4/19/2019 Taiwan offshore wind saga rattles global investors | Financial Times

Renewable energy
Taiwan offshore wind saga rattles global investors
Looming Orsted investment decision is pivotal to future of key renewable energy market

Taiwan, which plans to build 5.5 gigawatts of offshore wind power by 2025, has opened large swaths of the Taiwan Strait to international developers ©
Bloomberg

Edward White in Miaoli, Taiwan and Leslie Hook in London FEBRUARY 10, 2019

Above the sea, just off the coast of western Taiwan, long white steel blades churn slowly through
thick morning smog: the country’s first two offshore wind turbines are a symbol of the
government’s plans to spend billions of dollars to develop massive offshore wind farms so it can
slash the amount of coal burnt to power the island’s factories.

However, Taiwan’s fledgling offshore wind market is in a state of flux with international investors
spooked after the government cut by nearly 6 per cent the price it would pay for the power source.

The change, announced in November and only partially unwound on January 30, was a blow to
international developers, engineers and banks that had flocked to Taiwan over the past two years
to take part in what promised to be one of the world’s fastest growing offshore wind markets,
projected to bring in $30bn of investment to the country by 2025.

Danish energy company Orsted, which was weeks away from approving an investment decision for
a $5.4bn offshore wind farm, on January 31 warned investors it was reassessing the project’s
viability. It is in talks with scores of its suppliers, which include Spanish turbine giant Siemens
Gamesa, to rehash contracts to make sure it can still make money under the new pricing structure.

“At the end of the day the investment needs to come at an acceptable rate of return for our
shareholders,” said Henrik Poulsen, chief executive.
The looming investment decision facing Orsted, one of the world’s biggest offshore wind
developers, is seen as pivotal to the future of the Taiwan market.

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4/19/2019 Taiwan offshore wind saga rattles global investors | Financial Times

“There were a lot companies sincerely looking to just get the heck out [of Taiwan],” said John
Eastwood, a Taipei-based senior partner at Eiger, a law firm. “Everybody is looking at Orsted.”

Taiwan plans to build 5.5 gigawatts of offshore wind power by 2025, boosting renewables to
account for 20 per cent of the country’s electricity generation, up from about 5 per cent now. It has
opened large swaths of the Taiwan Strait to international developers.

With the global offshore wind industry mainly centred in Europe for the past 20 years, Taiwan is
viewed as a key growth opportunity for European wind companies seeking to gain traction in Asia.

With China’s growing offshore wind market all but closed to foreign groups, Taipei’s ambitious
plans are a focal point for international groups. While Taiwan is a small Asian nation with a
population of about 24m, its sprawling industrial sector uses enormous amounts of electricity.

“For all those European developers who are seeing returns squeezed in Europe because of all the
competition and are seeking growth, Taiwan was the opportunity and it is a great market,” said
Tom Harries, wind analyst at Bloomberg New Energy Finance, a research group.

However, officials in Taipei — responding to local political pressure over what was perceived as too
generous subsidies offered to wind developers — last year slashed by 12.7 per cent the price they

had promised to pay offshore wind groups for power. On January 30 they bowed to industry
pressure and trimmed the reduction to 5.7 per cent.

Industry experts said this translates into prices in Taiwan for wind-produced energy that are right
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4/19/2019 Taiwan offshore wind saga rattles global investors | Financial Times
on the edge of break-even, making it difficult for offshore groups to make big investment decisions
in the country.

Part of the challenge is that the supply chain for all the components and maintenance vessels that
support an offshore wind farm requires a lot of upfront investment and technology transfers. The
government requires that Taiwanese wind 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 renewables, this early reliance on over-subsidisation, and then
retroactive government intervention that has set ugly precedents,” said Sean McLoughlin, head of
clean-energy research at HSBC. “The higher the initial subsidy level, the more risk there is of
political pushback.”

The controversy in Taiwan comes as subsidies for renewable energy are falling around the world,
as the cost of wind and solar power has plummeted over the past decade. Auction prices for
offshore wind projects in Europe have fallen from $150 per megawatt hour in 2015, to as low as
$50 per megawatt hour in 2018.

Ben Backwell, head of the Global Wind Energy Council, a trade association, said it was “completely
unrealistic” to translate pricing from a now-mature European industry into the early years of a new
market.

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4/19/2019 Taiwan offshore wind saga rattles global investors | Financial Times
While some executives privately said they believed Taiwan’s tariff cut would not derail the
country’s plans for offshore wind, others warned the saga had already damaged confidence
regarding political risk in the country.

“It is a fundamental question about international investors trusting domestic governments to stick
to their promises,” said James Knight, a partner at London-based Augusta & Co, which has advised
on wind energy finance in Taiwan.

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