In the previous two articles “The EIA Dilemma of Taiwan Offshore Wind Power” and “The Financing Dilemma of Taiwan Offshore Wind Power,” we presented the nits and grits – something only those familiar with wind power industry understand – in a systemic way. In the final article of this series, we will talk about the dilemma of offshore wind power (OWP) stemming from the aspects of “selection process” and “localization”. These are something unique to OWP and not to other forms of renewable energies. What is the “selection process” of offshore wind power? Why do we call it “selection process” rather than the “competitive tendering” which is used for solar power industry, the term that is more familiar to the public?
When the supply development of renewable energy of a nation reaches a certain stage of maturity, the government will start reducing the number of those qualified for sales with applicable preferential rates and setting ceilings to the quantity purchased. For example, in the past, the amount of solar power purchased is equivalent to the total amount produced. Today, competitive tendering process has been adopted for solar power. If you want to qualify for Tai-Power’s guaranteed purchase, you will have to take part in price competition. Only those emerging with the lowest prices through the bid can win the right to sell their electricity to Tai-Power.
As for the OWP selection process, it requires OWP providers to compete in an additional round involving non-price factors to acquire the rights. This non-price factor turns out to be whether the businesses competing in the bidding can help Taiwan’s wind power industry in localization.
Why are the gaming rules for the selection process designed in such a way?
Approximately 10 years ago, in the interest of promoting OWP, the government announced the “First Phase of the Program to Establish Offshore Wind Farm”. However, due to the underwhelming response to the incentive, the government later introduced the Thousand Wind Turbines Promotion Project and promulgated the “Offshore Wind Power Demonstration Incentive Program” following the nuclear disaster at Fukushima in 2011. Yet, these policies nonetheless showed lackluster performances. It wasn’t until the last couple of years did the Ministry of Economic Affairs (MoEA) decided to increase the wholesale purchase rate of offshore wind power. The announcement of the Offshore Wind Farm System Award Guidelines and the release of information on 36 potential sites of offshore wind energy, as well as existing data on the maritime spaces which promised a total development potential reaching as high as 23 GW, combined with the permission allowing interested offshore wind power companies to develop on their own, successfully ignited the interest of major OWP developers around the world, attracting them to evaluate the feasibility of investment. As of today, the combined installed capacity of all devices which have applied for Environmental Impact Assessment (EIA) is likely to reach 10 GW!
The success in attracting investment is usually regarded as good news for the government of any nation. However, the attitude exhibited by our national government is best described as troubled. This is because the speed of construction of Tai-Power’s offshore electrical substation and related power transmission facilities has lagged behind the pace of facility development under international companies. It is estimated that in 2025, the roughly one-third of the electricity (roughly 3.5 GW) generated cannot be integrated into the power grid. In other words, a way must be found to eliminate two-third of the total volume of electricity produced. Otherwise, once the wind turbines are completed, the power generated cannot be integrated into the grid, so they contribute nothing to the power supply network. These wind turbines will end up as pretty objects decorating the horizons of the sea!
You might think it is a bit weird. Why does not the government just be frank and admit to this at the very start:
“We are sorry for the poor planning. We obviously knew that Tai-Power can only accommodate a total of 3.5 GW. However, the vision we promised through our initiative suggested potentials 6 times the size (23 GW) to attract your interest and application.”
“We hope that industry players will pardon us for the mistake and accept our sincere apologies. When we found out that the total amount proposed by the companies is roughly 3 times the volume (10 GW), we should have taken steps to correct any false impressions you might have, sparing you the fate of investing tons of money into EIA and us the trouble for coming up with a way to deny an average of two-third of the applications.”
I find it a little weird myself, too.
What is even more mind-boggling is that the government seems to be set on raising more obstacles, so they can cut 10 GW down to 3.5 GW, and make foreign companies give up and accept their losses willingly.
“Look, we can only integrate a volume of 3.5 GW. So, live with it!”
“If you cannot pass the EIA by the end of the year, we will just let natural selection and the rule of survival of the fittest run its course. If you survive, do not get overly excited just yet. We are planning to bring the selection process mechanism into the system. If you are not going to release the production of key technologies and key components to Taiwan’s manufacturing industries, you might as well be prepared to pack up and leave!”
Voila! This is where the selection process design makes its cameo appearance.
The purpose of the selection process is to create a legit reason to lower the quantity by employing different indices. These include:
- “Industry-related Benefits” accounts for a towering 40%. This can be further split down into wind turbine production (15%), maritime construction (10%), underwater units (8%), and development of local industries (7%).
- “Technology” accounts for 30%, subdivided into construction ability (12%), operation and maintenance planning (10%), engineering design (8%), and “social environment integration” (15%) which encompasses ecology and social responsibility of businesses.
- “Financial Ability,” which evaluates the financial health and relations with domestic financial institutions, comprises 15%.
Such kind of index design gives rise to the controversy of “localization.” A question that comes to mind is whether this approach will “unlawfully benefit” the domestic wind power industry? According to insurance businesses, if the wind turbines incorporate locally-produced components, this decision will affect the willingness of the insurance companies to offer coverage. As for domestic OWP developers, President Robert Tsai of Swancor Industrial Company - which already carried out test operations for two offshore wind turbine demonstration units located in the offshore area near Zhunan Township in Miaoli County - remarked that judging from publicly-available information of the direction which the selection process’ design is heading, even Swancor - the only local company with a track record of offshore wind turbine operation - will be eliminated in the process. The measures, which show signs of gross negligence, hasty-made decisions, and not taking into account the technology capabilities of our local industries, as well as a shortsighted attitude (seeing only local component industry but being completely blind to the overall environment for OWP development) in pushing for localization will eventually backfire!
So why would anyone come up with a strategy which will end up as a lose-lose-lose scenario for foreign companies, local developers, and even local supply chain? Guess who wins? The answer: the government. This will allow the government to create a diversion to turn the public’s attention away from the real question about the public sector’s ineptness and negligence to promote in promoting development!
Look at it this way: In the future, every one of us will be paying an exuberant price of 6 NTD to purchase one kWh of wind power for the next 20 years. Would it be too much to ask these international companies to contribute something to Taiwan? What is so unreasonable about forcing them to transfer technology to Taiwan? Are not all foreign IT companies trying to take advantage of our cheap supply chain to help them lower the manufacturing cost for products?
The required technology of OWP is not something we can easily claim through empty talks. OWP has been around for quite a while, and even today, only few countries such as Germany, Denmark, and the UK have acquired a relative advantage in the field. For other countries, they are having a hard time catching up due the leading nation’s accumulation of both capital and technology in the area. For Taiwan, we do not even have a supply of talents to help develop wind power. Any maritime construction will likely paralyze efforts of installations. In the article “Can We Accurately Predict a Booming Industry Worth Investing In?” written by the other Green Mentor of Green Impact Academy Chen Jong-shun, he talked about the principle of comparative advantage. The OWP industry is an industry where Taiwan does not have a competitive advantage.
Below are some possible solutions I am proposing:
1. Stop the implementation of the selection process and localization
The current approach does not have a legal basis. We could easily end up in the quagmire of legal battles, which is likely to result in big losses for our government.
2. Do not target the existing 10 GW developers even when the selection process is not implemented
The existing companies which signed up for the existing 10 GW all believe in the government and the Feed-in-Tariffs (FIT) mechanism under the “Renewable Energy Development Act” which does not set a cap to the volume and price for the procurement of green energy. Since there is already a certain degree of reliance interest in place, the government should refrain from actions that would outright affect “price” and “volume.” Otherwise, any lawsuit over damage compensation will likely bleed the public treasury.
3. Do not conduct “pre-selection process” through the Environmental Protection Administration
Taking this approach will only make the matter more complicated and harder to explain. If the issue eventually ends up in court, Taiwan will not necessarily have an advantage.
4. Show some good will and talk with the industry to try to come up with possible solutions
It is not wise to breach the contract by arbitrarily adjusting the price and volume. The competitive tendering mechanism should not be introduced to target the “price” for those applying for volumes within 10 GW, or likewise introduce the selection process mechanism to target the “volume.”
Due to the political nature stemming from the selection process methodology, my suggestion is to tackle the challenge from a legal perspective in an effort to solve the problem from its root. This is to minimize the possibility of the whole situation exacerbating and opening a can of worms by generating more political, diplomatic, and international tensions at a later date.