (the “EB Act”) was also subject to substantial reform in 2017, including provision for the future liberalisation of the electricity market but also addressing the development of renewable energy by providing for preferential measures for renewable power producers, such as priority grid connection and dispatch. Further regulatory changes have sought to facilitate the expansion of the offshore wind sector in Taiwan, such as incentives and subsidies, land, zoning and construction arrangements.
As well as legislative and regulatory measures, the government has also announced measures to streamline approval processes and significant investment in infrastructure designed to facilitate the development of renewable energy – such as the expansion of Taichung Port as a base for the development of the offshore wind sector.
How does the system work?
Role of Taipower
Taiwan Power Generation Company, commonly referred to as Taipower ("台電"), is the state-owned company under the control of the Ministry of Economic Affairs (“MOEA”). Taipower is the main energy producer in Taiwan and currently has a legal monopoly on the distribution and sale of electricity. Commercial private power producers are currently required to enter into a power purchase agreement (“PPA”) with Taipower, although the recent amendments to the EB Act provide for:
the liberalisation of Taipower’s monopoly over the purchase of all electricity generation in Taiwan and paves the way to direct sales of electricity by renewable power producers to end-users; the unbundling of Taipower’s electricity generation business and its transmission / distribution business; and the establishment of a ‘transmission wheeling’ service by Taipower to access the grid
MOEA responsibilities include setting the policies for electricity businesses and the power prices / charges, setting technical regulations and overseeing the administration of electricity facilities. The MOEA’s energy-related functions are delegated to the Bureau of Energy (“BOE”). Local authorities’ responsibilities include the inspection of users’ electrical equipment, overseeing the administration of the electricity construction industry and managing disputes between electricity enterprises and the public on the use of land. The Electricity Regulatory Agency is a new regulatory agency to be designated by the MOEA pursuant to the EB Act, which will be responsible for (among other things) supervising and administrating electricity enterprises and the electricity market, approving applications for the set-up of electricity enterprises, predicting and planning power supply and demand, supervising and administrating power dispatch and settling disputes between electricity enterprises or between electricity enterprises and users. Before the Electricity Regulatory Agency is established, its functions will be exercised by the MOEA. The Fair Trade Commission is an independent agency which oversees competition and fair trade matters, including anticompetitive behaviour in the power sector.
The permitting process for the development of renewables projects in Taiwan can be relatively complex and involve various authorities including the Environmental Protection Administration, MOEA, BOE, Taipower, local governments and other government agencies.
For example, an offshore wind project will require:
an EIA Approval; an Establishment Permit; a Recordation Approval; entry into a PPA (see Hot topics); a Work Permit; and an Electricity Business Licence. As well as a number of other consents and approvals.
Government incentives and tax breaks
Renewable energy is purchased by Taipower according to feed-in tariffs determined by the government (see below). In addition, the recent amendments to the EB Act provides other incentives to renewable IPPs, including:
subsidy programmes (such as equipment subsidies and demonstration subsidies) and the establishment of a specific fund to finance such subsidies. The fund is financed by power producers in proportion to their non-renewable electricity generation capacity; exemption from import duties for renewable power equipment during construction or operation (provided there is no manufacturer for such equipment in Taiwan); and various rights and arrangements for renewable IPPs in relation to zoning and construction regulations.
Feed-in tariffs (“FiTs”) for wind, solar, hydropower, biomass and waste are set in New Taiwanese Dollars (“NTD”) on a yearly basis by the MOEA pursuant to the EB Act and the REDA. The REDA provides that the purchase price for renewable energy must not be lower than the average cost for domestic fossil fuel power production.
Once fixed, the FiTs for each category of renewable energy are published by the MOEA through a tariff notice. PPAs for renewable energy are entered into with Taipower (as grid operator) for 20 years based on the relevant FiT contained in the applicable tariff notice at such time. Depending on the type of energy, different pricing options may be available under the relevant tariff notice.
A summary of the FiTs for renewable energy applicable for the calendar year 2018 is set out below.9 The FiTs for 2019 are expected to be announced at the end of October 2018.
Funding of the FiT
The ‘RED Fund’ was established 2009 to support renewable power generation, including by subsidising renewable energy tariffs. This is funded by conventional power producers, Government treasury contributions and other sources. While the RED Fund is available to fund the FiT, the primary obligation for payment of the FiT sits with Taipower.
The proposed amendments to the REDA include changes to the use of the RED Fund. It is anticipated that, in the future, the RED Fund may no longer be available to subsidise renewable energy tariffs, and Taipower will instead be allowed to pass on the cost of renewable energy to end-users.
Restrictions on investment
There are generally no restrictions on foreign investment in the renewables sector in Taiwan (except for investment with national security concerns or investment from mainland China). Taiwan operates a “negative list” control on investments by foreign nationals whereby investments are allowed unless they are restricted or prohibited. Electricity generation is not subject to specific restrictions, although foreign investors are required to undergo an application process and obtain a foreign investment permit from the Investment Commission of the MOEA. The grant of a foreign investment permit also entitles foreign investors to certain fundamental investor protections including in relation to adverse government action.
2018 capacity allocations for offshore wind
In early 2018, the MOEA released the “Directions for Allocating Installed Capacity of Offshore Wind Potential Zones” (the “Allocation Directions”) which provided for a selection and bidding process for the allocation of 5.5GW of grid capacity to offshore wind projects which obtained approval of an Environmental Impact Assessment by the end of 2017.
The Allocation Directions provided for:
a selection procedure for the award of fixed FiTs for:
> a total capacity of 0.5GW for grid connection in 2020 (Tier 1 or ‘fast track’ projects); and > a total capacity of 3GW for grid connection between 2021 and 2024 (Tier 2 projects); and
a selection and bidding procedure for the award of a competitively determined tariff, for a total capacity of up to 2GW (Tier 3 projects).
The MOEA awarded a total of 3,836MW of grid capacity through the selection process (Tier 1 and Tier 2 above) in April 2018, and subsequently awarded 1,664MW of grid capacity through the bidding process (Tier 3 above) in June 2018. A full list of the projects that were allocated capacity in the selection process and the bidding process can be found on the MOEA website.
The tariff applicable to the Tier 1 and Tier 2 projects will be the FiT applicable to offshore wind at the time the relevant project enters into the PPA with Taipower, whereas the tariff applicable to the Tier 3 projects were determined by competitive auction and are significantly lower than the current fixed FiT for offshore wind. There are also differences in the terms of the Grid Contract applicable to each of Tiers 1, 2 and 3 (see below).
All projects awarded capacity pursuant to the Allocation Directions are required to comply with the requirements set out in a grid contract (“Grid Contract”) to be entered into with the MOEA. The form of Grid Contract will be different for each of Tiers 1, 2 and 3 and will address (among other things):
Projects will also be bound by the terms of the original selection proposals submitted to MOEA.
achievement of key project milestones by specified dates; environmental compliance and funding obligations; local content requirements; ongoing reporting obligations; liability regime (including liquidated damages, other rights to claim damages and MOEA termination rights); requirement to provide performance bonds; lock-in of ‘promoters’ originally awarded grid connection and FiT for the term of the PPA; and other secondary and ancillary obligations.
Offshore wind PPA
The model form of PPA that is used by Taipower for offshore wind projects regulates:
It is a short document which does not seek to provide a comprehensive allocation of risks as between the generator and Taipower / government (as would be the case under a typical long form emerging markets "PPA"). Instead, it is more analogous to a prescribed statutory PPA used in the context of a feed-in-tariff model in developed and/or liberalised markets, and should be read in conjunction with the applicable regulatory regime in Taiwan.
The model PPA for offshore wind was updated by Taipower in December 2017 and is in a very similar form to the template form of PPA used in numerous existing onshore wind and solar projects in Taiwan.
Development Assistance Fund
The MOEA announced in February 2018 draft Rules on the Usage, Supervision and Management of Power Development Assistance Funds, which require projects to make contributions (based on electricity generated) to the ‘Power Development Assistance Fund’. The Fund will be used mainly to promote local community development and welfare.
the purchase of electricity by Taipower; and the connection of offshore wind projects to Taipower’s electricity grid.
The government intends to achieve 20GW of solar PV installed capacity by 2025 through the development of both rooftop and ground-mounted systems, which are expected to respectively account for 3GW and 17GW.13 There have also been examples of floating solar technology uses.
In September 2016, the government approved a “Solar PV Two-Year Promotion Project” targeting to achieve 1.52GW of additional solar power generation within a two-year period. Under this plan, the government was to:
create a “single-window” system to speed up administrative procedures designate further locations for solar power generation plan for grid expansion encourage domestic banks to provide financing amend laws and regulations to reduce regulatory restrictions on the development of solar power production.
The government is also encouraging the development of small scale capacity through the “Million Rooftop PVs Program”.