Is Taiwan’s offshore opportunity gone with the wind?

An unexpected cut in government subsidies threw the island’s offshore wind market into disarray. Now, Taipei is trying to convince worried renewables investors to stay.

From “the brightest [offshore wind] spot outside Europe” to a public row between government and developers – with some firms openly talking about cancelling all their projects – it’s hard to imagine a sharper turn than the one experienced by Taiwan´s nascent offshore wind industry.

These winds of change (sorry, couldn’t resist) have been blowing over the last three months, after the government announced an unexpected cut to its offshore wind feed-in tariffs at the end of 2018.

Prior to that shock, Taiwan looked like very much like a model opportunity in Asia. Taipei, as part of its efforts to move towards greener renewable sources, allocated 5.5GW of capacity to offshore wind projects during 2018, attracting the likes of Orsted, wpd, Macquarie Capital and Copenhagen Infrastructure Partners.

“It’s all driven by the political will behind it and the environment that has been set,” wpd’s Helge Rau told us at last year’s Hong Kong Summit, referring to the development of the industry.

Unfortunately, that will faltered during the second half of 2018, as the general public and government officials started questioning the island’s renewables push.

In July, the award of 1,664 MW of capacity for four offshore wind projects to Northland Power and Orsted – at bidding prices substantially lower than the government’s FiT scheme for other projects – raised eyebrows. Developers argued the costs of creating a local supply chain and making the market more efficient were borne by the first FiT-backed projects, but officials remained sceptical.

Then came a popular vote that partly rejected the government’s phase-out of nuclear energy, pushed by local campaigners accusing renewables of being unstable and expensive.

The Taiwanese government responded by proposing a new FiT regime for renewables in 2019, including a 12.7 percent cut for offshore wind tariffs. It felt it was necessary to go back to the negotiating table and establish “the real cost” of electricity, as a member of Taiwan´s Bureau of Energy put it to Infrastructure Investor after the announcement.

The prospective change seemed to catch the industry off guard, but it lost little time mounting an intense lobbying campaign against it.

Orsted rapidly became the most outspoken firm, threatening to “suspend and re-evaluate all activities” if the government pushed forward with the changes, and halted execution of contracts with local companies. wpd also confirmed that one of its projects in the island would have to be cancelled if the government stuck with its 12.7 percent cut.

The dispute came to an unceremonious end during the last week of January. Under pressure from industry, the government back-pedalled and announced a compromise cut of 5.7 percent on its FiT. The move allowed it to save some face, with analysts believing companies will still be able to move forward with their projects.

But the flip-flop hardly comes without costs.

Firstly, developers will have to undergo a tough renegotiation process with their local suppliers, to try to squeeze margins. The island’s economy might suffer from that, especially if any of the projects are deemed unprofitable. According to industry data, offshore wind development was bound to bring $28 billion of inwards investment by 2025, creating 20,000 local jobs thanks to strict localisation requirements.

Those requirements were designed to give an edge to Taiwanese companies on an industry that is expected to boom across Asia over the next few years.

Above all, though, the changes damage investors’ confidence in Taiwan, not only in its offshore wind market but in the renewables opportunity as a whole. BlackRock and Partners Group have already invested in the country’s solar industry, lured by Taiwan’s goals to reach 20GW of solar capacity, also by 2025. They might be wondering how rock-solid the government’s commitment to that industry really is.

If Taiwan is serious about its green transformation, Taipei will have to convince investors it’s not only a booming market, but a stable one, too.

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