Published on February 6th, 2019 | by Joshua S Hill0
Taiwan Finally Announces 2019 Feed-in Tariff
February 6th, 2019 by Joshua S Hill
Taiwan’s Ministry of Economic Affairs has finally announced the 2019 Feed-in Tariff (FiT) for offshore wind projects revealing new numbers which, though not what the industry would have preferred, is nevertheless not as bad as was originally feared.
Through 2018 Taiwan made repeated headlines as it awarded over 5 gigawatts (GW) of offshore wind capacity to developers looking to build up the next big offshore wind industry, and one of the first outside of the traditional boundaries of Europe. However, concerns were raised when the Taiwanese Government proposed changes to its Feed-in Tariff (FiT) program. The Government announced in November it was considering a 2019 FiT of TWD5,106 (approx. €145/$165) per MWh and a suggested production cap of 3,600 annual full-load hours.
“Taken together, the proposed changes could reduce project revenues by approximately 20% and so make the projects non-investable, thwarting growth in the sector,” explained the Global Wind Energy Council (GWEC) in a report published in January.
“Taiwan has done an extraordinary job of establishing one of the world’s most exciting new offshore wind markets in a very short period of time,” said Ben Backwell, CEO of GWEC. “The competitive prices achieved in European tenders in recent years, where it is now lower than gas and nuclear, have sparked global interest in the industry, and Taiwan is well placed to benefit from that. We are on the cusp of something very exciting happening in Taiwan – bringing an influx of foreign investment, local job creation and the creation of clean competitive power generation capacity. However, Taiwan must stick to its plans and allow the industry to establish itself, or there is a real risk of developers and investors exiting the market.”
The troubles kept coming, however, as Taiwan’s Bureau of Energy failed to issue an establishment permit for the 900 megawatt (MW) Changhua 1 and 2a projects being developed by Danish developer Ørsted in time for the company to sign a 2018 Power Purchase Agreement (PPA) with Taiwanese utility Taipower.
“We’re disappointed with the process and the delay of the establishment permit and PPA,” said Martin Neubert, CEO, Ørsted Offshore. “We will now pause and revisit all our project activities, the timeline of the projects, and our supply chain commitments and contracts as we had assumed signing of the PPA in 2018. 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. We will need to see significant changes to these proposals before we can progress any further towards a final investment decision on the projects.”
This led to a late January decision by Ørsted to suspend all development of its awarded Taiwanese offshore wind projects.
On January 31, however, Taiwan’s Ministry of Economic Affairs finally announced the 2019 FiT for offshore wind projects which will sign a PPA with Taipower. Specifically, developers have two options: They can either sign a 20-year PPA at a flat-tariff rate of TWD5,516 (approx. €157/$179) per MWh; or, they can choose a tiered tariff of TWD6,279.5 (approx. €178/$203) per MWh for the first 10 years and TWD4,142.2 (approx. €118/$135) per MWh for the subsequent 10 years.
The Ministry of Economic Affairs also set down a tiered production cap:
- 100% of feed-in-tariff for production up to 4,200 annual full-load hours (48% load factor)
- 75% of feed-in-tariff for production from 4,200 to 4,500 annual full-load hours (from 48% to 51% load factor)
- 50% of feed-in-tariff production above 4,500 annual full-load hours (above 51% load factor)
“We take note of the 6% tariff reduction compared to the 2018 tariff as well as the introduction of a cap on annual full-load hours,” explained Martin Neubert, Executive Vice President and CEO, Ørsted Offshore. “The production cap has a material adverse impact by preventing an optimal and efficient use of the wind farm. In addition, it puts far-shore projects at a disadvantage versus the near-shore projects which remain unaffected by the cap.”
“We will now collaborate closely with the supply chain to mitigate the adverse impacts from the production cap and the reduced feed-in-tariff with the objective of making the projects investable.”
As Ørsted explained in its press release, the company is already dealing with high costs for the Greater Changhua 1 and 2a projects due to the need to create a local supply chain at scale, reinforce the onshore grid infrastructure, and build, operate, and maintain offshore wind farms in challenging site and weather conditions (something I explored in greater depth here).
“Supply chain companies may feel the squeeze,” explained Tom Harries, a wind analyst at Bloomberg New Energy Finance, who spoke to me via email. “Local content obligations are a key argument for a high FiT, as building up a local supply chain for a new sector drives up the cost for the first offshore wind farms. Local suppliers can expect developers will try to pass down the tariff cuts.
“It is a lesson to budding new offshore wind markets,” Harries continued. “Ramping up from a couple of turbines to gigawatts a year on a tight schedule is challenging. Efficiently managing the permitting process and stakeholder engagement alone is no small feat.”
I also asked Tom Harries to explain the specifics of Taiwan’s Feed-in Tariff and production cap — specifics that will likely become more relevant as the offshore wind industry expands from building within the traditional European boundaries to a total of 18 markets, according to recent figures from Wood Mackenzie Power and Renewables.
“A feed-in-tariff is the price a government is willing to pay for each unit of electricity generated by an offshore wind farm over a fixed period of time, typically 15-20 years,” Harries explained. “As an owner, the higher the feed-in-tariff the better: it needs to be high enough to cover costs and make a profit but a government wants to pay out the minimum needed to keep bills manageable! Governments offer feed-in-tariffs to entice developers to build offshore wind farms. Without a government-backed contract for your power, such as a Feed-in Tariff, it is either unfeasible for a developer to build a wind farm or too risky to attract funds.
“The production cap says the government will only pay out the full value of the feed-in-tariff for the first 4,200 hours the wind farm is generating in a year (equivalent to a 48% load factor),” Harries added, “after that the value of the feed-in-tariff slides based on how much more you generate. So for the next 300 hours, after the initial 4,200 you only get 75% of the value, and then 50% of the value thereafter. It benefits the government by limiting how much it will need to pay out if the wind farms are more energetic than initially expected and to curb developers generating excessive profits. On the flip side, it penalises developers with windier sites. We expect Taiwan’s proposed offshore wind farms to reach load factors in the range of 48-50%, so for the majority of running time projects will receive the full value of the feed-in-tariff.”
Thus, while Taiwan’s new offshore wind policy is not as bad as it maybe could have been, it nevertheless imposes significant constraints on an emerging industry that will not only contribute to cleaner energy, but will also employ thousands across the country and provide the opportunity to export product and expertise.
“We welcome the Taiwan Government’s decision to modify its proposed changes to the Feed-in Tariff,” added Ben Backwell, CEO of the Global Wind Energy Council. “We are pleased that the government has listened to the views and evidence presented by GWEC and the industry since the changes were announced late last year.
“We note that the changes still include both a 6% tariff reduction and an introduction of a cap on annual full-load hours, which has a negative impact on projects by dis-incentivizing the most efficient and optimised technology and wind farm design. GWEC has argued for the complete removal of the proposed load hours cap.
“However, we are now cautiously optimistic that the industry can proceed to bring its projects to financial close,” Backwell concluded. “There is much to do, and in particular creating a viable and cost-efficient supply chain will constitute a significant challenge. But GWEC believes that working together and avoiding any further unhelpful changes, the wind industry, local supply chain and authorities will be able to create a strong and successful offshore wind sector in Taiwan.”
Ørsted will now enter into a period of discussion with Taiwanese authorities and local stakeholders in an effort to set out project milestones such as obtaining the long-awaited for establishment permit, completing the supply chain plan, and signing a PPA. Only then, however, will Ørsted’s Board of Director’s review and decide on a Final Investment Decision in the hopes of keeping the Changhua 1 and 2a projects on track for potential commissioning in 2021.
Follow CleanTechnica on Google News.
It will make you happy & help you live in peace for the rest of your life.