The 2020 Presidential Election represented a watershed moment for Taiwan’s energy policy. Whatever the result had been, it very likely would have determined Taiwan’s approach to electricity generation for the next generation. Following the election, this greater degree of certainty about the future – after years of debate and uncertainty – is to be welcomed. Potential investors in new generating capacity require a stable policy environment if they are to confidently make long-term financial commitments.
To sustain and enhance industrial competitiveness in Taiwan, it is now imperative to move on from policy discussions, and for government and industry to now work ever closer together to focus time and resources on effective and rapid policy implementation. To achieve the 2025 electricity generating mix of 20% renewables, 30% coal, and 50% natural gas, four important developments need to occur over the next five years:
Safe and secure decommissioning of the existing nuclear power plants;
Significant reduction in existing coal-generating capacity;
Major expansion in LNG import capacity and gas-turbine generating capacity; and
Major expansion of both wind and solar power.
All four are major and complex undertakings that will require ever closer cooperation among the central and local governments, customers, and suppliers if this transition is to be achieved without reducing reliability or increasing costs. While some progress has occurred in all four areas, we are worried by signs that the pace of decreasing the reliance on coal and nuclear energy is happening rather faster than the rate at which new gas and renewable capacity is being developed – and in some instances the move away from coal and nuclear is irreversible. Concern is already being raised that significant risks to electricity supply could occur by 2023 if action is not taken soon to ensure balanced progress on all four fronts. The focus of the 2020 Energy portion of the White Paper, therefore, is to concentrate our suggestions around identifying and overcoming blockages to the faster development of new generating capacity.
Implementing the 2025 energy policy faces the following significant challenges:
Taiwan’s ability to rapidly increase the proportion of energy generated from natural gas is constrained by the lack of facilities to import liquified natural gas (LNG). Both the Taiwan Power Co. (TPC) and CPC Corp. have started the development of new import receiving terminals (TPC in Taichung and CPC in Taoyuan), but progress has been slower than hoped. Plans to develop new Combined Cycle Gas Turbine generating stations are proceeding somewhat more rapidly, but it is not yet clear that a detailed plan to hit the 50% 2025 target for LNG is in place and can be completed on schedule.
Major energy users are concerned about a lack of transparency regarding detailed plans to implement the new energy policy and the pace of progress in implementing that plan. Maintaining the confidence of electricity users over the coming years will be essential if Taiwan’s industrial competitiveness and economic growth are to be sustained.
The government’s progress in moving to an auction-based mechanism for new off-shore wind development is greatly welcomed, but this approach now needs to be supported by ensuring flexibility in local-content requirements and expanding the auction approach within the renewables sector to the extent possible.
Increasing the proportion of electricity generated from renewable sources poses potential risks for the stability of the Taiwanese grid. As was noted in the 2019 White Paper, considerable investment in large-scale power storage facilities and smart grid technology will be needed before renewables can become a significant proportion of generating capacity. That is an expensive proposition, however, and the technology is still immature.
Under the newly announced draft “Regulations Governing Chartered Capacity on Electricity Consumption Agreements Under Which Users Shall Install Renewable Energy Facilities for Exceeding a Certain Capacity,” large industrial power users will be obligated to generate renewable energy equal to at least 10% of their contract capacity for electrical power. Unless the introduction of these new regulations is carefully managed, it will add significant cost to major businesses operating in Taiwan, threatening industrial competitiveness and future investment activity.
We urge the government to make more rapid progress in developing the new generating capacity required to meet the 2025 energy mix target, while also paying close attention to grid stability and cost.
Suggestion 1: Convene regular meetings to consider issues such as contingency planning, liberalization, deregulation, etc. as part of Taiwan’s long-term energy roadmap.
The continued prudent planning, funding, and timely completion of energy/power infrastructure projects will be required to keep pace with growth in demand. To ensure transparency and consistency in the policymaking and implementation process, we encourage MOEA to convene a coordination meeting each quarter to enable TPC, CPC, the Bureau of Energy (BOE), and key industry stakeholders to exchange views on issues related to the energy supply chain.
One potential topic for discussion is whether, for the sake of prudency, Taiwan’s long-term energy-policy roadmap should include back-up plans or alternatives to cover potential shortfall scenarios, such as delays in on-shore solar due to insufficient land, delays in offshore wind power development, and delays in major gas-fired power plants or associated infrastructure, such as LNG receiving terminals and pipelines.
Another topic would be the state of progress in implementing the 2017 amendments to the Electricity Act aimed at stimulating renewable energy development (Phase 1) and creating a more competitive power market (Phase 2). This forward-looking legislation represents a critical step in liberalizing the power market. Feedback and updates from government on the progress would be welcome.
Suggestion 2: Ensure competitive renewable energy prices for the future.
According to the government’s target, renewable energy will account for 20% of Taiwan’s power supply, with solar and offshore wind playing the dominant roles. The cost of Taiwan’s renewable energy – and in particular the cost of solar and offshore wind energy – will become a central factor for the competitiveness of Taiwan’s strategic exporting industries such as semiconductors. The government should therefore view the competitive pricing of solar and offshore wind projects after 2026 as a primary energy policy objective.
This Committee commends the government’s achievement in the 2018 auction rounds when two 2025 offshore wind projects reached prices of around NT$2.2-2.5/kWh. The government should continue to use the same approach for the auction of offshore wind projects to be realized after 2025, and also extend that approach to major solar power projects. To ensure the continuation of low green-energy prices, the post-2025 renewable (offshore wind and solar) energy projects should be able to fully utilize the international supply chain market and impose no (or very limited) requirements to use local contents. This supports the ongoing cost-out journey for renewable energy. Furthermore, it would ensure that Taiwan strategic industries could meet their renewable energy demands with assurance that they are being achieved in the most cost-effective manner possible.
Suggestion 3: Streamline the regulatory review of new energy projects.
Implementing the government’s energy policy will require the rapid development of major new generating capacity for LNG and renewables. It is essential for this development to be undertaken in a way that abides by environmental and other planning regulations. However, there is evidence that regulatory reviews are not being undertaken in the most efficient and effective manner. For example, development of TPC’s new LNG import facility at Taichung was delayed by a year pending the conclusion of a full Environmental Impact Assessment. Almost immediately after that assessment was successfully completed, it was decided to launch an Urban Planning Review, which will now delay the start of construction for another year. Similar, apparently excessive regulatory procedures are also slowing the pace of developing new offshore wind capacity.
These delays generate significant additional costs for business, as well as causing additional risk for medium-term energy supplies. Given the immense economic importance of sustaining affordable and reliable power, we recommend that the government, in close consultation with industry, undertake an urgent review of the regulatory procedures related to new energy development. We further suggest a mandate that all such reviews be completed within a maximum of 12 months.
Suggestion 4: Establish a sound renewable-energy ecosystem for industrial users.
We acknowledge the government’s efforts to encourage the usage of renewable energy by introducing the draft “Regulations Governing the Chartered Capacity on Electricity Consumption Agreements Which the Users Shall Install Renewable Energy Facilities for Exceeding a Certain Capacity” in March this year. The draft requires major users in specified industries to generate or purchase renewable energy equal to at least 10% of chartered capacity in five years.
The Committee consequently urges the government to roll out a comprehensive and detailed roadmap for the development of renewable energy. The Committee also hopes to see a strong infrastructure and sound transaction platform in place so the industrial users can make a well-rounded decision whether to set up their own renewable energy facilities or purchase energy from other energy providers. To make sure the continued success of Taiwan’s high-tech industry, the government should ensure an ample and stable renewable energy supply and to build a transparent and user-friendly transaction platform accessible to industrial users.
In the face of the economic impact caused by the COVID-19 pandemic, however, the Committee suggests that implementation of the requirement be postponed by at least two years to give industrials enough time to adjust to the current economic disruption. In order to protect the rights and interests of large industrial users, the Committee also suggests that the requirement explicitly include already operating renewable energy facilities through the existing power supply network, rather than limiting it to self-generation for self-use.
In addition, the Committee urges the use of Corporate Power Purchase Agreements (CPPA), signed directly between the industrial users and private renewable energy suppliers, as one of the compliance methods when obligating end-users to purchase renewable energy. A CPPA is an offtake agreement in nature, which means it is entered into before the renewable energy facility is constructed. It helps provide the financial assurance required for the construction of the renewable energy facility, thereby raising the viability of the project and contributing to increasing total installed capacity for renewable energy in Taiwan. Globally, over 51 gigawatts of CPPA offtake agreements have been signed by end-users who purchase the renewable energy to help “green” their operations.