Rigid local content requirements and a cap on project sizes currently being considered by Taiwan’s government pose challenges to the commercial viability of future offshore wind projects off the island and may push developers to favour other markets in Asia, Matthias Bausenwein, president of Orsted Asia-Pacific, told Recharge.
A front-runner in the region, Taiwan has already allocated 5.5GW of capacity that is slated to be erected in its waters by 2025, and targets to install up to 15GW by 2035.
For the next offshore wind auctioning round, the government in Taipei is currently mulling a 60%-plus local content requirement, as well as a 500MW cap on the size of future projects and an about $90 per megawatt hour ceiling price for the tender.
“It is a combination that makes it more challenging to make these projects commercially viable,” Bausenwein said in an exclusive interview, especially if the industry doesn’t see significant cost reductions at the local supplier side.
“The whole combination creates a certain degree of uncertainty.”
Bausenwein stressed that Orsted – which at its 900MW Changhua 1&2a project is already incorporating strict localisation rules and trying to help the build-up of a local supply chain - is not against a localisation of the industry per se, but that it is a process that takes time, with some of the new suppliers not making that much progress, or even failing.
“It would be very helpful to have different suppliers to source from. Not at least to get a competitive price,” Bausenwein said.
“We want a healthy supplier base, and that means that we are also able to consider non-Taiwanese suppliers. Especially, if a Taiwanese supplier is not able to deliver.”
The other thorny issue is a planned cap of projects to bid in future tenders at 500MW (with a buffer allowing up to 600M), Orsted’s Asia-Pacific chief pointed out, as the size limit goes against the idea to reach economies of scale to bring costs down.
As projects currently being built off Taiwan by the Danish utility have a capacity of 900MW, the cap would actually mean that future projects must be smaller – against a world-wide trend from the UK to the US to build gigawatt-plus arrays.
“It would be better to have bigger projects and to have more of a clear cost reduction path on the supplier side, and then we need to see how the revenue stream would look like. There is a cap on what we can achieve,” Bausenwein said.
The executive stressed that Orsted is actually well positioned to deal with such limitations as it can achieve synergies across projects, such as between the current Greater Changhua 1&2a project, and its plans to build the adjacent 920MW Greater Changhua 2b and 4 arrays.
“Even with all that, we would see it as something that requires a lot of extra work now to make it feasible, investible. And I can only imagine how complicated it would be for some of the competitors, or project financed projects, or for newcomers.”
Orsted projects such as the Hornsea triplet off the UK with 1.2GW each allow for scale, and make a contribution to replace nuclear and coal power plants, a development Taiwan is also very keen on, Bausenwein said, arguing for the island to allow for projects of 900MW or more.
If each market in Asia-Pacific, such as Japan, Korea, Vietnam or Taiwan, would come up with very rigid local content targets and size caps, it would be very difficult to bring costs down and scale offshore wind in the region to the extent that is needed, he stressed.
Taiwan is already a regional hub, and Orsted’s “stepping stone into other Asian markets,” Bausenwein said, but warned too rigid restrictions could turn that around very quickly.
“The gravity centres could shift based on where the frameworks are more favourable. That is a danger for pioneer like Taiwan now,” he said.
Supply chains across the region should complement each other, with each market concentrating on its strengths, such as nacelle factories in Taiwan, or shipbuilding in South Korea.
“There is competition across markets in order to accelerate things. The resources are limited, fabrication capacity is limited. So there will be a natural competition,” Bausenwein said.
“The industry in the region is forming. The supply chain is forming. But there is a kind of dynamic there now and that everybody needs to be aware of when setting up very rigid frameworks.”
Taiwan is a strategic market for Orsted and the company is prepared to bid in the next offshore wind round, but for that needs to wait for the final outcome of the localisation rule, he cautioned, adding that the government’s plans are not yet “completely carved in stone.”