EnergyOMNI's Perspectives｜The Carbon Trust Identifies Five Key Financing Challenges for Taiwan's Offshore Wind Sector
EnergyOMNI's Perspectives｜The Carbon Trust Identifies Five Key Financing Challenges for Taiwan's Offshore Wind Sector
Edited by EnergyOMNI
The Carbon Trust, an independent advisory body established by the UK government, published its report "Financing Offshore Wind in Taiwan" in March this year. The report highlights five major financing challenges facing Taiwan's offshore wind sector and provides corresponding recommendations.
Through stakeholder consultations and international benchmarking, the Carbon Trust finds that Taiwan's offshore wind financing challenges are not unique—similar issues exist in other markets. However, in Taiwan, multiple factors interact and reinforce one another.
First, the phase-out of the Feed-in Tariff (FIT) following the second phase (potential ones selection) has led to a shift toward Corporate Power Purchase Agreements (CPPAs), increasing revenue uncertainty for offshore wind projects. Second, the CPPA market remains small and concentrated, with only a limited number of large, creditworthy buyers. Third, domestic project finance capacity is limited, as local banks and financial institutions remain cautious about offshore wind risks. Fourth, the transition from site selection to zonal development has involved continuous changes in auction rules, localisation requirements, and permitting processes.
The report notes that these challenges reinforce each other: revenue uncertainty makes it more difficult for banks to provide financing, which in turn raises financing costs and increases reliance on guarantees and international capital. Policy volatility further elevates perceived risks, while limited local financial expertise constrains market development. Together, these factors hinder Taiwan's ability to sustain large-scale offshore wind deployment at competitive cost.
challenges in OSW financing
|
Challenges |
Description |
Relevance |
Global Examples |
|
Local capacity gaps in financial institutions |
Local banks lack project finance expertise; slow shift from collateral-based lending; OSW not a strategic priority for most banks. |
Capacity gaps exist in other emerging OSW markets (limited in-house expertise and reliance on external advisors) but less acute in mature markets. |
• 2018, the International Finance Corporation (IFC) launched the Green Bond Technical Assistance Program • the Asian Development Bank (ADB) Energy Transition Sector Development Program • 2023, ADB, Global Energy Alliance for People and Planet, and the Monetary Authority of Singapore announced a blended finance partnership |
|
Revenue risks due to low quality of offtakers |
Small pool of creditworthy CPPA buyers; market concentration around TSMC; SME barriers despite aggregation initiatives. |
Taiwan-specific: The CPPA market is underdeveloped with relatively small corporate buyer base, and the aggregator platform i.e. Taiwan Smart Electricity & Energy (TSEE) still in its early stage. |
• 2018, Akamai, Apple, Etsy, and Swiss Re pioneered one of the first all-corporate aggregated renewable energy purchases in the United States • 2023, France's Garantie Électricité Renouvelable (GER) • South Korea's Renewable Portfolio Standard (RPS) |
|
Evolving policy and regulatory frameworks |
Adjustments to auction design, localisation related requirements and permitting processes require developers and investors to adapt to new conditions |
Taiwan-specific: Auction and localisation frameworks are tailored to domestic priorities and have been progressively updated across rounds. |
• Japan adjusts auction rules to reflect rising CAPEX and market realities after Mitsubishi withdrew from three large offshore wind sites • UK adapts CfD design to changing cost and market conditions. In Auction Round 5 (AR5) in 2023, no offshore wind bids were submitted. In response, AR6 significantly increased strike price caps to better reflect prevailing cost structures. |
|
Technical and insurance risks |
Typhoon and seismic exposure increase construction and insurance costs; limited local operational data; insurers reluctant to cover construction-phase risks. |
Taiwan-specific: Typhoon exposure is a region or country-specific risk. |
• Japan's Nippon Export and Investment Insurance (NEXI) and Denmark's Export Credit Agency (EKF) • Caribbean Catastrophe Risk Insurance Facility (CCRIF) |
|
Limited project bankability and high financing barriers |
Rare non-recourse financing; FX mismatch (NTD revenues vs foreign currency debt); uncertainty despite guarantees. |
Taiwan-specific: Non-recourse financing uncommon; FX mismatch due to NTD revenue vs foreign currency loans; local lending caps force reliance on international lenders. |
• UK's CfD scheme • Denmark's capability based CfD |
The Carbon Trust emphasises that setting a clear strategic direction is essential to reducing uncertainty. Taiwan's offshore wind financing challenges cannot be resolved through isolated policy adjustments, as they reflect deeper structural issues related to market design, risk allocation, and the long-term role of government. The Carbon Trust recommends first establishing a clear direction, and then aligning financing models, policies, and risk-sharing mechanisms accordingly.
- Government: Should manage policy and revenue risks through stable policy frameworks and revenue mechanisms.
- Financial institutions: Should gradually take on market and financial risks as the sector matures, supported in the early stages by blended finance and co-lending structures.
- Developers and insurers: Should be responsible for construction and operational risks, while benefiting from government-led risk mitigation measures under conditions of high uncertainty.
- The Carbon Trust also proposes a phased roadmap covering the short, medium, and long term.
- Short term (0–2 years): Publish a 10-year development roadmap, establish clear CPPA guarantee mechanisms, support group procurement of renewable electricity (i.e. aggregated CPPAs), and strengthen the capabilities of domestic banks.
- Medium term (2–5 years): Evaluate the introduction of instruments such as Contracts for Difference (CfDs), expand corporate participation, and enhance corporate creditworthiness.
- Long term (5+ years): Establish a mature hybrid procurement framework (combining CPPA mechanisms, auction floor prices, and CfDs), develop disaster risk-sharing mechanisms, and maintain a stable policy environment.
The Carbon Trust recommends establishing a system-level revenue stabilisation mechanism, such as introducing a Floor Price in auctions to ensure minimum cash flow and improve lender confidence.
Ministry of Economic Affairs (MOEA) announced the implementation guidelines for Round 3.3 of the third phase of zonal development on March 27, and officially opened applications on April 1, with submissions expected to close on September 30 and results to be announced by year-end. One key difference in the Round 3.3 selection framework compared to previous rounds is the introduction of a floor price of NTD 2.29/kWh, rather than a zero-bid.
However, the Carbon Trust notes that complementary measures are still required. These include clearly defining the Taipower floor price mechanism—such as its scope, duration, and operational procedures.
In the long term, the CPPA market remains critical to success. Promoting aggregated CPPAs—where large corporations (such as Taiwan Semiconductor Manufacturing Company) act as anchor buyers—can lower entry barriers for SMEs and provide long-term price stability. Coupling this with renewable energy procurement obligations for buyers would further strengthen the overall framework.
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