Reviving Market Momentum：Leveraging CfDs to Sustain Taiwan's Green-Power Ambitions

Taiwan's energy transition is at a critical juncture. On one hand, nuclear power has gone offline since mid-May in 2025, corporate demand for green energy continues to rise, and net-zero targets and the Carbon Border Adjustment Mechanism (CBAM) are gradually being implemented. On the other hand, the 2 main pillars of renewable energy face challenges: solar PV development has plateaued, while offshore wind — expected to be the next major green energy source — is encountering significant headwinds, leading to a slowdown in development.

To keep the energy transition on track, long-term renewable energy supply must be planned and secured. The government needs to adapt its development strategies dynamically, in response to shifting circumstances and industry needs, and make good use of new policy tools to strengthen market confidence.

Taiwan's export-driven industrial sectors — such as semiconductors and high-tech industries — are massive power consumers, using over half of the nation’s electricity annually and driving strong demand for green power. Offshore wind, for example, was once backed by corporate power purchase agreements (CPPAs) as a financial guarantee during the planning of the Phase III zonal development, allowing the government’s feed-in tariff system to be phased out.

However, since 2022, the Ukraine–Russia war has triggered a global surge in offshore wind projects, straining supply chains, increasing construction costs, and intensifying international subsidy competition. Meanwhile, shifting U.S. policies have caused large companies and their supply chains to slow down their net-zero efforts. As a result, relying solely on CPPAs to build bankable financial models for offshore wind projects in Taiwan is becoming increasingly difficult.

Introducing the Contract for Difference (CfD) mechanism, which has been successfully implemented in Europe, could help establish a more stable and predictable renewable energy market, revitalizing large-scale development momentum.

How does the CfD mechanism work?

At its core, the CfD design ensures price stability: when the market price falls below the strike price, the government pays the difference to the developer; when the market price exceeds the strike price, the developer returns the surplus. This price stabilization mechanism guarantees stable cash flows for developers and provides predictable financial models for lenders, making it a crucial support tool for capital-intensive projects like offshore wind.

The UK is a prime example of successful CfD implementation. Since its launch in 2014, the installed capacity of offshore wind has grown rapidly, while generation costs have declined, delivering strong returns to investors. The structured bidding and budget control process not only attracts substantial capital but also builds a mature and stable green energy supply system.

Currently, Taiwan relies mainly on CPPAs to develop its green electricity market. While CPPAs offer corporations a direct channel to procure renewable energy, long-term contract risks remain a major challenge for small and medium-sized enterprises (SMEs) and even some large firms with weaker credit ratings.

Combining CPPAs with a CfD system would allow for more comprehensive expansion on both the supply and demand sides of green energy, improving overall market efficiency and stability.

Replicating the success of Taiwan High Speed Rail

Taiwan's 2009 financial restructuring of the High Speed Rail incorporated a quasi-CfD mechanism led by the government, featuring subsidies for losses and clawbacks on excessive revenues. This smoothing arrangement transformed the system from loss-making to profitable by 2011, securing its role as a cornerstone of national transportation. It demonstrates that capital-intensive infrastructure projects with long payback periods can attract long-term investment and achieve sustainable operations when supported by well-structured policy frameworks.

Offshore wind exhibits comparable characteristics, including substantial upfront capital requirements, extended payback periods, and vulnerability to price volatility, thereby rendering a CfD-style framework highly applicable.

Policy Recommendations

To fast-track CfD implementation, the government should:

1. Amend the Renewable Energy Development Act:
Introduce CfD provisions granting regulators authority to set strike prices, specify contract terms, and reclaim surplus subsidies.

2. Establish a Dedicated CfD Management Entity:
Modelled on the U.K.’s Low Carbon Contracts Company, this body—housed within the Energy Bureau or as an independent agency—would oversee tendering, contracting, fund management, and invoice settlement, ensuring transparency and operational efficiency.

3. Create a Green Power Stabilization Fund:
Capitalized through carbon fees, green-energy levies, or surplus-profit recaptures, this fund would underwrite CfD payments and safeguard fiscal sustainability.

4. Implement CfD and CPPA to complement one another:
CfD can serve as a stable bedrock for renewable energy development, attracting long-term and sustained investment. When combined with, which follow market mechanisms, a comprehensive green electricity trading ecosystem can be established. Once the projects begin operation, the green electricity and certificates they produce can be supplied to a broader range of enterprises, supporting them in meeting their net-zero commitments.

The CfD can adopt a phased approach, prioritizing offshore wind and energy storage projects that demand substantial investment and require higher levels of visibility and stability. Adjustments and optimizations will be made based on the outcomes of initial implementation, and the scope will gradually expand to include solar energy, onshore wind, and emerging technologies.

Conclusion

Long-term competitiveness hinges on policy designs adopted today. Introducing a well-structured CfD mechanism will not only rejuvenate investment in renewable energy but also establish a durable platform for market growth. Over the past decade, Taiwan has successfully driven the growth of the solar and wind energy markets through its feed-in tariff system, with offshore wind energy leading the Asia-Pacific region outside of China. Now, in the face of global energy transition challenges and increasing market competition, the government must adopt a more proactive and innovative approach to help the industry regain development momentum. To begin with, a bespoke CfD framework for Taiwan will enable renewable energy to become the driving force behind future industrial competitiveness and sustainable development.

Going The Extra Mile: Regional Integration and Submarine Interconnectors

Taiwan can become a hub for renewable energy development and transnational grid integration in the Asia-Pacific region, with transmission infrastructure being key. The proposed Taiwan-Japan and Taiwan-Philippines high-voltage direct current (HVDC) submarine cables, like offshore wind, are large-scale infrastructure projects that require substantial capital and have long payback periods, demanding a highly supportive policy and investment environment.

If paired with a price stabilization mechanism similar to CfD, it would significantly enhance investment feasibility and international cooperation willingness. The government should prioritize establishing a comprehensive CfD mechanism and developing a CPPA market trading environment as the foundation for future cross-border transmission, electricity price settlement, and carbon credit integration infrastructure.

Given Taiwan's strategic location and its high-tech, semiconductor-driven demand centers, it is uniquely positioned to leverage forward-looking policies and regional cooperation to emerge as a central node in a trans-national renewable-energy grid.