Published on May 27th, 2018 | by Joshua S Hill0
Taiwan Emerges As Offshore Wind’s Next Power Base With 3.8 Gigawatt Tender
May 27th, 2018 by Joshua S Hill
One of the most important renewable energy sectors, as we move forward and continue to shift away from fossil fuels like coal and natural gas, is the offshore wind industry, which boasts high-yield renewable energy generation done at increasingly lower costs, and done so safely away from the majority of witnesses.
It is the perfect clean energy technology.
The offshore wind industry has, for the most part, been centred firmly in Western Europe. As of the end of 2017, the United Kingdom led the way with a total of 6,386 megawatts (MW) worth of offshore wind power installed, followed by Germany which boasted 5,355 MW. Denmark and the Netherlands each boasts over 1 gigawatt (GW) worth of offshore wind, and Belgium is not far off that marker either.
Unsurprisingly, China is the regional ‘odd one out’ with 2,788 MW worth of offshore wind installed at the end of 2017, taking third place and the only non-European country to have over 100 MW worth of offshore wind.
That, however, may soon quickly change.
A Brief History
While it is never as simple as finding a single starting point, the first big rumblings about a Taiwanese offshore wind energy industry were sparked back in early 2017 when then-DONG Energy (now Ørsted) announced that it had acquired a 35% stake in the country’s first offshore wind project — the 120 MW Formosa 1 project. DONG Energy joined Macquarie Capital (50%), and Swancor Industries (15%) as co-investors in the project.
The project started out with an 8 MW demonstration phase, and in April of this year the second phase, which would add 120 MW, received final investment decision from Ørsted and awarded the wind turbine supply contract to Siemens Gamesa. Final investment decision was also made by the by Swancor board (confirmed to me via email) but reports have emerged recently that Macquarie Capital is actually looking to sell part of its stake in the project, according to Bloomberg sources, and it has yet to make a final investment decision. Macquarie declined to comment on either issue. (According to Bloomberg New Energy Finance (BNEF) wind energy analyst Tom Harries, the total development cost for the second phase of the Formosa 1 project is expected to sit at around $840 million.)
However, the Formosa 1 project is only one aspect of a burgeoning Taiwanese offshore wind industry that has so far involved big-name Western company’s including Ørsted and Siemens Gamesa, as well as MHI Vestas Offshore Wind (MVOW) and Copenhagen Infrastructure Partners (CIP). In the lead-up to a vital offshore wind tender, these companies began making moves into the country in preparation.
In March, wind turbine manufacturer MHI Vestas signed four Memorandums of Understanding (MoUs) with leading local companies to begin building out its supply chain in the region, and followed that up in May with a fifth MoU and the commitment that its 9 MW wind turbines will be typhoon-ready by 2020 — a necessity for offshore wind development in the region. Siemens Gamesa similarly began making inroads into Taiwan, signing several MoUs in December and February.
Maybe the biggest move, however, was made by Danish offshore wind behemoth Ørsted which, in December announced that it was moving forward with its plans for 2 GW worth of offshore wind projects as part of its Greater Changhua project, and set itself up to support not only the development of the country’s offshore wind industry but to do so with locally-sourced material and labor.
“Local content has been placed at the center of our project development activities,” said Matthias Bausenwein, Ørsted’s General Manager Asia Pacific and Chairman Taiwan. “In the past year, the local Ørsted team has met over 170 Taiwanese companies and identified 15 companies for close collaboration. CWP has a very strong background in large-scale steel manufacturing and shown significant ambition to invest in offshore wind manufacturing business.”
Taiwan Awards 3.8 GW Out of 5.5 GW
All of the hard work and preparation has paid off, however, as the Taiwan Ministry of Economic Affairs announced earlier this month that it had awarded seven companies to build 10 offshore wind farms worth a total of 3.8 GW by 2025.
Specifically, the seven companies included state-run Taiwan Power and the largest steel-maker in Taiwan, China Steel Corp., but the big winners were Western companies Copenhagen Infrastructure Partners, which won 900 MW, German developer WPD with 1,073 MW, and Ørsted which won 900 MW.
CIP Changfang and Xidao Projects
CIP was awarded 600 MW for two projects, the Changfang and Xidao projects, located 13 to 15 kilometers off the coast of Changhua County, as well as a separate 300 MW project which it will develop with China Steel.
“The offshore projects awarded grid in Taiwan represent a significant outcome for CIP in a new and fast-growing market for offshore wind,” said CIP Partner Michael Hannibal. “CIP are very pleased with BOE allocating grid to our projects and recognizing our global leading expertise within offshore wind and our Taiwanese localization.”
WDP Yunlin and Guanyin Projects
German wind power developer WPD was awarded just over 1 GW for its Yunlin and Guanyin projects. The Yunlin project will consist of between 650 MW and 700 MW and will be built 8 kilometers off the coast of Yunlin County, and set for commission in 2020/21. The Guanyin project will be around 350 MW in size and build 2 kilometers off the coast of Taoyuan County and is set to be commissioned in 2021.
“We are impressed by the dedication of the Taiwanese Government to their offshore wind strategy,” explained Achim Berge Olsen, Managing Director of WPD. “There have not been any changes or delays during the selection process. We as WPD will stick to that attitude and simply deliver our projects now. Joint teams have been created out of the 200 technical experts from Germany with three offshore projects constructed and the 75 Taiwanese colleagues with their development excellence. This combination of skills will be key for realizing Yunlin and Guanyin.”
Ørsted Changhua projects
Ørsted was awarded the right to build two of its Greater Changhua projects, the 605 Changhua 1 and the 295 MW Changhua 2. The 900 MW grid capacity allocated to Ørsted means that its sites have a remaining 1.5 GW available in the leased area which the company hopes will be allocated across three projects in future auction rounds. The company won’t even necessarily have to wait very long, either, as the Taiwanese Government is expected to award the remaining 2 GW of its promised 5.5 GW through a tendering process likely set for June.
“This is a breakthrough moment for offshore wind in the Asia-Pacific region,” said Martin Neubert, Executive Vice President and CEO of Ørsted Wind Power. “We’re proud to be trusted with this important and large assignment, which will be a landmark in Taiwan’s ambitious transition to renewable energy.”
But why Taiwan? Given the commitment to offshore wind in western Europe, and Taiwan’s proximity to China, what is behind this sudden rush to South East Asia? There is obviously always a desire for companies to diversify their markets and market share, but what was it about Taiwan that has drawn so much attention so quickly?
Robert Liew is the senior analyst for the Asia-Pacific for MAKE Consulting, and he explained to me that there are two factors contributing to the sudden turn towards offshore wind in Taiwan. The “Fukushima nuclear disaster made the public wary of nuclear, resulting in a public push to denuclearise the island,” which, for a country that relies heavily on nuclear power, is not a small task. “Offshore wind is the only renewable energy source that can be scaled up (to hundreds of MW size) that can replace nuclear/thermal assets.” Yiyi Zhou, Asia Pacific wind analyst at Bloomberg New Energy Finance (BNEF), agreed, saying that “Taiwan has embarked on a power market transformation to phase out nuclear power while adding 25 GW of renewable energy by 2025, including 5.5 GW of offshore wind.”
In addition to the Fukushima catalyst, Mark Liew explains that the Taiwanese government has implemented “a very attractive offshore [feed-in tariff (FiT)] compared to current zero subsidy bids in Europe.” To further their country’s support of offshore wind, the Taiwanese government has also provided “stable policies, encourag[ed] local banks to be involved in project financing, and investments in infrastructure to support localization of offshore wind.”
As Matthias Bausenwein, General Manager for Ørsted in Asia-Pacific, describes it, “A framework has been created which enables foreign and national investors to think long term, including a zonal planning pointing out where the wind farms are located.” Additionally, “The government shows continuous support: setting aside budget for [the] Infrastructure Development Programme; accelerating work on the construction, operations, and maintenance [of] harbours as well as the transmission and distribution grid; and also raising administrative efficiency, accelerating and coordinating the permitting, so projects won’t lose too much time on unnecessary administrative procedures.”
Expanding on Taiwan’s FiT, Yiyi Zho explained that the 10 offshore wind projects awarded at the end of April which were “granted with grid capacity and project permission will be eligible for Taiwan’s offshore wind 20-year fixed feed-in-tariff, set at $199 [per megawatt-hour (MWh)] for 2018. The FiT price is locked at the time of PPA signing. This compares to the current European offshore wind auction prices which generally range between $40/MWh to $75/MWh.”
The prospects are similarly rosy for developers and manufacturers, as “Taiwan has among the best wind resources in the world and the government defined clear promotion guidelines for offshore wind since the very early days,” explained Andreas Nauen, Siemens Gamesa’s Offshore CEO, who also confirmed analysts’ suspicions about the various market drivers:
“The government is proactively supporting the offshore industry in Taiwan. Among the drivers are the “zero nuclear” vision for 2025 and the target to cover 20% of the power demands in 2025 with green energy. To achieve that, a dedicated grid development program has been defined for offshore wind, and 5.5GW of grid capacity are to be distributed for projects for commissioning between 2020 and 2025.”
“[A k]ey driver is that Taiwan has a strong fundamental need for offshore wind,” added Ørsted’s Matthias Bausenwein. “Taiwan has decided to phase out nuclear which is supported by the vast majority of its people and besides, faces severe pollution issues.”
“Taiwan has very good wind and seabed conditions for large-scale offshore wind build out. Therefore, it is possible to replace much of the conventional power plants with offshore wind, which has the necessary utility-scale. There is not enough space to build sufficient renewables on land. And the majority of 23mn Taiwanese lives at the west coast or close, where the strong winds are blowing.”
Damien Zachlod, Director of Sales for APAC from MHI Vestas Offshore Wind (MVOW) sums up the opportunity that Taiwan offered the offshore wind industry — an example that is obviously the result of lessons learned in Europe, but an example that should be a roadmap for all future countries looking to offshore wind:
“The appeal of Taiwan for MVOW is the same as for the developers: 1) The political will to move towards renewable energy with clear offshore wind targets, 2) good wind conditions that allow offshore wind to compete on cost, 3) good market design with a feed-in tariff that attracts new market entrants and has ample volume, and 4) supporting infrastructure build-out programme including grid connections. This model underpins our localisation plans for Taiwan and is expected to bring stability and certainty to the market. These factors have been in place for some time now and it has been refreshing to see both the EIA process and the grid award conclude as planned and bring significant volume to the market.”
Taiwan’s Looming Giant — China
There remains a significant factor that is acting like a gravitational weight on Taiwan’s nascent offshore wind industry, and that is the proximity of, and Taiwan’s antipathy towards, its nearest neighbor, China. Without getting into the deep and convoluted political history between Taiwan and China, it is sufficient to say that there is not a lot of trust to share around.
But considering that China is the world’s third-largest offshore wind location, it is surprisingly reliant almost entirely on its own production and development capabilities and isolated from Western companies. “In theory, foreign companies can invest in China offshore, but in practice, it is difficult due to nature of China market and political connections required which favors local companies,” explained Robert Liew. “China’s offshore market is dominated by large-scale state-owned companies which has locked good wind sites at early days,” added Yiyi Zhou. “It would be a challenging market for foreign investors to enter.”
This partly explains why China is not more involved in Taiwan’s offshore wind industry, but it’s certainly not the only reason.
“Companies from China are prohibited from investing in Taiwan’s power industry due to national security concerns,” Liew explained simply. Even more simply, Zhou explains that everything is down mainly to “political issues” and that “Taiwan’s offshore wind projects will not employ China’s imported turbines/ components.”
These dueling tensions, therefore, begin to explain Taiwan’s increasing importance in the region, and its attractiveness to Western companies. China will continue to rake in its share of global offshore wind capacity, but it won’t necessarily be impacting the global offshore wind market given its reliance upon its own supply and regional concerns of Chinese intervention.
As such, and given the tremendous political support and natural resources, Taiwan is quickly cementing itself as the next big developmental and manufacturing power base. “Similar to Japan and South Korea, each country is vying to be a regional hub for offshore wind, but awarded capacity in Taiwan is much larger which means it is in a better position given its firm GW-level pipeline and more willingness to accept foreign investment,” explained MAKE’s Liew, an opinion mirrored by BNEF’s Zhou: “Taiwan aims to be a regional supply and development hub of offshore wind. By setting up a quite aggressive target — 5.5 GW of offshore capacity by 2025 — the government would like to attract foreign players to establish manufacturing facilities in Taiwan and manufacture locally.”
And attract foreign players they certainly have.
“We plan to develop, build, and operate four Greater Changhua projects in Taiwan with a maximum capacity of 2.4 GW,” said Ørsted’s Matthias Bausenwein. “Once completed, the four projects will be able to power around 2.8 million Taiwanese households.” Though Ørsted was only awarded 900 MW grid capacity for Changhua, the company also plans “to join the upcoming auction in June to obtain more capacity and to continue to build large-scale offshore wind farms in Changhua. Being the global leader in offshore wind, we always build on time so we believe we can support Taiwan to achieve its renewable energy targets in 2025.”
“Taiwan is a key market for Siemens Gamesa in the region,” added Andreas Nauen from Siemens Gamesa.
“As a leading OEM in offshore wind, and having engaged here from an early stage – through Formosa 1 Phase 1 and Phase 2 offshore wind power plants – it is crucial for us to further contribute to the development of a sustainable local offshore wind industry. In 2017, we established our regional offshore wind hub (excl. China) in Taipei. Today, we are eager to maintain our leading position in Taiwan and will do whatever we can to support the government achieving its targets for the industry.”
There are still remaining challenges for the Taiwanese offshore wind industry as it sets off, but in some regards, the majority of these challenges were inevitable, and would and will apply to any new supply and development hub, no matter where it’s located. Taiwan suffers from a “Lack of fully established supply chain and local developers’ lack of development experience will boost Taiwan’s offshore wind project cost,” explains Zhou, and “public opposition to wind power might further complicate the project permission in Taiwan” — though that will only be confirmed as time passes, and can be successfully mitigated by full integration of local input.
“Timeline is the biggest challenge,” added Matthias Bausenwein. “With the infrastructure (grid, harbour), permitting processes, and local supply chains being still under development, it will require all involved parties in the industry to work closely together to deliver the project on schedule.”
“There are many key challenges in building a new market from scratch, but now that there has been substantial volume allocated to developers, the industry can develop with certainty,” added Damien Zachlod from MHI Vestas. “Work is starting now to ensure that critical infrastructure, including grid and harbors, will be in place for the projects and that the local supply chain is prepared to face the new challenge of working in the offshore wind industry.”
Taiwan does have one challenge that other regions don’t have to deal with, however — Mother Nature. “The frequent typhoon and earthquakes will add on additional risks of operating offshore projects in Taiwan,” Zhou suggests. Taiwan is beset by typhoons — an issue that, as the planet’s temperature warms, will greatly affect the frequency and severity of typhoons and make already dangerous weather conditions even worse. In August of 2009, Typhoon Morakot blew in to East Asia and caused 789 fatalities, including 673 in Taiwan in what was the deadliest and wettest typhoon in the country’s history. Any wonder, then, that MHI Vestas was proud to announce its offshore wind turbines would be typhoon-ready by 2020.
“Generally speaking, with the emergence of markets outside Northern Europe, it is essential that specific climatic conditions are taken into account for the technology design in order to enable the right product fit,” explained Andreas Nauen. “In Taiwan, as well as in other APAC markets, the exposure to Typhoons and Earthquakes can create a challenging environment. Therefore, the SG 8.0-167 DD product design will integrate requirements specific to the region.”
Not only is Taiwan directly in the path of numerous well-worn typhoon paths, but it is similarly situated directly atop the Pacific Ring of Fire, a near-continuous series of tectonic plates that arches around the Pacific Ocean and affects eastern Asia and the Pacific and the west of North and South America. Geologists have identified 42 separate active faults on the island of Taiwan.
Considering the future of the offshore wind industry is a lot like exploring its present — Western and Northern Europe will dominate. The United States is slowly getting started — although recent developments in Massachusetts, Rhode Island, and New Jersey have given the country a 5 GW kick in the pants — and there are new markets getting underway, including the likes of Turkey and India, as well as Asian powerhouses like Japan, Vietnam, and of course Taiwan.
But, “Overall, the offshore market is still largely weighted towards European market,” confirmed Yiyi Zhou. “Five of the six largest markets are still European markets. China saw a boom of offshore wind development in 2016-17, thanks to its slow-down of the onshore wind new-build.”
For the companies involved, Taiwan is their gateway to beyond. “We monitor and are engaged in many promising markets across the Asia Pacific region as the developments in recent years in Europe make offshore wind more attractive as a source of renewable energy,” said MHI Vestas’ Damien Zachlod. “We are committed to the Asia Pacific region and excited by the future development potential that we see there. Specifically, we are active in Japan and have an MOU for a project in Vietnam – these markets are among those that we expect to come forward in the short to medium term.” Matthias Bausenwein adds that Ørsted sees “Taiwan as our Asia Pacific hub to monitor and explore other markets in Asia” at the same time as they look to “proactively develop offshore wind projects in the US.”
This seems to be a common trend, and Zhou similarly confirms that “the US market is rapidly becoming an important emerging market for offshore wind development.” Mark Liew adds that “India and Australia are potential future markets for offshore in APAC, but there is no firm project pipeline. It will ultimately depend on the competitiveness of offshore wind power prices compared to onshore wind prices if they are to be realized in both markets.”
Australia’s first (and currently only) offshore wind project is the 2 GW Star of the South offshore wind farm, which is in early development by Victorian-based developer Offshore Energy and Copenhagen Infrastructure Partners. Meanwhile, India is on track to conduct a 5 GW auction sometime this year after the country’s Ministry of New and Renewable Energy recently issued an expression of interest document (PDF) on its website.
Given all this, Taiwan is not only relatively well positioned to secure its place as the regional hub for offshore wind development in the Asia Pacific — or at the very least East Asia — the country is also likely to be one of the world’s leading offshore wind countries by 2025, and maybe even earlier. With strong governmental support, not to mention favorable wind conditions and locations, Taiwan is tapping into a market with massive potential for growth, and one that could remake the global energy landscape.