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Out-Law Analysis | 17 Aug 2021 | 11:23 am | 8 min. read
Published on 29 July, the near-final 2021 ‘zonal development round’ plans are largely the same as those put out by the BoE in May 2021, although greater details are now funnelling through. They address the period 2026-2035 with approximately 1.5GW of capacity to be awarded each year, a total of 15GW.
The announcement will be welcomed by bidders who were successful in earlier rounds as much as by unsuccessful bidders and potential new entrants, such as oil and gas companies looking to expand into the renewables sector, who will be even more keen to establish a foothold in one of Asia’s newest and most prolific offshore wind markets. Despite an increase in activity in Japan, South Korea and other Asian markets, the Taiwanese authorities seem determined to push hard to develop a regional hub for offshore wind – and the roll-out of the zonal development round is set to support those ambitions.
Since being re-elected for her second term in early 2020, president Tsai Ing-wen has continued to promote Taiwan’s ambitious renewable energy targets. The president has remained committed to harnessing the potential capability of offshore wind in Taiwan, previously setting out plans to install 5.7GW of offshore wind capacity by 2025 and later announcing the installation of a further 10GW of offshore wind capacity by 2035. During her inaugural speech in May last year, president Tsai re-affirmed her commitment to the acceleration of green energy and renewable development when she announced her latest target: to derive 20% of overall energy from green sources by 2050, making Taiwan a centre for green energy in Asia. Market forces, and the adoption of the RE100 platform by many multinational manufacturers, are also bringing new public and private sector considerations to the fore.
According to the near-final plans:
The BoE has introduced a capacity cap of 500MW for each auction to encourage diversified participation. The cap will apply to both each project and to each single developer. However, it has indicated that the cap may be lifted to 600MW taking into account relevant factors such as the integrity of the wind farm, benefits of the development, domestic industrial capacity and grid-connected capacity announced by the power transmission and distribution industry.
Having ‘learned some lessons’ from previous rounds, the BoE is requiring that developers must first obtain consent opinions from eight authorities before being deemed eligible to bid for capacity. These include authorities responsible for aviation, radar, military control, ship safety, conservation and fishery rights. A single portal will be set up for submitting applications, which will then be passed on to the various authorities for review and approval.
The Taiwanese government has engaged various departments to map out “sensitive areas” where wind farm development will be prohibited. Selected sites cannot cover these areas or any existing wind farms or sites that have received an establishment permit, and the shortest distance between the boundaries of the sites cannot be less than 1,200 metres.
The planned installation capacity of a single application cannot be less than 100MW and cannot be less than 5MW per square kilometre.
Developers must include various documents with their site planning application:
Bidders must also obtain preliminary environmental impact assessment (EIA) approval on the projects they intend to put forward as a condition precedent to bid registration.
In previous rounds, developers experienced a range of challenges with the EIA process including the Environmental Protection Administration’s power to veto developments, inconsistent and strict requirements and the impacts being assessed going beyond “intended environmental impacts”. Although lessons have been learned from these earlier experiences, it is unclear whether projects that have passed the EIA but not secured capacity in previous rounds will be exempt from this pre-condition.
Once eligible, bidders are expected to take part in a two-stage bidding procedure involving:
The qualifications review covers technical capabilities, financial ability and the bidder’s commitment to localisation. A bidder must score more than 70 points in its technical capabilities and financial ability review, score at least 10 ‘bonus’ points and satisfy a 60% local content requirement over the capacity it applies for before moving on to the next stage.
At the price competition stage, bidders should rely on the BoE’s most recently published ‘avoided cost’ figure – the average cost of electricity from non-renewable sources – as a guide. The lowest tariff bid submitted below the avoided cost will be given priority over available capacity. Where any two or more bids are first equal, priority will then be selected on the basis of their proposed use of ‘bonus point’ locally produced items, with the bidder obtaining the highest score given priority. It is expected that a selection will be made at random if this still does not produce a clear winner.
Some developers have raised concerns about using the avoided cost as an effective price ceiling as it may not be favourable for project finance or in efforts to reach a better price when negotiating corporate power purchase agreements (CPPAs) with potential green energy buyers. The BoE has said that it will further consider these comments.
Local content requirements have changed multiple times since the BoE’s first draft in response to industry feedback, but remain a major issue for developers.
The local content requirements in the near finalised plans categorise components into ‘key development’ and ‘bonus point’ items. Points gained from the proposed use of these items are tallied for the purposes of the qualification review stage and, if necessary, to separate first equal bids at the price competition stage.
There are 29 key development items which carry a value of between one and six points depending on the item, split into four categories: electrical equipment; submarine foundation; turbine and components; and marine engineering and design engineering. Bonus point items also fall into four categories, with points allocated depending on the item.
More items have been added to the local content requirements for the zonal development round. However, local-made key development items will only need to make up 60% of the applied for capacity, instead of 100% as previously proposed, in order to give developers greater flexibility. All key development items in the marine engineering and design engineering category must be sourced locally.
Legislative reforms in 2017 and 2019 have resulted in gradual liberalisation of the Taiwanese power market, with a new policy now permitting a ‘renewable energy based electricity generating enterprise’ to engage directly with consumers without the involvement of Taipower, the state-owned utility. In 2019, the BoE issued its first ‘electricity retailing enterprise’ licence to a renewable energy company, allowing it to sell renewable electricity to consumers directly. It is anticipated that more companies may participate in this field, especially with RE100 companies insisting their supply chain use ever greater sources of renewable energy.
Allowing renewable energy developers to sell electricity directly to consumers may increase profitability, as the price of selling to corporate clients with the need to purchase renewable energy might exceed the feed-in tariff (FiT) rate under the PPA with Taipower. Additionally, the terms or revenue risk may be allocated more favourably by contracting directly with multiple consumers than under a standard PPA with Taipower.
Government officials have warned that the bidding price in the zonal development round is anticipated to be lower than Taipower’s current average electricity selling price to consumers. The BoE has taken into consideration the possibility that developers will bid at a very low price with plans to then resell to the end consumer by entering into a corporate PPA. This area is likely to be subject to continued assessment to ensure that no unfair competition is created among bidders.
Some developers have expressed concerns over the near-finalised plans. Particular concerns have been raised in respect of the interaction between the single wind farm/single developer capacity cap, the ‘avoided cost’ upper limit for bidding prices and the local content requirements. Developers have explained that a significant amount of time and money will need to be invested in order for the local supply chain to develop and become cost competitive, but the combination of price cap and capacity cap will prevent them from achieving economies of scale in order to properly absorb the cost of this investment. A subsequent news report has quoted an BoE official saying that the BoE is reviewing this issue. As such, there may be further changes when the finalised plans are realised.
In response, the government has suggested that developers consider selling green power through CPPAs. However, this raises the question of whether the CPPA market has the appetite for 15GW of green power. Developers are instead calling on the government to trust market mechanisms and let them find feasible energy prices for Taiwan under fair and free competition.
At one of the earlier BoE events, a developer questioned whether there were any plans to address submarine cable interlaying or the crossing of cabling between wind farms, given that the grid in northern areas is occupied. The BoE responded that Taipower is currently working on the planning and technical assessment of grid connectivity. As such, no confirmed information on timing of grid connectivity is yet available.
We understand that the question was raised because of developers’ concerns around costs and the sharing of construction fees of the grid and relevant facilities. As an aside, we note that issues around crossing into other wind farms may require negotiation with and consent from other developers. Additionally, fresh EIA considerations may need to be addressed.
In July 2021, the BoE reiterated that long-term planning around grid construction and connectivity is being carried out simultaneously, and that Taipower is currently working to enhance grid power to accommodate 15GW of wind farm capacity.
Co-written by Dr Pijan Wu, Senior Counsel, LCS & Partners.
04 Dec 2019
04 Dec 2019
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