What Shadows Offshore Wind Power Industry despite the Significant Inflow of Foreign Investment?

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  In recent years, Taiwan has vigorously promoted energy transition, due to which it has drawn attention of green energy foreign investors. The key aspect that attracts them is the focus on the offshore wind power industry. Presently, this industry boasts of the following foreign investments: Denmark-based Dong Energy and the Copenhagen Infrastructure Fund, Canada-based NPI, Singapore-based Yushan Energy, Australia-based Macquarie, and Germany’s Dade Energy Group (WPD), among others.

  What are the key factors that attract foreign investors to Taiwan? The first factor is the government’s impetus on the distribution of green energy, by means of providing subsidy of up to 6.0437 (NT$)/kWh (2017) in the feed-in tariffs (FIT) rate, under the "Renewable Energy Development Act." As compared to the plans offered in Europe in recent years offering a FIT rate of only around NT$2-3/kWh, the potential of profit in Taiwan is much higher. As a result, in the 2017 Europe-Taiwan Wind Energy Conference, foreign companies repeatedly stressed “Taiwan should continue to maintain the FIT rate.”

  Is the investment in Taiwan offshore wind industry so promising? Hakan Cervell, chairman of the European Chamber of Commerce in Europe, along with other representatives, held a meeting with the Premier of Taiwan, Lin Quan, and the heads of the relevant ministries in late August, expressed their concern on issues of legal certainty, legal predictability, and due processes followed in Taiwan. Merely two days after the meeting, the government proclaimed an increase in the localization proportion of offshore wind power development projects to 70%; further, the deposit amount for the projects was made twice more expensive than the foreign practice. The current approach is still not finalized; however, it shadows the intention of investment.

  Why could the offshore wind power industry not be properly developed despite the significant inflow of foreign investment in this industry? There are several reasons; the most critical one, in my opinion, is “politics overriding the law”. That results in increased legal risks. It seems that the foreign investors did not conduct proper evaluation surveys on the legal risk aspects in Taiwan.

  1. A policy environmental impact assessment (EIA) without a legal basis increases the uncertainty to investment

For foreign countries, the policy EIA system is used for facilitating the development of offshore wind power industry. Contrastingly, in Taiwan, it is used to impose additional legal conditions, and burden the offshore wind power producers for further individual EIAs. One instance is, the policy EIA is able to ascertain the white dolphin habitat up to a distance of 1,000 meters. However, 1,000 m may be changed to 2,000 m or 500 m by a different group of EIA review commissioners. No such requirement is specified in any legislation or administrative ordinance. In this context, these ‘word-of-mouth’ restrictions would be a source of high risk for investors.

  1. The compensation formula related to fisheries for offshore wind power plants is arbitrary

There are, at least, some ecological considerations behind the conditions related to white dolphins; however, the “offshore wind power plant fisheries compensation formula" are draining government credibility. Since the compensation formula is drawn without a legal basis, the compensations are casually decided. A similar situation arose early this year when the Electrical Act was passed. The government claimed that this Act would benefit energy transition. However, the Act introduced a new scheme of ‘community support fund’ that would translate to additional burden on offshore wind industries. Generally, the NIMBY effects of traditional power plants justify the legal requirement of a community support fund. It is unclear why the new government decided to impose this requirement on non-NIMBY offshore wind projects in the seas

  1. EIA takes into consideration several factors that are unrelated to environmental impact

In Taiwan, there is a unique EIA regime. This regime has a veto system, which has been giving rise to problems in the industry for a long time. Further, during the EIA process, any concerns, even though they may be unrelated to environment could be taken up, thereafter, resulting in an additional burden to the developers; for instance, the fishery compensation case, as discussed in point 2. The other instance is the casual accusations by the legislators, saying “we are worried about the set-up process of the wind turbine” or, “construction using Chinese boats may pose national security concerns”; these observations can override the law, resulting in a delay in the production of offshore wind power. Further, this may lead to legal disputes in future.

  1. The government does not intend to solve the financing problem through legal means

After the new government came to power, it has been talking about solving the financing problem; however, significant time has elapsed, yet the issue is still in its developmental stage. The government has been reluctant to solve it with sincerity through legal means. For instance, the government can directly legislate to convert the policy loan scheme into a law, and reduce the associated risks. This would be an efficient approach. However, the government has held numerous meetings, inviting representatives from the insurance industry, private banks, public banks, and development funds for spontaneous support for over a year now, but has made no significant break-through.

  1. The last straw that broke the camel’s back was the selection (tender) scheme

Taiwan's "Renewable Energy Development Act" is inspired from Germany’s Renewable Energy Act (or EEG) of 2000. Under the corresponding FIT scheme, until the developer is willing to undergo project work, he/she will be guaranteed a good price and long-term contract for a period of 20 years. If a country wishes to change this scheme to its limiting version, such as, the tendering scheme, it will be required to revise the law, and insert a “tendering clause,” such as, in Germany’s 2017 EEG. The tendering scheme is a promotion regime, different from FIT. Thus, if the government wants to apply the tendering scheme to the offshore wind power industry, stronger legal basis will be required. However, the government almost avoided mentioning such a tendering scheme. It might have deliberately played the word game to avoid the use of the “bid” and ”tender”; however, the connotation of ‘selection’ in the system, in fact, is that of a “bid.”

  Due to the several uncertainties and ambiguities in the current Taiwan regulations, there are many ticking bombs ahead. If the EIA Review Commission continues to block the review process by citing fishery compensation issues, and is not able to pass the EIA by this year-end, I suspect the offshore wind developers will file a lawsuit, opposing the "non-environmental factors" in the EIA process. Moreover, these companies can also refuse to pay the fishery compensation, and sue, opposing the "offshore wind power plant fishery compensation standard/formula," for its lack of legal basis.

   Even if the aforementioned problems are resolved, the EIA needs to be passed smoothly by year-end. Does it create a strong legal foundation for the developers? The environmental lawyers may file a lawsuit against the industry challenging the legality of "Zonal Development Ordinance": How did the Ministry of Economic Affairs obtain vast powers for space allocation, and marine spatial planning? As a result, the developers’ rights (and projects) face the risk of revocation (or cancellation). On the other hand, if the developers cannot pass the selection (or tendering) process, they may file a lawsuit against the illegitimacy or non-legality of adoption of the “tendering” scheme, under Taiwan’s current FIT legal regime.

  They may also challenge the powers of Ministry of Economic Affairs to allocate the national sea space, and veto the developer to obtain development rights. In addition, if the industry cannot successfully conduct the selection process, they might explore litigation options against those who advocate selection method, which is not authorized by law, and does not meet the spirit of FIT, as stipulated in the "Renewable Energy Development Ordinance."

  Such developments would create a losing situation for the government, industry, investors, and environmental groups, among others. Further, they would cast a shadow on Taiwan's energy transition program. As I see it, the only business opportunity is lawsuit. However, is this the opportunity we intend to create? 

Offshore Wind Power

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