If offshore wind is going to fulfil its potential as one of the world’s main engines of energy decarbonisation, the industry needs to thrive well beyond its early European heartlands – in markets such as Taiwan, where all is not proceeding as smoothly as hoped.
The East Asian island has set out its stall as a leader for offshore wind growth outside Europe and China, initially moving far faster than local economic heavyweights such as South Korea and Japan despite being a relative latecomer to the sector, getting serious only in 2016 with the election of Democratic Progressive Party candidate Tsai Ing-wen as President.
The President put the industry at the centre of an energy transition plan that was as anti-nuclear as it was pro-renewables, going for broke with a series of ever-larger offshore wind ambitions that will now see the island put as much as 15GW on the block through tenders by 2035, after already auctioning 5.5GW that is currently being built, putting it in the top rank globally and attracting a roll-call of foreign heavyweights keen to build and equip turbine projects off its coasts.
The US, by contrast, has just 42MW of installed capacity, and only one project under construction, the 800MW Vineyard Wind. On a per capita basis, America would need to install 140GW during the same period, instead of the 30GW by 2030 that the Biden administration has pledged, to match Taiwan’s ambitions.
More than just generating green energy, Taiwan also covets a key role in regional offshore wind supply chains, producing everything from foundations and transition pieces to turbine electronic components and blades. The government has been relentless in pushing localisation, with strict regulations on what components must be locally produced to direct investment into domestic industry, amid claims that a fully developed supply chain will produce more than $30bn in economic value.
Despite the lofty targets and industrial ambition, Taiwan has struggled to maintain momentum.
Early installations have stalled. The 109MW Taipower Demonstration project was delivered nearly a year late, while the 376MW Formosa 2, and 640MW Yunlin wind farms, both intended to see commercial operations in 2020, remain unfinished, and with the end of the construction season closing in fast look set to be delayed for another year.
Government ministry infighting, poor project management, and the impact of the Covid-19 pandemic are all factors, but industry insiders also cite strict local content requirements as a key obstacle facing the industry.
Taiwan’s experience so far is a lesson in how tricky the balancing act is between insisting on a local supply chain that can offer industrial benefits and stifling growth through unrealistic expectations.
Its government lists 26 components that must be produced locally, including foundations and pin piles, towers, cables, substations, blades, and electronic components, along with a roster of suppliers ostensibly capable of manufacturing them.
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Developers in Taiwan’s second-round phase two auctions were required to include a detailed plan for localising their supply chains. But few suppliers on the government’s list actually have the manufacturing capacity or know-how required for the offshore wind sector and need substantial infrastructure and training investment, as well as technology transfer.
Global wind turbine OEM Siemens Gamesa has successfully brought through a nacelle fabrication facility and industrial cluster, but industry insiders say most local suppliers continue to struggle to reach the quality standards required for the industry.
Consequently, developers are not seeing the cost reductions that have been crucial to the advancement of the industry in Europe, while Taiwan risks delays to the installation of critical new power supply while also not gaining a globally competitive supply chain.
Latest third auction rules loosen up the requirements somewhat, indicating a less rigorous 60% of the project’s components be locally produced, including the list of mandatory items, allowing developers more freedom to scour the global market for the best source of supplies. This was offset, however, by a ceiling on bid prices for power sold in the tender at NTD2.49/kWh ($90/MWh) and a cap on project sizes at 500MW, far smaller than the gigawatt-scale developments planned elsewhere in the world.
Developers have long said that they cannot make money under these terms, and the full localisation requirement details still have not been released.
Ching Wen Huang, principal in The Renewables Consulting Group (RCG)’s office in Taipei, fears Taiwan runs the risk of diminishing the interest of developers in its own market, particularly as other Asian players, including Japan, South Korea, and Vietnam, have started to make serious the offshore wind sector.
We don’t need to localise what we don’t know how to do.
Faced with a combination of capped prices and still-strict local content, “many will say, it’s not worth it”, Huang observed.
“We don’t need to localise what we don’t know how to do, such as foundations,” he told Recharge. “Instead, we should focus on our strengths so that we can compete in the international offshore wind trade.”
Early leads lost
Taiwan has a track record of taking an early lead in new industries – solar PV, smartphones, PCs – but then squandering that advantage when global competition caught up.
A decade ago, one-in-three smartphones sold around the world were built by Taiwan’s HTC, while Taiwan’s PV manufacturing sector was once a global powerhouse. And those industries play to Taiwan’s strengths in precision electronics manufacturing. By contrast, Taiwan has little subsea engineering capacity and no offshore oil and gas experience to draw upon as it ramps up its offshore wind sector.
The timeline for development is short. Taiwan’s nuclear power plants are winding down and the remaining three reactors will be retired one by one until 2025. Coal fired power is nearly as controversial, and the government has vowed to reduce coal fired powers’ proportion of generation to only 30% of the total, down from 48% in 2020.
This gaping hole in Taiwan’s power generation by 2025 is expected to be filled by 50% natural gas-fired power, and 20% by renewables.
Offshore wind, which is due to play a key role, should reach 5.7GW by 2025, but currently remains at 128MW, where it’s been since November 2019 and the commissioning of the Formosa 1 project.
There are no doubts that Taiwan will emerge as a major offshore wind player, but its early bumps in the road could offer valuable pointers to other markets in Asia and beyond – including in the US, where every east coast governors is keen that their state is seen as a economic winner in this brightest of new industries.
This is one of a series of special articles from Recharge in the run-up to COP26 in Glasgow. See the others below.
- COP 26 | Are energy islands the missing link to make Europe's 'net zero continent' dream reality?
- COP26 | Scotland flies the flag for North Sea's floating wind future
- COP26 | Boris Johnson's net-zero power plan in peril if offshore wind gets stuck in the slow lane
- COP 26 | 'Widespread use of green hydrogen in heating and cars is not only stupid — it’s practically impossible’
- COP26 | Joe Biden's climate credibility hangs by a thread as the clock ticks to Glasgow