Taiwan´s offshore wind sector to face financing turbulence

Taiwanese offshore wind developers will struggle to finance new projects due to liquidity constraints and a lack of expertise from local banks, several market sources told Infrastructure Investor.

“Everybody who has an appetite [for offshore wind financing] is already there, and the market is kind of empty. I don’t think there will be new banks coming, because the largest corporate banks are already in the game,” Raoul Kubitschek, managing director at Petawatt energy consultancy, said.

German developer wpd reached financial close for its €2.7 billion Yunlin project in May backed by 19 banks, including four Taiwanese ones, and three export credit agencies.

Two other sources directly involved in the 640MW Yunlin financial close expressed similar concerns over how future projects will be financed. The sources pointed out that most domestic banks have already gained exposure to offshore wind projects and will face constraints financing future ones.

“We benefited from being among the first [large-scale] projects to reach financial close,” one of the sources said.

At the same time, the sources explained that, due to their lack of expertise in the offshore wind sector, local banks have asked for credit guarantees from ECAs.

According to one of the sources, the three ECAs lined up for Yunlin’s financial close – Germany’s Euler Hermes, Denmark’s EKF and the Netherlands’ Atradius – guaranteed more than 50 percent of the credit offered by local banks.

“Local banks are not used to long-term non-recourse financing, and it was necessary to tap different institutions. Due to construction and other risks, they asked the ECAs to cover at least 50 percent of the debt,” one of the sources said.

Danish wind developer Orsted announced the signing of a NT$25 billion ($804 million; €722 million) green revolving loan facility for its greater Changhua project backed by 15 banks, including 13 from Taiwan, a press statement said. The loan was similarly guaranteed by Orsted, the statement added.

Advisors worry that ECAs will be reluctant to underwrite new deals as localisation requirements for the projects increase.

The Taiwanese government has set gradually increasing localisation requirements for offshore wind projects, and several international developers are currently developing their supply chain on the island. But this shift from European to local components will reduce European ECAs’ capacity to help finance these projects, sources said.

The source said that the government will need to strike a balance between “long-term investment and development of the offshore wind industry in Taiwan at the supply chain level, and ensuring the appropriate financing for the projects”.

“The Taiwanese government is practical, and there’s room for negotiation on the local content of each project,” the source said.

At the same time, Kubitschek said the government might change regulations so Taiwanese insurance companies that currently can’t participate in greenfield project finance can fund some of the deals. “[Insurance companies] are eager to join the process,” Kubitschek added.

During 2018, the Taiwanese government auctioned several offshore wind projects to several international developers with the aim to reach a capacity of 5.5GW by 2025.

Orsted, wpd, CIP, and Taiwan’s Bureau of Energy declined to comment or did not reply to a request for comment.

A spokesman for independent power producer Northland Power, which is developing several offshore wind projects, said: “Northland and our Hai Long partners are engaging with local, regional and global players to understand their interests and capabilities and ensure that they have a sense of our timing and needs”. He pointed out that commercial operations for the firm’s Hai Long projects is set for 2024-25.