The Global Wind Energy Council (GWEC) has called on the government of Taiwan to rethink proposed changes to the Feed-in-Tariff (FiT) for offshore wind projects to avoid the costly lessons made by other markets that pursued a similar approach.
However, it must avoid the proposed move to alter Feed-in-Tariffs (FiT) in order to protect planned investments and the economic benefits that will result from these.
GWEC releases new data showing impact of retrospective changes to Feed-in-Tariffs (FiT) in other markets and the costly consequences that could face Taiwan
The offshore wind energy industry could bring some NT$880bn of inward investment into Taiwan by 2025 and create some 20,000 jobs.
Proposed reduction in FiT of 12.7% and unexpected changes to FiT structure put offshore wind target of 5.5GW at risk and undermine investment climate for Taiwan’s economy.
Taiwan needs to build critical mass in offshore wind and create local supply chain in order to achieve European price levels.
Government must seek consensus on changes to FiT levels and rethink damaging and unexpected changes to contract structures in order to avoid companies cancelling their planned investments.
GWEC has released new data (see GWEC’s information pack attached to this press release for full analysis and appendix below for highlights) with supporting examples from the French and German offshore markets that shows the impact of changes similar to those currently being considered by Taiwan. For example, in France, a retrospective reduction to the FiT of 30% contributed to a stalling of projects that had been contracted through auctions and a current installed capacity of just 2MW. None of the production and assembly hubs that were planned have been inaugurated and job-creation expectations have not been met.
Ben Backwell, CEO of GWEC, said, “Taiwan has done an extraordinary job of establishing one of the world’s most exciting new offshore wind markets in a very short period of time. The competitive prices achieved in European tenders in recent years, where it is now lower than gas and nuclear, have sparked global interest in the industry, and Taiwan is well placed to benefit from that. We are on the cusp of something very exciting happening in Taiwan – bringing an influx of foreign investment, local job creation and the creation of clean competitive power generation capacity. However, Taiwan must stick to its plans and allow the industry to establish itself, or there is real risk of developers and investors exiting the market.”
He adds: “Despite recent developments, it’s not too late. There is still time to choose a way forward based on consensus and informed by the experience of other markets in the past so that Taiwan can avoid making the same errors and instead reap the benefit of a booming offshore wind industry.”
The proposed changes to FiTs are of two types. Firstly, a much steeper than expected reduction of 12.7% in tariffs which will sharply reduce project revenues.
And secondly, two unexpected structural changes; a limit of 3600 annual full load hours; and removal of the so-called “ladder tariff”. The cap on load hours constitutes, in GWEC’s view, a perverse disincentive for the efficient growth of Taiwan’s industry, as developers will not be rewarded for using the most efficient turbine models. And the removal of the ladder tariff closes off an effective way of helping developers attract project finance at the most competitive possible costs.
Taken together, the proposed changes could reduce project revenues by approximately 20% and so make the projects non-investable, thwarting growth in the sector.
GWEC is committed to facilitating dialogue between the government and the wind industry and providing research and evidence, in order to help all parties to find a solution that allows planned investment to go forward and maximise the benefit for the Taiwan’s economy and society.
The offshore wind target of 5.5GW by 2025 will bring some NT$880bn inward investment. Numerous agreements have been signed with Taiwanese supply chain companies and it is estimated 20,000 local jobs will be created.
Taiwan is an early focus for GWEC’s Global Offshore Wind Task Force since it is a crucial element of the emerging Asian market. GWEC brings unique insight on establishing wind markets, drawing on many years of experience around the world and adapting industry development to local circumstances.
The offshore experience in other markets – learnings for successful offshore development in Taiwan:
France (retrospective changes to FiT):
In 2012, the French government launched a tender for 2 GW of offshore wind, and another for 1 GW in 2014, with associated investments expected of about €11 billion and expected job creation at assembly hubs of 13,000.
When the majority of hurdles (fishing rights, protected areas and court cases) for the development of the first French offshore projects were cleared, the government then came back and wanted to lower the awarded support levels by some 30%.
The result has been that no projects have proceeded, no jobs were created, and no offshore capacity has been installed.
A new tender scheduled for June 2018 has been delayed indefinitely.
Germany (the ‘Ladder tariff’):
As in other markets operating a feed-in tariff, Taiwan’s framework included the option of a so-called ‘ladder tariff’, where the developer has the option of taking a higher feed in tariff for the first years of the project, and a much lower one later.
The advantages of this system are: one, an earlier repayment of debt, lowering overall financing costs; and two, higher revenues earlier on in the project when investments in infrastructure, the local supply train and training are at their highest.
The example of Germany is probably the most comparable, and the two schemes are laid out in a supporting graph within the information pack.
In Germany, in the initial phase of the offshore market, 90% of developers chose the accelerated model, largely for the reasons stated above which added flexibility and better financing options for developers.
Europe (comparing full-load hours)
Another proposed change to the FIT regime is that a cap of 3600 full-load hours for which a project can receive the feed-in tariff.
While projects in Europe generally run at around 3800 full-load hours, this includes many projects built 5-10 years ago with smaller, less efficient machines. Full-load hours estimated for the Taiwan market are closer to 4000 hours a year, as a result of plans to use the latest, largest and most efficient turbines on the market.
This cap will act as a perverse incentive, i.e., developers will not be interested in using the state-of-the-art machines, and this will be reflected in the quality and sophistication of the local supply chain developed around it.
GWEC is a member-based organisation that represents the entire wind sector. The members of GWEC represent over 1,500 companies, organizations and institutions in more than 80 countries, including manufacturers, developers, component suppliers, research institutes, national and regional wind and renewables associations, electricity providers, finance and insurance companies.
GWEC and the ECCT will host the Global Offshore Wind Summit – Taiwan on 24-25 April. The event will bring together high-level representatives of government, local and international investors and the wind industry in Taipei.