By Fitch Solutions
- Non-hydropower renewables will be a key growth driver in Taiwan’s power sector, in line with a very strong ongoing government commitment and continued investor interest, particularly for offshore wind.
- Despite some near-term delays from supply chain disruptions due to the Covid-19 pandemic, we expect this to abate over the longer term due to strong fundamentals and continued investor interest in the sector.
- The establishment and growth of local supply chains for future wind projects will remain key to supporting long-term growth.
We remain bullish in our growth forecasts for Taiwan’s non-hydro renewables sector, in line with a very strong ongoing government commitment to develop the sector. We currently forecast Taiwan to add a net capacity of 19GW over the coming decade, driven predominantly by offshore wind and solar. President Tsai Ing-wen has announced a new aim to develop Taiwan into a regional renewable energy hub, and to become a global player in the renewable space. To achieve this, the government will continue its strategy of providing clear policy direction, boost investments into the sector, develop robust supply chains, and establishing a market mechanism for green energy trading. This is in line with the market’s existing energy policies, to rely on renewable sources as a diversification strategy away from nuclear and coal-fired generation.
The Ministry of Economic Affairs’ Bureau of Energy aims to increase the share of renewables to 20% of total generation by 2025, up from an estimated 4% in 2019. The targets do also include hydropower generation, but at present this only represents a marginal source of power in Taiwan (less than 2% of the total). In order to meet these ambitious targets, the government has increased support for the renewables sector via a number of financing and policy routes, including the feed-in tariff programme, tax incentives, the Green Finance Action Plan, and financing renewable energy research and development centres. They are also developing stronger legal frameworks and simplifying investment procedures and mechanisms for renewable energy. The project pipeline has strengthened accordingly, and this will support our constructive capacity growth forecasts over the coming decade.
We highlight the offshore wind sector as a particular bright spot in the market, and for Taiwan to remain a global outperformer in the technology. Taiwan has emerged as one of the largest markets for offshore wind power development worldwide in a relatively short time, due to favourable natural conditions and a supportive investor environment. Based on our Key Projects Database, Taiwan has nearly 11.2GW of offshore wind capacity in the project pipeline at present. Earlier in 2020, the Bureau of Energy announced intentions to add another 10GW of offshore wind capacity between 2026-2035, and at the time of writing is working on a Zonal Development Policy specifically for offshore wind. Concurrently, the government is also finalising the framework on phase 3 of Taiwan’s wind development plan, and we expect to see more favourable policies in place to support the growth of the sector.
In 2019, the Taiwan Offshore Wind Industry Association was established with the aim of fostering cooperation between interested offshore wind investors, private developers and the government. It will also aid the government in their public policy assessments to implement the localisation of wind power projects. Notable members of the association include Swancor Renewable Energy Co, Ørsted Taiwan Energy Co Ltd, Taiwan Northland Energy Development Co Ltd, Yushan Energy Co Ltd, Copenhagen Wind Energy Development Co, WPD Taiwan, Macquarie Green Investment Group andTaiwan’s JERA and SEMI Energy Industries.
While we do expect some near-term delays from supply chain disruptions due to the Covid-19 pandemic, we expect this to abate over the longer term due to strong fundamentals and continued investor interest in the sector. Despite these near-term headwinds, the renewables sector has largely shown its resilience as compared to other sub-sectors of the power sector in terms of generation, which would make it more attractive to investors. Domestically, Taiwan has also managed to contain the outbreak fairly well, with a low number of infections and death rates on a per capita basis, and no need for a hard lockdown of its economy. Contagion fears have eased considerably, as Taiwan has recorded no new domestically transmitted Covid-19 cases since April 12, and has already eased most of its Covid-19 containment measures since June. As such, we do not expect to see the similar scale of project delays or significant implications as with other markets in the region. In fact, strong project activity has continued, with some notable developments in the sector over the last few months including:
- In September 2020, Swancor Renewable Energy announced plans to develop the 4.4GW Formosa 4 offshore wind project in the Miaoli County, and is currently considering the use of bottom-fixed and floating foundations.
- Ørsted has signed a corporate power purchase agreement (PPA) with Taiwan-based TSMC for its 920MW Greater Changhua 2b & 4 offshore wind farm, which is the world’s largest corporate renewable PPA at present. This is expected to increase the project’s financial viability and support the firm’s final investment decision, which is expected to be made in 2023.
- The construction of 376MW Formosa 2 Offshore Wind Farm is underway. Major works related to nearshore pre-trenching and horizontal directional drilling undertaken by Jan De Nul commenced in June 2020, and construction is expected to be completed by 2021.
- The Changfang and Xidao Offshore Wind Farm had also achieved financial close in end-February 2020. At an estimated cost of USD2.97bn, construction and installation has been split into three phases, with the first phase expected commence in 2021, and full commissioning by 2024.
We believe that the establishment and growth of local supply chains for future wind projects will remain key to supporting long-term growth. In particular, we expect that the development of Taiwan’s first batch of offshore wind projects will help put in place an equipment supply chain that will enable greater cost reduction on future offshore wind projects. The Ministry of Economic Affairs (MOEA) has regulated that all offshore wind farm projects must source their underwater foundations and towers from local manufacturers after 2021. The first batch of locally produced equipment was delivered to Kaohsiung Harbor in July 2020 for the Yunlin offshore wind project, which is a milestone in the delivery of local supply chains. Ørsted has launched of the Offshore Wind Industrial Development Fund, with a value of NTD60.0mn (USD2.1mn), to support Taiwanese suppliers, manufacturers and technological capabilities as well as nurture local talents. MHI Vestas Offshore Wind has signed a purchase agreement with KK Wind Solutions for local power conversion module assembly and local manufacturing of low voltage cabinets and uninterruptible power supply systems as well as to establish a production facility at Taichung Harbour.
This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.
The article has been sourced from Fitch Solutions and can be accessed by clicking here