With governments in Asia Pacific increasing their focus on developing low-carbon economies, offshore wind is being included as a key component of their energy transition strategies. Countries such as Taiwan have set ambitious targets. However, several challenges still need to be addressed – one of them relates to the development of the corresponding transmission infrastructure, both offshore and onshore. At the virtual conference on Offshore Wind Transmission in APAC hosted by Global Transmission Report on April 14, 2021, Lucas Lin, Chief Executive Officer of Swancor Renewable, which is the developer of the first offshore wind project in Taiwan shared his insights into the key dimensions of developing a successful offshore wind project in the region. REGlobal presents excerpts from his remarks…
Swancor Renewable (SWE) was established in 2015 and was formerly the offshore wind division of Swancor Industrial. The company runs three major business streams related to wind energy, which are development, operations and maintenance services and project permit management. SWE led Taiwan’s first offshore wind project to successful commercial operation in 2019. SWE’s Taiwan offshore wind project pipeline includes 128 MW under Formosa 1, which has achieved commercial operation, 376 MW under Formosa 2 which is currently under construction, 2 GW under Formosa 3 which is under development and about 4.4 GW under Formosa 4 which is under the environmental impact assessment process.
In addition to having established its first offshore wind project, Taiwan also has strong stakeholder relationships to support upcoming projects. For the Formosa projects, there has been consistent central as well as local government support. The Formosa projects were the first to get debt financing that complied with Equator Principles in Taiwan. It secured NT$1.6 billion in the first offshore wind financing in Taiwan in the year 2016. Over time, more and more projects in Taiwan are trying to comply with the Equator Principle. So far, the two projects – Formosa 1 and Formosa 2 – have reached financial close.
It only took seven years to complete the Formosa 1 offshore wind project, whereas in the past, European projects have usually taken about 9 years to complete similar offshore projects.
There are certain key success factors for developing offshore wind projects. Firstly, the project is usually either led or awarded by the government. Thus, regulations and stakeholder involvement become important. There should be a trusted legal framework which involves government’s determination and consistent policies to prioritise renewable energy. There should also be availability of bankable power purchase agreements with reasonable protections to developers and lenders in relation to price, change in law, termination and curtailment among other factors.
“There should be a trusted legal framework which involves government’s determination and consistent policies to prioritise renewable energy. There should also be availability of bankable power purchase agreements with reasonable protections to developers…”
In Taiwan, there are several ministries that need to be dealt with in order to establish an offshore wind farm. Clear permit requirements need to be accompanied with predictable review procedures and durations along with reasonable modification flexibility. Since local people use local norms to deal with local permits, a top-down support or pressure is necessary. There should also be adequate permit floating. For successful permit management, there would also be a need to obtain engineering support. Necessary infrastructure might not be perfectly ready for the pioneer projects; for instance, there may not be a heavy loading harbour present. Thus, a part of the budget may need to be reserved for such possibilities. There needs to be good stakeholder management. Compensation is necessary but may not be able to solve all kinds of issues. There should be local employment, knowledge sharing and a prosperity plan to gain support from stakeholders.
The second dimension is procurement and supply chain. Lack of adequate international standards and supply chain pose a key challenge for offshore wind in Asia. There is a need to involve experienced contractors and build a regional supply chain. The contractors should have a good track record of engineering, procurement and construction services while having experience in diversified project site conditions as well as certification. They should also use proven and mature technology. Short term and long-term corporate credit ratings of contractors and subcontractors should also be looked into. If the contractor employs several subsidiaries, all obligations between the subsidiaries shall be joint and several. If the contractor is a non-incorporated consortium of two or more contractors, obligations of the contractor parties shall be joint and several. Depending on the creditworthiness of the signing contractor parties and the size of the overall contract vis-à-vis total assets of contracting parties, a parent guarantee is usually required.
“There is a need to involve experienced contractors and build a regional supply chain. The contractors should have a good track record of engineering, procurement and construction services while having experience in diversified project site conditions as well as certification. They should also use proven and mature technology.”
The third dimension is project development experience. There needs to be emphasis on carefully completing the site survey with detailed information. During the course of the project, there should be proper geotechnical and geophysical information to resolve any arguments. There should also be focus on improving the health and safety gap, integrating resources and bridging the knowledge gap through knowledge sharing.
The fourth and final dimension is financing. It is important to have experienced export credit agencies (ECAs) and international banks to lead in the new market. International banks improve the liquidity and attract the joining of ECAs. While these expect about 20 per cent from local financial institutions, commercial banks require over 50 to 60 per cent coverage from ECAs. Since local banks are hesitant to give large loans for new technologies such as offshore wind, having support from international banks becomes more important since they have more exposure of financing such technologies and projects in other parts of the world.