Assuring a sufficient, reliable (zero power dips), and cost-effective energy supply – based on an appropriate mix of energy sources – to support Taiwan’s future industrial competitiveness.
Industry’s basic expectations regarding power supply can be summarized as 1) no shortages (ideally with a reserve margin greater than 15% and an operating reserve of more than 10%), 2) stable voltage (highly sensitive industrial power users cannot tolerate any power dip whatsoever) and 3) competitive pricing.
To meet these expectations and ensure sustainable economic development, the government will need to adopt a holistic approach toward energy policy that takes national strategic objectives into account. The scope should include the impact on national security (including defense), public health, social welfare, economic growth, and the competitiveness of Taiwan’s various industrial sectors. To achieve the goal, we strongly recommend establishment of a high-level dedicated agency or committee, at least at the Executive Yuan level, to oversee the planning, design, coordination, and implementation of energy policy with support from advisors among renowned international energy experts. The agency or committee could also act as a window to collect the concerns, suggestions, or other feedback of all stakeholders.
The increased use of renewable energy is an international trend that Taiwan rightfully is supporting. But we would caution that the extent of reliance on renewable energy is something that requires thorough study, analyzing such factors as total energy demand and the production costs and efficiency of each type of available energy source. Before proceeding toward the longer-term goal of creating a “Nuclear-Free Homeland,” the safest and most realistic approach would be to first ensure that the other top-priority, high-level objectives can be met.
The current energy policy involves a high degree of risk, as it is mainly based on evaluations from power specialists in advanced countries. Factors specific to Taiwan may not have been well considered. In case the highly ambitious current plans cannot be fulfilled in time, it would be advisable to have a backup contingency plan.
Some of the challenges facing the current energy policy include:
Energy-security concerns due to the targeted 50% share of the energy mix for liquefied natural gas (LNG). Construction of a new receiving terminal will take a long time to complete, and bad weather conditions or military blockade could interfere with the delivery of LNG supplies from abroad.
Environmental concerns because the 27% share for coal power could pose a threat to public health. In response to recent record-breaking air pollution levels, citizens have made their demands for clean air known to local governments.
Limits on the availability of renewable energy, which under current plans would eventually account for 20% of the electricity mix. Renewable energy sources such as wind and solar cannot be used as the base-load power supply because they are not constantly available. For them to be a reliable part of the system, they have to be aligned with large-scale power storage facilities and smart grid investments. But that is an expensive proposition and the technology is still immature. Further adding to the challenge are Taiwan’s difficult weather conditions and frequency of natural disasters.
The high cost of LNG and renewable energy. Raising the price of electricity by 33% or more before 2025 would have a serious negative impact on the economy and therefore on the government’s ability to provide social welfare programs. A substantial increase in operating costs resulting from higher electricity bills in a few years could force domestic manufacturers to shift production offshore, while discouraging multinational companies from setting up or expanding their operations in Taiwan.
We urge the government to continue investing to maintain a highly reliable power grid, while also paying close attention to the cost of energy for industrial users.
Suggestion 1: Prioritize improvements in the reliability of the power supply.
Taiwan continues to operate with dangerously low electricity reserve margins, especially in the south, where reserve margins may fall as low as 5% in the coming years. As Taiwan has been upgrading its industries toward the manufacture of highly sophisticated products, such as semiconductor chips and display glass substrates, a power dips of just a fraction of one second – not to mention a full-scale power outage – could cause severe economic damage. The Ministry of Economic Affairs and the Taiwan Power Co. should urgently develop and execute a plan to increase reserve generating capacity in the short term, returning Taiwan closer to a safe reserve margin of at least 15%.
Suggestion 2: Switch to market-based mechanisms like auctions to lower renewable energy costs.
Taiwan currently uses a bureaucratic method to administratively set feed-in tariff prices for renewable energy. These prices are often significantly greater than the underlying levelized cost of energy (LCOE), which calculates the cost over the lifetime of the facility. The gap places a substantial burden on Taiwanese consumers/taxpayers who must shoulder the cost for these above-market prices. Utilizing market-based mechanisms like auctions to allow the laws of supply and demand to determine the market price for renewable energy would lower costs. Ideally this approach would be paired with a quantity-based installation target for renewable energy. For example, setting a renewable portfolio standard (RPS) would require Taipower to include a certain quantity of renewable energy on its system by a certain date, without specifying how much should be paid for that energy.
The pairing with an auction mechanism would provide an economic incentive for renewables, while still allowing market forces to determine the ultimate pricing. Taiwan could thus meet its renewable energy growth objectives with assurance that they are being achieved in the most cost-effective manner possible.