Home business Taiwan offshore wind saga rattles global investors

Taiwan offshore wind saga rattles global investors

Above the sea, just off the coast of Western Taiwan, long white steel blades slowly meander through a thick morning smog: the first two offshore wind turbines of the country are a symbol of the government's plans to spend billions of dollars on the development of huge offshore wind farms so that it can reduce the amount of burnt coal to power the factories of the island.

However, the young offshore wind market in Taiwan has gained momentum, and international investors are starting to fear that the government has lowered the price it would pay for the power source by nearly 6 percent.

The change, announced in November and only partially settled on January 30, was a blow to international developers, engineers and banks who had flown to Taiwan in the past two years to participate in what promised to be one of the world's fastest growing offshore wind to be markets, expected by 2025 $ 30 billion of investment in the country.

The Danish energy company Orsted, which was several weeks away from approving an investment decision for an offshore $ 5 billion wind farm, warned investors on 31 January for a reassessment of the viability of the project. It is in discussion with numerous suppliers, including the Spanish turbine giant Siemens Gamesa, to make contracts again to ensure that it can still make money with the new pricing structure.

"At the end of the day, the investment must provide an acceptable return for our shareholders," said Henrik Poulsen, chief executive.

The impending investment decision against Orsted, one of the world's largest offshore wind developers, is seen as crucial for the future of the Taiwan market.

"There were many companies that were genuinely interested in just getting out of it [of Taiwan], "Said John Eastwood, a senior partner in Taipei at Eiger, a law firm." Everyone is looking at Orsted. "

Taiwan plans to build 5.5 gigawatts of offshore wind energy by 2025, which will represent renewable energy sources representing 20 percent of the country's electricity production, an increase of around 5 percent today. It has opened large parts of the Taiwan Strait for international developers.

Since the worldwide offshore wind industry has established itself mainly in Europe in the last 20 years, Taiwan is seen as an important growth opportunity for European wind companies that want to achieve traction in Asia.

With the growing offshore wind market in China, which is almost closed to foreign groups, Taipei's ambitious plans form a central point for international groups. Although Taiwan is a small Asian nation with a population of around 24 million, the vast industrial sector uses huge amounts of electricity.

"For all those European developers who see tight returns in Europe and are looking for growth, Taiwan was the opportunity and it's a great market," says Tom Harries, wind analyst at Bloomberg New Energy Finance, a research group.

Officials in Taipei – in response to local political pressure on what was seen as too generous subsidies to wind developers – last year, however, they reduced 12.7 percent the price they promised to pay offshore wind groups for electricity. On 30 January they bent for the pressure of the industry and the reduction reduced to 5.7 percent.

Experts from the industry say that this translates into prices in Taiwan for wind-produced energy that lie directly on the edge of break-even, making it difficult for offshore groups to make large investment decisions in the country.

Part of the challenge is that the supply chain requires a great deal of advance investment and technology transfer for all components and maintenance vessels that support an offshore wind farm. The government demands that Taiwanese wind energy projects use locally produced equipment, with the aim of creating a domestic industry that can support projects in other parts of the region.

"It is a recurring theme in renewable energy sources, this early reliance on over-subsidization and then retroactive government intervention that has created ugly precedents," said Sean McLoughlin, head of research on clean energy at HSBC. "The higher the initial subsidy level, the greater the risk of political recoil."

The controversy in Taiwan is because subsidies for renewable energy are decreasing globally, because the costs of wind and solar energy have fallen sharply over the past decade. The auction prices for offshore wind projects in Europe have dropped from $ 150 per megawatt-hour in 2015 to just $ 50 per megawatt-hour in 2018.

Ben Backwell, head of the Global Wind Energy Council, an industry organization, said it was "not at all realistic" to translate the prices of a mature European industry into the early years of a new market.

While some drivers said privately that they thought the Taiwan tariff cut would not derail the country's plans for offshore wind, others warned that the saga had already damaged confidence in the country's political risk.

"It's a fundamental question about international investors who trust that domestic governments keep their promises," said James Knight, a partner at London-based Augusta & Co, who advised on wind power financing in Taiwan.

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