Expecting the Wind to Set Sail Offshore

-Expecting the Wind to Set Sail Offshore

Expecting the Wind to Set Sail Offshore

Publish time: 2024-05-27
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Countries worldwide are actively increasing their renewable power generation to mitigate climate change, and offshore wind power plays a crucial role in this global transition. Taiwan has distinct advantages in offshore wind development. Firstly, the government has set clear renewable energy policy targets all the way to 2035, positioning offshore wind as the most viable option for large-scale implementation. Secondly, the demand for green electricity from Taiwanese enterprises significantly exceeds the current supply, driven by corporate commitments to increase or fully transition to renewable energy within the next 10 to 15 years. Notably, TSMC's annual electricity consumption nearly matches Taiwan's total green electricity production, and their demand continues to grow. This strong demand from numerous enterprises is the primary driver of offshore wind power development in Taiwan, attracting substantial interest from developers and supply chains in the local market.

In 2023, Taiwan's offshore wind industry faced several challenges. These included delays in signing the administrative contract for the first phase of the zonal development (3-1), the withdrawal of several foreign developers, and various issues at the start of the phase 2 (3-2) auction. Despite these setbacks, the global trend towards expanding offshore wind power to accelerate the energy transition remains strong. The Taiwan Strait continues to offer favorable wind conditions, and the domestic market has many advantages to support the development of offshore wind power.

In light of these new challenges, it is hoped that the new administration in the government, commencing on the 20th of May, will demonstrate a forward-thinking industrial vision, embrace innovative thinking and execution models, and effectively address fundamental problems. This will enable the offshore wind power industry to continue advancing and play a crucial role in Taiwan's energy transition. The development of offshore wind is multifaceted, and not all related issues can be covered comprehensively in a single article. I will begin by addressing several important issues from the perspectives of both Taiwan and the global industry, offering my personal opinions and recommendations.

Guarantee at National Level to Support Sustainable Investments

Raising funds of billion of dollars for offshore wind farm construction has always been a significant challenge in offshore wind development. Even technically capable developers require support from the capital market to successfully navigate the development process, which can take over seven years. Return on investment and risk management are critical factors for investors when evaluating the potential success of investment and development. In the offshore wind power market, global economic inflation has increased construction costs, and tight supply chains have further complicated project schedule management. Taiwan’s market bears an added weight of geopolitical tention stemming from cross-strait relations. These various external factors further complicate favorable assessments.

At this critical juncture, Taiwan's offshore wind power sector has entered the zonal development, with the government's feed-in tariff being phased out. Consequently, long-term corporate power purchase agreements (CPPAs) have become the sole avenue for wind farms to sell electricity and are crucial for securing financing. However, apart from TSMC, there are very few power purchasing enterprises with credit ratings recognized by domestic and international banks. When a single buyer dominates, prices are unlikely to be appreciated by the seller, and other enterprises willing to pay higher prices may either lack have credit ratings meeting project financing requirements or be unwilling to sign long-term contracts.

As the gap between corporate power purchase prices and the rising costs of wind farm construction narrows significantly, achieving the desired return on investment becomes increasingly difficult, creating numerous obstacles and potentially hindering project financing. Although the government has introduced a green power credit guarantee mechanism (National Development Fund, Executive Yuan) to address these issues, aiming to provide further protection for investors and banking syndicates, it primarily focuses on transitional mechanisms during problem periods and ultimately returns to the fundamental issue of corporate credit insurance. Despite having substantial resources, the government's assistance remains conservative, offering only short-term risk mitigation without long-term solutions.

During extraordinary times, resolving the funding issues for wind farm development requires more proactive and innovative measures to demonstrate a commitment to important policy visions and effective execution. Utilizing national resources to boost local market investment confidence and attract continued capital investment is essential. The UK's longstanding Contract for Difference (CfD) scheme, which has successfully supported the completion of 14.7 GW of offshore wind farms and serves as a powerful tool towards their 50 GW target, provides a valuable reference for Taiwan to create new investment momentum.

The basic concept of CfDs is that the government guarantees a strike price for electricity sales over a period of more than 15 years. If the market electricity price falls below the strike price, the government covers the difference; if the market price exceeds the strike price, the excess must be returned. Given Taiwan's relatively stable inflation and interest rates, long-term upward trend in average electricity prices, and strong demand for green electricity, Taiwan is actually in a better position than the UK to set a more competitive strike price under the CfD framework compared to CPPAs. This would significantly boost market investment willingness and enhance confidence in the long-term value of wind farms in Taiwan.

Additionally, the Danish government's announcement to invest 20% in each wind farm in the new round of development projects is also worth studying and considering. At a time when the offshore wind market is struggling due to rising costs, government participation acts as an endorsement for wind farm development, and this approach has proven to elicit a positive response, attracting many developers to invest in the country's wind farm projects. Recently, state-owned enterprises CPC Corporation and Taipower also announced plans to invest in local wind farms, marking a new step forward. However, since this involves only a single wind farm, it leans towards corporate financial planning and may indirectly signal policy intentions but does not demonstrate the government's absolute commitment to supporting offshore wind power.

Considering the organizational management of state-owned enterprises and their current operational conditions, their participation in offshore wind farm development might be ambitious yet constrained. Nonetheless, there is still hope for further governmental action and support.

Whether Contracts for Difference (CfDs) or direct government investment in wind farms are more suitable for Taiwan's environment, the key is that the government must proactively consider how to utilize national resources. By timely adjusting development mechanisms to create new value and incentives, both domestic and international capital can be encouraged to continue investing. When the financial models for wind farms are optimized, the feasibility of financing increases significantly, providing developers with the necessary financial support to address other development challenges. Additionally, if long-term power purchase agreements and mechanism become more flexible, wind farm developers will have greater opportunities to collaborate with a wider range of power purchasing enterprises, thereby enhancing the supply of green electricity.

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Promoting localization through a free market

Taiwan is the first country in the Asia-Pacific region to actively develop offshore wind energy. When the second round of development commenced in 2018, it attracted numerous international developers and supply chains eager to enter the market. Given the market conditions at that time, it was logical for the government to incorporate localization requirements in new wind farm tenders.

However, starting in 2022~23, the global market landscape began to shift. Many countries set ambitious offshore wind power development goals, leading to a surge in new projects competing for funds and resources. For instance, the UK repeatedly increased its 2030 installation capacity target from 30 GW to 50 GW. Similarly, the Danish government recently launched the largest capacity tender in its history, starting at a minimum of 6 GW, indicating a substantial increase in commercial opportunities.

Outside of Europe, advanced countries like the USA and Australia have become focal points of attention. In Northeast Asia, Japan and South Korea are clearly defining their policies and initiating large-scale wind farm developments, with tenders allocating development capacities. Vietnam and the Philippines are also preparing for large-scale offshore wind power development, with both government and industry getting ready. (Note: Taiwan's target for 2030 is 13.1 GW; Japan's is 10 GW; South Korea's is 14.3 GW.)

The overall offshore wind power development targets in the Asia-Pacific market are also rapidly increasing. Despite Europe's leadership position and its well-established industry capacity, factors such as geographical location, business environment, and cultural differences mean that long-term support from Europe over long distances is not feasible. It is foreseeable that an independent regional industrial value chain will inevitably emerge, accompanied by a regional operational center.

However, offshore wind power is a form of energy infrastructure, vastly different in commercial model and localization conditions from export-oriented manufacturing industries. While the technology and electronics industries emphasize mass production to reduce costs and frequently relocate manufacturing bases to emerging countries to capture global market customers, the offshore wind power supply chain comes to Taiwan because of the local market opportunities in the first place. Furthermore, the large-scale capital investment and the lifespan of wind farms over 20 years compel developers to prioritize suppliers with proven track records, stable technology and quality, and reliable capacity and delivery schedules.

The localization of offshore wind farm is a natural process driven by market mechanisms and cannot be quickly achieved through policy intervention alone.

The government's offshore wind power development policy should be based on strategic thinking that aligns with long-term industry trends, aiming to position Taiwan as the center of the Asia-Pacific market. Strategies should be continuously adjusted to reflect the latest developments. Currently, Taiwan must compete with the global offshore wind market for a tight supply chain. The primary goal should be to accelerate the establishment of a sufficient industrial supply capacity in Taiwan to meet future wind farm construction needs.

The first phase should focus on attracting high-quality domestic and international wind power companies to develop their businesses in Taiwan, thereby strengthening industrial capacity and building a robust value chain. In the second phase, companies should be encouraged to establish Taiwan as their Asia-Pacific operational center, extending the industrial value chain to broader markets.

For enterprises, the priority is to develop in new markets with long-term opportunities and the most favorable conditions. The degree of market openness and the support from related industries become crucial factors when the business potential for offshore wind power is comparable across various countries. To stand out in the competitive supply chain, Taiwan should optimize its domestic investment environment, eliminate localization restrictions, open the market, and remove commercial barriers. Complementing these efforts with policy tools, tax incentives, and other measures can attract numerous companies to establish a strong presence in Taiwan, creating a comprehensive industrial value chain.

Securing an early advantage in this competition allows for the accumulation of sufficient resources, leading to greater economies of scale that drive localization and go beyond the framework of industrial policies. As the market expands, the overall capacity and competitiveness will grow, underscoring the importance of localization through commercial benefits and strategic partnerships. Foreign companies, recognizing the long-term opportunities in Taiwan and the Asia-Pacific market, will proactively choose suitable local partners, which aligns with their interests.

In these organically formed collaborations, both parties can grow together, building resilience and strength, thereby attaining a significant position in the vast offshore wind industry.

Being Prepared for The Next Round of Competitions

In addition to actively engaging in current developments, future opportunities must not be overlooked. It is crucial to prepare thoroughly now to seize these opportunities and ascend to a position of industry leadership.

The farther offshore, the stronger the wind resources and the fewer external interference factors. Additionally, as shallow waters suitable for fixed foundations become increasingly scarce, floating offshore wind farms will play a crucial role in the continued rapid growth of offshore wind power. This emerging field has become a highly contested area, but conditions such as maritime environments, industrial support capacity, and infrastructure vary greatly among countries. Currently, no single technology has emerged as the definitive winner in this competitive landscape.

Furthermore, new technologies entail unknown investment risks and uncertainties in large-scale commercialization. Existing projects are still relatively small-scale and experimental, lacking sufficient long-term data for comprehensive analysis. For Taiwan, compared to the need to adopt established foreign technologies for fixed-type wind farms, the developing field of floating wind farms presents a unique opportunity for deep involvement and potentially attaining a leading position.

The local opportunities for floating wind farms are not necessarily limited to the research and development or manufacturing of floating platforms and submarine cables. Installation and maintenance technology, commercial insurance, and project financing models could also develop new solutions due to this emerging field, and these are areas where Taiwan can excel. More importantly, the global industry is just starting this race, with no decisive gaps yet, so everyone still has a chance to succeed.

South Korea has made floating wind farm development a focal point even before having large-scale commercial offshore wind farms. Japan has amended laws to allow offshore wind turbines in larger exclusive economic zones, also aiming at floating technology. Taiwan should seize this opportunity to fully engage in the research and development of floating wind farms.

The government's proposed demonstration projects serve as excellent test platforms and should be initiated promptly. These projects should attract leading international companies to test their technologies in Taiwan's waters while simultaneously advancing supportive infrastructure to prepare for future large-scale commercialization. By involving local companies at this stage, they can build multi-faceted technical capabilities and experience, ensuring readiness for future developments.

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Consolidating The Regional Market to Increase Economies of Scale

In the Asia-Pacific region, countries such as Japan, South Korea, the Philippines, and Vietnam, alongside Taiwan, have all planned substantial offshore wind power development projects, signaling their commitments to becoming integral members of the green energy production community. These countries may have accumulated considerable experience in onshore wind power development, possess foundations in offshore oil and gas development, or have strong capabilities in steel manufacturing, shipbuilding, and maritime engineering.

As offshore wind power begins to flourish in these Asia-Pacific countries, the overall development capacity in the region will also grow. These nations share similar business cultures and are geographically close. By finding common ground amid competition, there exists a great opportunity to accelerate the growth of offshore wind power.

With the strength and experience accumulated over the past few years, Taiwan should confidently aim to become the wind power development hub of the Asia-Pacific region. This involves not only opening the local market to attract industry clusters but also actively consolidating markets and integrating resources across borders to spearhead the development of the offshore wind power industry in the region.


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The government is to utilize international trade dialogue and negotiation platforms to help the industry eliminate trade barriers, create an open and fair business environment, and provide tax incentives to facilitate more cross-border cooperation and investment. The private sector should develop a mature supply chain and talent pool that can expand into other countries. For areas where local capacity is insufficient, international cooperation can complement and resolve these issues.

Restricting wind turbine manufacturing and assembly, underwater foundations, large installation vessels and cable-laying vessels, advanced professional training, wind power ports, and O&M management to the local market has proven to cause delays in wind farm construction schedules and significantly increase related costs. Conversely, regional cooperation can create greater economies of scale and benefits, offering better solutions to problems and attracting more investment opportunities. This, in turn, will stimulate the overall development of the wind power market.

Connecting the Asia-Pacific Region to Accelerate Energy Transition

As of the end of 2023, Taiwan's renewable energy share is 9.5%, with an installed offshore wind capacity of 2.23 GW and solar power capacity of 12.22 GW. In Japan, renewable energy accounts for 24%, with solar power installations reaching 87 GW, and the abundant hydropower capacity amounts to 50 GW. South Korea's renewable energy share is comparable to Taiwan's, with solar power installations at 21 GW. Looking south, the Philippines has a renewable energy share of 33%. With excellent sunlight conditions and abundant land and water resources, their renewable energy market growth is promising.

Each country excels in different forms of renewable power generation, and disparities in industrial frameworks impact the utilization of renewable energy. Integrating the supply and demand of cross-border green energy markets to achieve an optimal balance through complementary sharing could significantly boost efficiency. In Europe, neighboring countries have long supported each other through interconnected onshore grids and power trading.

With advancements in technology and the need to accelerate energy transitions, the importance of submarine cables is becoming increasingly evident. The UK has already established cross-border submarine power cables with Norway and Denmark, transmitting abundant green energy from Northern Europe to the UK. There are also plans to transport solar power from North Africa to the UK, and similar projects between Australia and Singapore. Connecting grids with neighboring countries using submarine power cables can overcome the limitations of national borders, geographical environments, and time zone differences, maximizing the value of green energy and enhancing grid security and stability.


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Considering Taiwan's overall electricity demand and supply over the next decades, there is a growing need for power to support its large export-oriented manufacturing and semiconductor industries, which also require more green energy to meet customer demands. While the installed capacity of renewable energy is increasing annually according to government plans, the proportion of traditional fossil fuel power generation must also be rapidly reduced to comply with the international community's increasingly stringent net-zero carbon reduction requirements.

Facing immense pressure for energy transition, it is imperative to consider obtaining renewable energy including offshore wind energy, from international sources. In a nutshell, the import (and export) of green energy should be explored as a new option.

The current hot topic of converting green electricity into hydrogen for storage and transport poses significant challenges. Apart from the substantial energy loss during the conversion process, the enormous transportation costs negatively impact economic viability. Direct transmission of green electricity has relative advantages. However, given Taiwan's island nation status with an independent power grid, achieving this goal is only feasible through connecting with other countries' grids via submarine power cables.

The construction of ultra-long-distance submarine power cables (interconnector) has already been technically and financially validated in practice. However, a project from development to completion is estimated to take at least 7-10 years, requiring considerable amount of time and resources in the initial stages to address political, legal, and other issues. Therefore, close cooperation between the governments and private enterprises will be key to success.

From a timing perspective, Taiwan should waste no time and begin planning for regional cross-border grid interconnections to secure a strategic role in this inevitable large-scale project, positioning itself as an indispensable member in driving the development of the Asia-Pacific grid.

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James' Observatory for Renewables

Having transitioned to the offshore wind industry in mid-career, James used to hold positions such as Country Manager for European supply chain companies and CEO for a local developer. He is currently working as a consultant in the field. Driven by personal interest, he also places a particular emphasis on nurturing talent within the industry and staying informed about the trends on international renewable energy development.



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