The Hurdles and Potential of Taiwan's Green Energy Transition PwC: The Market Prevails Where Demand Exists

About 2016, I had just returned to Taiwan from working overseas when a new industry, "offshore wind," began to emerge in Taiwan. Europe had already amassed a significant history in the field of wind energy, and several renowned European wind energy developers, such as Ørsted and Northland Power, started to enter the Taiwanese market around 2016. During that period, no other establishments existed in Asia, making Taiwan their primary destination. They have simultaneously introduced this groundbreaking and unfamiliar industry into Taiwan.

Yi-Tai Tsai, Partner, PwC Taiwan

Interviewed by Xin-En Wu　Written by Sharon Wu、Nancy Chen

Founded in 1970, PwC Taiwan operates as the alliance firm of PwC in Taiwan. With a global network in 152 countries and regions, PwC serves clients across various industries, including international corporations and publicly listed companies in Taiwan, encompassing a wide range of industry sectors.

"About 2016, I had just returned to Taiwan from working overseas when a new industry, "offshore wind," began to emerge in Taiwan. Europe had already amassed a significant history in the field of wind energy, and several renowned European wind energy developers, such as Ørsted and Northland Power, started to enter the Taiwanese market around 2016. During that period, no other establishments existed in Asia, making Taiwan their primary destination. They have simultaneously introduced this groundbreaking and unfamiliar industry into Taiwan.." recalled Yi-Tai Tsai, Partner at PwC Taiwan.

PwC has established specialized teams targeting specific industries in various countries globally, notably the energy industry. Taiwan did not establish similar specialized teams because of the stringent regulatory oversight governing the energy sector in the past, resulting in numerous complex issues with developing the offshore wind industry in Taiwan, including professional financial, accounting, and tax issues to management advisory matters and regulatory compliance challenges. PwC Acknowledging the specific needs of this industry, PwC has strategically integrated its firm resources to establish PwC Taiwan New Energy Business Services.

"A single audit department or tax department is unable to tackle such a massive issue; cross-departmental collaboration is necessary," Yi-Tai explained. "During that period, key departments such as the audit and tax departments, along with our financial advisory department, were involved, with additional support from the legal department. Our initial service focus was on the unique energy industry, and we emphasized cross-departmental cooperation to meet the needs of our clients." Stated Tsai.

To collaboratively tackle energy development challenges and align with global practices, and in light of increasingly frequent international interactions and exchanges, In 2019, PwC formally instituted the renewable energy specialized team following a comprehensive evaluation, known as "New Energy Business Services," which incorporates experts from the audit, tax, legal, and financial advisory departments, each with distinct expertise and service experience in the energy industry. PwC Taiwan New Energy Business Services has been dedicated to monitoring emerging energy-related sectors, actively advocating for client awareness of future trends. Initially focusing on energy industry transformation, and gradually expanded to encompass the general industry's demand for renewable energy.

"The most distinctive feature of our team is that regardless of our original specialized roles, each member possesses rich experience in the energy industry, enabling us to comprehend the client's requirements swiftly. Moreover, PwC has relevant industry teams in various countries and exchanges cross-border information exchange often. Consequently, our knowledge and expertise stay at the cutting edge. This aspect sets us apart and provides us with a competitive advantage," Tsai explained.

Market Feasibility is a Crucial Element: Financial Challenges in Mapping Long-Term Returns

The initial investment costs for offshore wind are considerably high, and the overall process of profit recovery is protracted. Therefore, during the initial planning phase, the estimation of financial models, the comprehensive exploration of profits, and the situation regarding cost investment are all crucial. The evaluation of market feasibility is a pivotal aspect. Besides wind resources, considerations include policy support, the electricity market, and system, port and infrastructure, as well as foreign investment restrictions and support. All these feasibility analyses are synthesized into income or cost assumptions, forming the basis for the financial feasibility analysis of the project.

"Upon the entry of these European financial advisory teams into the Taiwanese market, they were the first to engage in discussions with us about collaboration. Specifically concerning foreign investment in large-scale energy projects in Taiwan, such as offshore wind power, we deliberated on the formulation of comprehensive strategies and the assessment of project profitability, accounting for various banking costs and related factors. With a project lifecycle extending over 20 years, it necessitates the collaborative efforts of multiple teams from different domains." Tsai explained.

In the process of understanding this emerging industry, Tsai discovered that offshore wind originating from the traditional energy sector was initially used for offshore drilling platforms. Adapting to climate change and with a growing clarity in the international consensus on carbon reduction, the energy industry has consistently represented a major source of global carbon emissions. Across nations, the foremost task in carbon reduction is the dedicated pursuit of energy transition. Numerous traditional energy enterprises are proactively investing in transformative measures or venturing into diverse sectors related to renewable energy, with the offshore wind industry serving as a prominent illustration.

The global energy transition movement is gradually taking root in Taiwan. Tsai vividly recalls encountering the term "RE100" for the first time around 2016 and finding it remarkably intriguing. RE100, established in 2014 by the Climate Group and the Carbon Disclosure Project (CDP), advocates for companies worldwide to adopt 100% green energy, thereby reducing carbon emissions and environmental pollution. While well-established in Europe, Taiwan's embrace of this initiative has been relatively slow.

Despite Taiwanese companies beginning to apply for RE100 membership in 2017, most remain unfamiliar with the organization. However, through interactions with international wind power developers and the sharing of global brands' emphasis on RE100 and energy transition, it is foreseeable that Taiwan may encounter challenges in the field of energy transition.

"In recent years, I have actively advocated and shared insights with clients in various public forums. The government formally announced the 2025 energy policy, setting a 20% target for renewable energy. At that time, the entire industry was grappling with this issue. Still, with TSMC's commitment to RE100, businesses began to experience a surge in demand for green energy procurement and pressure to establish environmentally friendly supply chains. Consequently, numerous enterprises sought information from us regarding green energy procurement," recalled Tsai.

Addressing the Specialized Application of Renewable Energy: "The Electricity Act" Alters the Landscape of Taiwan's Power Industry

One of Taiwan's pivotal legislative acts is the 2017 amendment draft of "The Electricity Act," representing the most significant modification in nearly half a century. Among the key changes introduced in the electricity industry legislation, one of the most prominent is the establishment of separate regulations for renewable energy. This aligns with the "Green Energy First" principle, permitting renewable energy generators and electricity providers to enter the electricity market, breaking the longstanding monopoly held by Taipower. Power producers are now able to distribute electricity to private enterprises directly. In the foreseeable future, the general public will have the option to purchase green energy, signifying a momentous stride towards increased openness.

"In the past, our electricity bills were only provided by Taipower. The electricity industry process can be divided into three parts: power generation, transmission and distribution, and electricity sales. Historically, only the power generation phase was open to private involvement, while Taipower exclusively managed the middle stages of transmission, distribution, and electricity sales. Following the 2017 revision of The Electricity Act, there has been a more extensive opening of the market for the sale of electricity generated from renewable sources," stated Tsai.

Despite the opening of the Corporate Power Purchase Agreement (CPPA) in 2017, the practical implementation has encountered numerous operational challenges during the electricity procurement process.

If all electricity comes from renewable sources, a significant reduction in carbon emissions can be achieved in Scope 2. However, discerning whether the source of electricity is renewable or not poses considerable challenges. Taiwan has entrusted the Bureau of Standards, Metrology, and Inspection, under the Ministry of Economic Affairs (MOEA-BSMI), with issuing the 'Taiwan Renewable Energy Certificate (T-REC).' This mechanism entails validating the correlation between power generation and consumption.

"The role of MOEA-BSMI is akin to a notary, furnishing the user with a certificate as evidence that the electricity consumed is sourced from renewable energy. Internationally, there are two systems used to ensure matching, one of which is Unbundled RECs." For instance, suppose a renewable energy provider generates a total of ten thousand kWh of renewable energy, and it could be divided into ten certificates, each representing one thousand kWh of electricity. These certificates are then made available in the market, allowing consumers to freely purchase green energy certificates and thereby obtain corresponding green energy credits, without actually purchasing electricity directly from the power generator," explained Tsai in greater detail.

Taiwan currently operates under the Bundled Renewable Energy Certificates (RECs) system, which requires the simultaneous purchase of certificates and electricity, ensuring that the amount of renewable energy consumed aligns with the purchased certificates. It mandates that both energy producers and consumers demonstrate a matching between their electricity generation and consumption within a specific time frame to qualify for the corresponding certificates. Any surplus power is acquired by Taipower through the Feed-in Tariff. (FIT)

"For instance, assume a 15-minute observation period where both the power generation end and the usage end monitor the power consumption. If the power generation end supplies 100 units of electricity to the usage end within 15 minutes, but the usage end only consumes 80 units, then the matched 80 units of electricity will be billed according to the agreement upon CPPA rates. The remaining 20 surplus power will be procured based on Taipower's FIT rate," Yi-Tai explained.

"In contrast, if a company pledges to achieve 100% renewable energy in its external commitments, but its actual green energy generation only amounts to 80 units while the demand stands at 100 units, the shortfall of 20 units is similarly supplemented by Taipower. While Taipower may offer more affordable prices, the electricity that Taipower provides is not sourced from green energy. As a result, the company would be unable to fulfill its 100% green energy commitments. Therefore, a new 'Aggregated Power Purchase Agreement (APPA)' model has emerged, which utilizes the frequency of electricity usage among participants to balance supply and demand, thereby reducing the probability of excess or insufficient green energy," explained Tsai.

The Inevitability of Energy Transformation

Insufficient Information Presents Obstacles to Corporate ESG Transformation

Taiwan is currently confronting substantial challenges in the energy transition. Failure to provide an adequate supply of renewable energy will directly exert pressure on the supply chain. With international brand enterprises joining the ESG movement, committing not only to the RE100 initiative but also insisting on the energy transition of their entire supply chains, Taiwanese supply chain companies may face the tangible risk of being excluded due to an insufficient supply of green energy. This is a pragmatic issue that warrants careful consideration.

Tsai also emphasized that renewable energy electricity cannot be substituted through imports. The fundamental principle of RE100, focusing on localized green energy procurement, aims to diminish the environmental carbon footprint of energy production. Importing renewable energy from abroad to offset domestic pollution not only lacks justification but contradicts the core objectives of RE100. On the other hand, Taiwan's current energy structure remains heavily reliant on thermal power generation, resulting in a significantly high carbon footprint in Scope 2. In the forthcoming transition, shifting towards low-carbon energy sources is imperative. Internationally, there is consensus on the need to incorporate external costs, including implementing mechanisms such as the Carbon Border Adjustment Mechanism (CBAM), carbon tax, and carbon fees. Elevated carbon emissions in electricity usage by Taiwanese enterprises could result in heightened carbon tax pressures impacting future export costs.

Regardless of the perspective taken, Taiwan is compelled to undergo an energy transition. Companies are currently navigating the landscape of ESG with a shared awareness of the imperative to incorporate ESG principles. However, there is a lack of clarity on practically achieving corporate carbon reduction, especially among small and medium-sized enterprises (SMEs) that find themselves constrained by limited access to pertinent resources and information.

 

Tsai remarked that, using green energy procurement as an example, the traditional approach of simplistic cost calculation is no longer relevant. This is attributed to the fact that renewable energy requires meticulous measures considering time sensitivity and compatibility. Most enterprises struggle to grasp the intricacies of their data and calculation methods, thereby leading to tangible challenges in actualizing ESG transformation.

"For instance, in the past, when considering the procurement of green energy, we could simply calculate the cost by multiplying the required electricity consumption by the cost per unit. For example, that solar power costs 4 dollars per kWh. However, the current scenario is considerably more intricate. Matching renewable energy supply with demand necessitates specialized knowledge not typically possessed by ordinary enterprises, impeding their ability to estimate costs accurately. This lack of understanding of electricity costs during the transition process results in companies struggling to define these conditions. In addition to requiring carbon footprint assessment consultants, companies engaged in carbon reduction also need electricity consultants to simultaneously address issues related to using renewable energy and electricity costs." Tsai shared.

The Market Prevails Where Demand Exists

Tsai has disclosed that Taiwan's aggregate renewable energy production in 2022 was approximately 23.8 billion kWh, representing a mere 8% of the total power generation, which amounted to around 288 billion kWh. Significantly, this 8% figure, though seemingly modest, is constrained by prevailing legal structures that limit the free-market exchange of these green energy resources. Notably, within this 8%, 90% is transacted to Taipower through power purchase agreements.

Despite the apparent hurdles at present, Tsai remains optimistic about the future: "From a long-term perspective, because demand continues to exist, the supply will inevitably catch up with the system over time. It will become increasingly human-centric, and the trading market will progressively open up and become more liberalized. When encountering challenges, the focus is on finding solutions. As long as there is demand, the market will persist, and I believe it will become increasingly dynamic."