The Financing Dilemma of Taiwan Offshore Wind Power

Green Mentor's Fireside Chat

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  The previous article: “What Shadows Offshore Wind Power Industry despite the Significant Inflow of Foreign Investment?” has significantly raised public awareness of this issue. The public finally appreciates the barriers encountered by the wind power industry. Those who already work in the industry, especially foreign investors, eventually understand the unique situation in Taiwan.

  To fully understand the offshore wind power industry requires a broad range of technological knowledge and understanding. Even if one is working in the green or renewable energy industry, it may be difficult to understand why the results of offshore wind power are entirely different from that of photovoltaics (PVs), whose growth is steady and stable. Therefore, from here on, we will take on the roles of interpreter, trying to explain the Energy Law in simple words, and thereby allowing people to easily understand it. As a mentor of Green Impact Academy, we will try to analyze the risks, opportunities, and challenges that exist in energy-related legislation. We hope this supports the workers and entrepreneurs who are searching for opportunities in the green industry.

  Mentors from Green Impact Academy will share their perspectives from their professional areas in terms of technology, trends, marketing, and funding. They will share the latest business opportunities and applications of green industry, including green buildings, energy, materials, recycling and renewable resources, transport, agriculture, food products, supplies, water resource, financial services, etc. The green industry requires significant integration. We hope that you will be inspired from our perspectives.

  For start, we will begin with the offshore wind power industry, dismantling the pitfalls and analyzing the opportunities from the perspective of financing, Environmental Impact Assessment (EIA), site selection, and localization disputes. Today, we will be talking about financing, which is the most popular issue and the one most directly related to monetary profit.

  The cost of installing wind turbines is very high. A 5MW offshore wind turbine costs at least 800 million NTD, not to mention the maritime engineering costs. It is not a business that a start-up could easily enter. If the government claim that offshore wind power is part of its energy policies, then they must play the role of banker, thereby reducing the investment risk to allow investors to have more confidence in the wind power industry. Otherwise, the foreign investors won’t take you seriously!

  A significant development case can be promoted by green financing or green bonds. The very first green bonds were listed in the Taipei Exchange this May 2017. The four issuers who got ahead in the game were KGI Bank, Bank SinoPac, CTBC Bank, and E. Sun Bank. The amount of the bonds totaled 5.17 billion NTD. However, is it enough for green energy development to rely solely on the private sector?

  The offshore wind power industry in Taiwan has been busy raising funding. They appealed to the government to promote financing and credit guarantee mechanisms to support the industry. Although the government has held hundreds of public hearings, orientations, and seminars, they are still reluctant to take on some responsibilities, hoping to solve the issue by introducing private equity. Despite some coordination with the government bank, the industry still cannot trust the government without a sustainable promise.

  The key concern is that the Ministry of Economic Affairs (MOEA) keeps avoiding responsibilities when developing financing plans. They tend to take the position of “co-organizer” or “coordinator.”

  First, the government pushed the financial responsibility to private banks or life insurance industry, taking a soft approach to attract the industry. For example, Cathay United Bank offered the first crucial financing to the Swancor Company for the offshore wind power investment in accordance with the equator principles in March 2016. The ministry soon emphasized that the private sector can finance investments on their own, without interference from the government.

  Secondly, redirecting responsibility to the Financial Supervisory Commission and the Executive Yuan, the MOEA claims that its resources are not sufficient for the development and suggests that the policy should be managed by the FSC or the national development fund.

  This passive attitude has already led Taiwan to become unviable for incubating any private, local “onshore” wind turbine developer, despite the availability of excellent wind fields. Though sluggish offshore wind power development seems to be a new problem, it is only an extension of the problems from onshore wind financing.

  You may be thinking that being a “co-organizer” could also be great, right? For instance, both the KFW (which is set by German national funds) and the EKF (which is in Denmark), lead large development projects and are financed not only by the Ministry of Economic affairs but also by the government. There are several mechanisms for renewable energy financing in the KFW; for example, the KFW Offshore Wind Energy Program, the Geothermal Risk Mitigation Facility, or even the KFW Environmental and Energy Efficiency Programs. This centralized mode is as similar as the orientation of our national development funds. However, we must be aware of the fact that in Taiwan, whenever people, may they be developers, policy makers, scholars, etc., need money, they immediately consider our national development fund. But few industries benefit from this fund. Why is this?

  It is because in Taiwan, the way to promote financing and credit guarantee funding is similar to the decentralized system in America. For example, the American government has established several programs for low interest financing and loan guarantees. In Taiwan, we often offer similar mechanisms, such as low interest rates or credit guarantees through all “ministries.” There are three such programs, as follows:

1. EPA promulgates the Ordinance of Project Finance and Guarantees for Low Carbon & Sustainable Homeland and creates a loan and guarantee program funded by the Air Pollution Control Fund of the Air Pollution Control Act.

2. MOEA set up an Ordinance of Favorable Loans for Energy Conservation Installations in the name of reaching nuclear-free homeland goals. The second implementation direction promoted by the Ministry of Economic Affairs since the previous nuclear-free homeland, is by offering preferential loans to purchase energy saving equipment.

3. MOEA has already developed credit guarantee funding provided to small and medium enterprises (SMEs).

  Therefore, MOEA and EPA had already established these mechanisms in other projects. Why would MOEA continue to refer itself as a “co-organizer” in the case of wind power and renewable energy?

  It may be due to the fact that the amount of money for the financing program in the MOEA is not sufficient to deal with the demands of the onshore turbines and offshore turbines.

  Now, the government is unwilling to take responsibilities. Foreign enterprises dare not invest; local banks worry about regulatory risks by the FSC when investing. How can the deadlock be resolved?

  Here I would like to provide two suggestions:

  1. Take the air pollution fund as a reference, which would solve the problem quickly without amending the law.

To encourage industries to decrease pollution, EPA introduced the concept that the “loan and the credit guarantee fund” falls under the definition of “other matters” in Article 18 of the Air Pollution Control Act. (XIII. Other matters concerning air pollution control work). Moreover, adding a new item into Article 5, which is regarding the purpose of the fund, of the “Rules for Air Pollution Fund Revenues and Expenditures,” which says “XIII. Rules about loan and credit guarantees for the decrease of air pollution”.

Following the same legal approach, MOEA must identify and admit the use of “renewable energy low interest loan and guarantees” as “other matters promoting renewable energy” under the Art. 7 of the Renewable Energy Development Act of 2009. Afterwards, the MOEA can revise the “Rules for Renewable Energy Fund Revenues and Expenditures” to introduce such schemes. We can then kick off the highly necessary loan and guarantee program.

  1. Amending the Renewable Energy Development Act is the most “to the point” measure to be taken

The problem with the previous suggestion is that this use of the fund isn’t for its stated legal purpose, which will face opposition from the Legislative Yuan. The precise measure to solve the issue is by amending the Renewable Energy Development Act immediately (Note: the government is already considering amending the Act). By adding the words “rules regarding the renewable energy loan and credit guarantee” under the purpose/usage of the renewable energy development fund, these simple words can introduce the financing and guarantee mechanisms that the industry have been expecting for a long time.

  When investment risk is lowered, bank operations can be ensured further. That the MOEA turns from a passive role to an active role, it can speed up funding and financing promoting the offshore wind power industry. It is more important for the government that the financing and promotion of offshore wind power will not be exclusively creating profits for foreign banks. For the local banks, with the intervention of the government, they can more safely invest in the industry and expand their business into areas where they currently lack experience. For foreign enterprises, they can enjoy multiple funding sources. It is certainly a win-win-win for the government, foreign enterprises, and local banks.

This article is also published in Storm Media(Title:綠色產業有政府大力推動,為何發展不起來?綠能專家道出背後原因,令人超傻眼)、Storm Comment (標題:楊雅雲觀點:三分鐘帶你看懂離岸風力發電產業的融資困境)andINSIDE(Title:【綠色觀點】政府不敢扛,外資、銀行不敢跟:三分鐘帶你看懂離岸風力發電產業的融資困境).

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