Corporate demand for renewables will drive the growth of clean energy markets in Taiwan amid falling solar and wind prices, ambitious government targets, and the liberalisation of power trade in the country, said experts at a virtual dialogue organised by the Global Wind Energy Council this month.
The dialogue, Corporate Sourcing of Renewable Energy in Taiwan, gathered government representatives, industry players, and legal experts to delve into the opportunities and challenges in corporate clean energy procurement in Taiwan.
Efforts to spur firms to source green power and facilitate clean electricity trade mean that the future for developers looks rosy in Taiwan, speakers said. Meanwhile, companies that procure renewable energy stand to benefit from coveted business opportunities as investors and supply chains become increasingly sustainability-minded.
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“Corporate demand for renewables can drive change in emerging markets faster,” Aleksandra Klassen, senior impact manager at RE100, a global club of corporations committed to sourcing 100 per cent renewable energy, told the audience. “While there is much to be done, Taiwan has picked up pace on renewable energy, becoming a regional leader in offshore wind.”
Taiwan’s recent liberalisation of the renewable energy market marks a major milestone in the country’s switch to green power, observed Tiffany Huang, partner at global law firm Baker McKenzie in Taipei.
In 2017, Taiwan amended its electricity laws, allowing clean energy producers to supply energy directly to end-users. Further facilitating power trade is another law implemented in 2019, which enables energy firms to funnel electricity through the national grid to their corporate clients, albeit for a monthly fee.
Under the new framework, renewable energy suppliers also need to sign an agreement with Taipower that obliges the state-owned utility company to purchase surplus electricity that corporate clients cannot offtake. This serves to further reduce investment risks in the renewable energy market, explained Huang.
At present, renewables only play a minor role in Taiwan’s energy mix. Energy imports—90 per cent of which are fossil fuels—meet a staggering 98 per cent of its energy needs. Most oil and gas that the country sources overseas comes from the Middle East, while Indonesia and Australia are its biggest coal suppliers. Of the little electricity that Taiwan generates at home, renewables account for a mere 2 per cent, and fossil fuels for 90 per cent.
This is about to change, as the nation has recognised that the switch to clean, domestically produced power would improve energy security by reducing its reliance on energy imports, foster domestic technology innovation as well as local employment, and shrink its environmental footprint, said Dr Chung Hsien Chen, director of the energy technology division at the Bureau of Energy under the Ministry of Economic Affairs.
Taiwan, which unveiled its ambitious renewable energy agenda in 2016, targets a clean energy share of 20 per cent and a decline in the share of coal from nearly 30 to 27 per cent by 2025. To meet these goals, the country looks to install a solar capacity of 20,000 megawatts (MW), 1,200 MW of onshore wind energy and 5,738 MW of offshore wind capacity. This represents a significant increase from the 8,215 MW of green power capacity in place as of May this year.
Not without challenges
As well as encouraging firms to procure clean energy, Taiwan looks to enshrine corporate clean energy obligations in law, Huang told the audience.
The government is currently mulling a new piece of legislation that would require large electricity users to source 10 per cent of their power from renewables within five years. The regulation is expected to affect at least 600 companies in the country.
To meet their obligations under the new law, corporations can generate their own clean energy onsite, purchase green power or renewable energy certificates, install energy storage equipment, or pay a hefty levy.
Huang said consultations on the draft legislation were still ongoing, but Taiwan planned to put it into effect “very soon”. Once implemented, the law would cause demand for renewables to grow dramatically, she added.
Already, corporate thirst for renewables is on the rise. Following years of tremendous growth, RE100 now counts some 250 firms with a power demand the size of Australia’s among its members, and 87 of those are based in Taiwan, said Klassen.
In July, Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest chipmaker, placed the biggest wind power order ever made with Danish energy company Ørsted, agreeing to buy all power produced by several offshore wind farms with a whopping capacity of 920 megawatts, Huang told the audience. TSMC was the first semiconductor manufacturer globally to join RE100 last month and has pledged to use 100 per cent renewable energy by the end of 2050.
But it is still not easy for corporates in Taiwan to source renewable energy.
Ironically, the biggest barrier standing in the way are feed-in tariffs, a policy mechanism that spurs clean energy deployment by offering fixed, subsidised rates to power producers for each kilowatt-hour (kWh) of electricity they generate and export to the national grid.
Higher than average electricity prices, feed-in tariffs are meant to incentivise developers and investors to accept the higher investment risks associated with nascent renewable energy markets. But in Taiwan, the policy has had an unintended side-effect, discouraging energy firms from inking power purchase agreements with companies.
Huang explained companies are expected to directly compete with Taipower’s energy prices. With subsidised tariffs high, this means they are required to pay more for cleaner energy, making the switch to renewables hard to afford, especially for smaller firms.
Energy companies also associate higher credit risks with corporate off-takers, she continued. “Given that Taiwan is a new market without a proven track record of bankability, corporate off-takers may not find suppliers to take the financing risk of entering into an agreement with corporates.”
One solution could be companies banding together to bring down risks, observed Remi Lee, chief sustainability officer at TCI, a Taiwan-based company that produces health food, functional beverages and skincare products, and the first Taiwanese company to join RE100.
Private power producers tend to require corporate off-takers to commit to buying more power from larger installations than they need. Creating a platform that enables companies to sign joint power purchase agreements could help them meet such requirements, he explained.
However, even where energy providers are willing to cut ties with Taipower and supply electricity directly to corporates, they grapple with high contract termination fees, said Huang.
That said, such challenges may disappear with time.
Murray Bowler, senior consultant at Baker McKenzie in Taipei, said as renewable energy developers gain more experience, reduce risks and establish robust supply chains, the government will gradually reduce feed-in tariffs and eventually replace them with auction mechanisms.
Auction schemes enable countries to issue a call for tenders to install a certain renewable energy capacity. That way, only the most price-competitive firms can participate in the market, leading to lower electricity rates, and making corporate power purchase agreements more attractive.
Taiwan’s economic affairs ministry has already reduced the 2020 feed-in-tariff for offshore wind by 7.6 per cent compared to last year, and has announced plans to auction 5 gigawatts of offshore wind across three phases by 2023, said Huang.
“It is still early days in the development of the renewable energy market in Taiwan. Most of the corporate power purchase agreements so far were not signed for price reasons but for other reasons, such as decarbonisation targets or competitiveness in the future. But give it some time, and the price will come down,” said Bowler.