Orsted 'revisits' efforts in Taiwan after offshore wind PPA flap

Developers failed to secure 2018-level power deals after facing local permitting challenges in Changhua province

Installation of Formosa 1 off TaiwanFoto: Swancor

Yuki Yu in Beijing

Denmark’s Orsted has paused all of its offshore wind development activities in Taiwan after permitting challenges in Changhua province made it impossible for the central government to sign power-purchase agreements (PPAs) for 2.1GW of projects from various developers by an extended 2 January deadline.

The missed deadline means projects will not be entitled to receive the more generous 2018 feed-in tariff (FIT) level.

The dramatic announcement from the world’s leading offshore wind developer came after a late-year scramble in which six offshore wind projects off the island’s Changhua province made substantial progress in gaining separate permits from local and central regulators, in the hope of still being able to sign a PPA with state-run utility Taipower.

The projects include Orsted’s Changhua Southwest (294.8MW) and Southeast (605.2MW), Copenhagen Infrastructure Partners’ (CIP) Chang Fang (552MW) and West Island (Xidao, 48MW), China Steel’s Zhongneng (300MW), as well as Hai Long II (300MW) that is jointly owned by Yushan Energy and Northland Power Inc (NPI).

The central government in Taipei tried to help developers secure 2018 FIT levels of TWD$ 5.849 ($0.19) per kilowatt hour through granting conditional approvals for the projects from several regulators (including the local fisheries agency and the ministry of the interior) despite still-incomplete information provided by developers.

Also, the ministry of economic affairs (MOEA) agreed to extend Taipower’s PPA signing deadline to 2 January to give some extra time.

Nevertheless, MOEA wasn’t able to issue final building permits as it lacked an approval letter from the new local government in Changhua, where 4.06GW – or 70% – of the island’s projects approved through 2025 are located.

Changhua’s recently elected governor Wang Huei-mei from the opposition KMT party had voiced fierce criticism of Taipei’s policy of rapidly expanding renewables, and its decision to offer what he considers to be a “premium” FIT rate to the offshore players.

A red-tape drama unfolded, and Changhua slammed the proposals on 28 December, requesting more information submitted by the developers.

Although wind developers rushed to send in additional information during the first working day of 2019, Wang refused to green-light the projects on Wednesday.

That successfully blocked the claim for 2018 FIT levels, “a rate that will cost taxpayers tens of billions extra in the name of green energy”, the Changhua governor’s office said in a statement.

In response to the failure to secure PPAs at the 2018 level, Martin Neubert, chief executive for Orsted Offshore, said the company will “pause and revisit all our project activities, the timeline of the projects, and our supply chain commitments and contracts” in Taiwan.

All of those activities had been based on the assumption the projects would secure 2018 FITs, Neubert says.

“We’re very concerned about the suggested feed-in-tariff level for 2019 as well as the newly proposed cap on annual full-load hours,” he adds. “We will need to see significant changes to these proposals before we can progress any further towards a final investment decision on the projects.”

Orsted says the FIT levels need to reflect the “extraordinarily high costs” faced by the company's Greater Changhua 1 and 2a projects related to creating a local supply chain, reinforcing the onshore grid, and operating a wind farm in challenging waters where typhoons and earthquakes occur.

Despite the setback, MOEA provided a glimmer of hope for developers.

The ministry in a note said it plans to decide on the 2019 level for renewable FITs by the end of this month, after a rate cut of 12.71% to TWD$5.1 for offshore wind proposed in November had led to protests from the renewables sector.

Onshore and floating solar rates would drop 12.15% and 11.16% respectively, according to the draft.

Renewable players warned the cuts would harm the island’s industry transformation and clean energy ambition.

Gunnar Herzig, managing director of recently-formed industry group World Forum Offshore Wind told Recharge: "There is great concern among the global offshore wind industry that the regulatory changes introduced by the Taiwanese government might jeopardise the so far very successful development of offshore wind energy in Taiwan. The situation shows how important long-term regulatory clarity is for the development of large-scale infrastructure projects such as offshore wind."

Five offshore wind developers issued a joint statement on the last day of 2018, urging Taipei to revise the proposal and maintain FITs at 2018 levels. Orsted, CIP, NPI, Yunshan Energy, and China Steel in the note warned to collectively reduce planned investments of TWD $600bn in the local industry. The statement said the projects become economically unfeasible with the proposed rate.

MOEA has shown signs of flexibility. The director general of the ministry's bureau of energy, Chuan Neng Lin, according to a report in local outlet Economic Daily News, said the agency is considering extending a mechanism that would allow developers to sell power at a higher rate during the first ten years of generation, which it had planned to scrap.

Story updated with Orsted and WFO comments.