“Good job, very positive” – Taipei’s policy announcements have not always earned such glowing reviews from the offshore wind industry, but on Tuesday an extra 5GW of available capacity and more flexibility over local content raised cheers from a Taiwanese sector that is still facing significant short-term growth pains.
After five months of delays, eagerly awaited rules from Taiwan’s Bureau of Energy for its third-round auctions covering installations in the 2026-2035 period raised the total to 15GW from a previously expected 10GW. Its mid-term goal was raised from 5GW to 9GW by 2031
With already-advancing projects from previous rounds included, that would give Taiwan almost 15GW in the water by the start of the next decade – comfortably more than the 10GW and 12GW targeted by Asian peers Japan and South Korea respectively.
Local content has long been a bone of contention between developers in a relationship with Taiwan’s government that has also seen bumps in the road over planning and support levels.
Developers have consistently maintained that a list of 27 components that must be locally sourced, including jackets, towers, turbine components, and blades, is overly rigid and results in slowdowns and higher costs. They pushed for greater flexibility, and the third-round rules maintain the component list, but now only apply it to 60% of the project, enabling developers to source the remaining 40% from the global market.
'Thank you for the volumes'
“Thank you very much for the clarity, for the timelines, for the volumes,” said Niels Steenberg, chairman of offshore APAC for turbine OEM giant Siemens Gamesa as Taiwanese officials answered questions over the draft third-round regulations.
Siemens Gamesa’s nacelle assembly plant forms the centre of a manufacturing hub in Taichung City that will supply turbines to the local and regional sector. The manufacturer will start delivering 8MW 167DD turbines to Orsted’s 900MW Greater Changhua 1 & 2 projects in 2022, and its top-of-the-line 14MW 222DD turbines are cued up for the 300MW Hai Long 2 project being developed by Northland Power.
“There has been some flexibility built into the localisation. Good job, very well done,” Steenberg said.
Taiwan is pioneering the offshore wind industry in the Asia-Pacific region as part of its wider efforts to transition its power supply away from nuclear and coal, and towards renewables and gas.
The sector really kicked off in 2016 under the administration of Tsai Ing-wen of the Democratic Progressive Party, and the island currently has 128MW of installed offshore wind capacity with another 5.6GW under development in the Taiwan Straits, scheduled to come online by 2025.
To achieve economies of scale and build-out the local supply chain, the industry has been waiting since December 2020 for the announcement of the third round of developments post-2025.
“It’s a very positive development that they have increased the target,” said Raoul Kubitschek, managing director for offshore wind consultancy NIRAS Taiwan. “They have given it a lot of thought over the last five months.
The projects will be awarded via a series of three auctions starting in June 2022 for the 3GW available for commissioning in 2026-2027, followed by a second in Q2 2023 for 2028-2029, and a third in Q2 2024 for the 2030-2031 round. The remaining 6GW will be auctioned off between 2032-2035. The auctions remain technology neutral between fixed-foundation and floating wind.
Despite the optimism generated by the announcement of the third-round regulations, however, Taiwan’s offshore wind industry faces immediate hurdles that some analysts believe could leave it well off course on reaching its 2025 goals.
The Covid-19 pandemic forced significant delays to the installation of early projects by slowing down global supply chains and complicating the travel of skilled workers needed for installation.
The 376MW Formosa 2 offshore wind farm, owned by a consortium including Japanese energy company Jera (49%), Macquarie’s Green Investment Group (26%), and local offshore wind developer Swancor Renewables (25%), was originally slated for installation by the end of 2020, but remains unfinished. Jan De Nul, the EPCI contractor handling installation for the project, has struggled to bring in the requisite skilled workforce to complete the project, while also contending with heavy weather over the winter.
The 640MW Yunlin offshore wind farm project also remains incomplete. Owned by German group Wpd (48%), EGCO (Electricity Generating Public Company Limited) (25%) and a consortium of Japanese investors led by Sojitz (27%), the development faced protests by fishing associations and environmental organisations that stopped development last summer.
This project is being installed by Malaysian oil & gas outfit Sapura Energy and was initially scheduled for the end of 2020 but is now targeting Q3 2021 for completion. French oil supermajor Total has announced its intention to purchase 23% of the project from Wpd.
Wpd’s 350MW Guanyin project permit was also yanked in 2020 after the Civil Aviation Administration red-flagged it over aviation safety concerns, highlighting government in-fighting that has likewise held up industry development.
The consequences of these early set-backs may reverberate for years. Ching-Wen Huang, Taipei-based senior associate for Renewables Consulting Group, noted in an interview prior to the latest policy announcement that the delays being experienced in the current round of projects could impact later rounds and doesn’t see Taiwan commissioning its first 5.6GW until 2026 or 2027.
Supply chain localisation will also continue to be a struggle for the industry as the country has little marine engineering experience and few qualified personnel.
“The current state of the local industry and where the global developers needs it to be are not aligned,” observed Global Wind Energy Council (GWEC) analyst Qiao Liming. “The local industry doesn't understand how rigorous the requirements are for the global industry.”
Taiwan suppliers have seen some successes, including 40 of the total 80 monopiles for the Yunlin project completed by Formosa Heavy Industries as well as 40 transition pieces built by CTCI, but it’s widely acknowledged that local supply chain manufacturers remain unskilled and lack capacity in the industry.
Transition pieces delivered by local shipbuilder CSBC to Orsted in October 2020, showed cracks and were rejected, while local news has reported on numerous cases of components supposedly made in Taiwan that were actually manufactured abroad.
Taiwan’s many start-up enterprises also lack the financial resources to build capacity, highlighted Eileen Hsieh, an assistant research fellow in Taiwan Institute of Economic Research.
“The investment amounts are high, as local companies have to invest into the technology as well as performance bonds, and they have problems putting such large amounts into the industry,” she said.
In response, Taiwan’s Executive Yuan established the National Credit Guaranty Association in January. Funded under the National Development Fund, this agency will provide lower cost credit to Taiwanese firms looking to enter the offshore wind sector.
GWEC’s Qiao believes strict local content requirements could potentially impact Taiwan’s industry by adding costs for development while also establishing a localisation precedent that will likely be followed by markets across Asia Pacific.
The best way is to let the market choose and let the market compete to make the industry more robust.
If other markets pursue their own strict localisation policies, it could quash Taiwan’s hopes of being a regional export hub for offshore wind as well as keeping regional offshore wind costs artificially high.
“The best way is to let the market choose and let the market compete to make the industry more robust in the long run,” Qiao said.
Analysts are divided over the impact of the more liberalised localisation rules under the third round, noting that while developers will be free to source the global market for 40% of the project, winning the project bids will likely hinge on their local content strategy. Additional localisation beyond the 60% minimum could end up acting as trump card for projects if competition is too close to call on price, some reckon.
“In addition to the 60% local content items which must be met, the remaining 40% is a bonus choice,” noted Sharon Chen, market analyst for Taiwanese green energy market research firm InfoLink. “For developers, the key to winning the bid in Round 3 lies in how to utilise the 40% for local content.”
Kubitschek, who sees the time frame for the third round as well as the added capacity benefitting localisation, said: “It skews the advantage towards companies that know how to localise. For 2026 you are bidding in 2022 so that means [local suppliers] have four or five years to ramp up. It keeps the suppliers in the market.”
Much work remains to be done. Taiwan’s Ministry of Transportation and Communication needs to finalise a map of designated “red zones” in which offshore wind development is prohibited to protect shipping lanes, while environmentalists and fishing associations are still negotiating for resource protection.
Optimism on the march
Analysts outside of Taiwan approached by Recharge are generally optimistic that Taiwan will overcome its current struggles and largely meet the 2025 deadline.
Shan Xue, principal analyst at IHS Markit, sees 2025 offshore wind capacity at 4.3GW somewhat hobbled by Covid delays and fishing disputes, while Wood Mackenzie principal analyst Robert Liew said that despite the pandemic, “we are still expecting at least 5GW of commissioned offshore capacity by 2025”.
Bloomberg New Energy Finance analyst Jonathan Dong Luan is even more optimistic, forecasting 5.4GW by 2025.
The announcement of the third round looks set to accentuate the positive where Taiwan is concerned.
“There are still a lot of issues that they need to address – but the main point is that the government stepped up the game and the came out with a good general plan,” said Kubitschek.