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'Taiwan trilemma' | Orsted's Neubert warns auction flaws could wipe out offshore wind head-start

ReCharge Magazine|Bernd Radowitz |July 11, 2022
AsiaTaxes & SubsidiesOffshore Wind

Taiwan could lose its leadership role in Asian wind at sea if it insists on a flawed design for an upcoming auction that includes a project size cap, high local content requirements and no protection against inflation, Orsted’s offshore wind chief executive Martin Neubert told Recharge. ...The company said it is prepared to take part in the auction this autumn, but Neubert has strong reservations over its design and is concerned that the government in Taipei has not given any signs yet that it would amend the envisaged tendering model.


Trio of maximum project size, price cap and high local content could harm island’s regional leadership, Danish giant's sector chief tells Recharge

Taiwan could lose its leadership role in Asian wind at sea if it insists on a flawed design for an upcoming auction that includes a project size cap, high local content requirements and no protection against inflation, Orsted’s offshore wind chief executive Martin Neubert told Recharge.

“We now need to make sure that when it comes to a future auction framework that Taiwan is not falling behind,” Neubert said in an exclusive interview, citing other markets in the Asia-Pacific region that also have growing ambitions, such as Japan, Korea, Vietnam, India and Australia.

“Taiwan … certainly had a head start on any other markets [in the region], but they need to watch out that they are not stepping back now” by making projects artificially small, and establishing a high and very specific local content requirement, he said.

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Trio of maximum project size, price cap and high local content could harm island’s regional leadership, Danish giant's sector chief tells Recharge

Taiwan could lose its leadership role in Asian wind at sea if it insists on a flawed design for an upcoming auction that includes a project size cap, high local content requirements and no protection against inflation, Orsted’s offshore wind chief executive Martin Neubert told Recharge.

“We now need to make sure that when it comes to a future auction framework that Taiwan is not falling behind,” Neubert said in an exclusive interview, citing other markets in the Asia-Pacific region that also have growing ambitions, such as Japan, Korea, Vietnam, India and Australia.

“Taiwan … certainly had a head start on any other markets [in the region], but they need to watch out that they are not stepping back now” by making projects artificially small, and establishing a high and very specific local content requirement, he said.

After a short delay, Taiwan in September is expected to auction off a first 3GW as part of its roughly 9GW third round offshore tender that will eventually result in a cumulative capacity of wind at sea of close to 15GW by 2035. Taipei has already tendered off 5.5GW in capacity in its first two offshore wind tenders.

Orsted is part of a group owning the country’s first operational offshore wind farm, the 128MW Formosa 1 array, and has another 1.8GW under construction or in advanced development in the Taiwan Strait off Changhua County. The Danes also have a further “couple of gigawatts” in the development pipeline of projects that could take part in the next tendering round.

The company said it is prepared to take part in the auction this autumn, but Neubert has strong reservations over its design and is concerned that the government in Taipei has not given any signs yet that it would amend the envisaged tendering model.

No site exclusivity

Taiwan grants no seabed exclusivity for future projects, meaning anyone can start development work at sites in parallel to other players, which can lead to a doubling-up of environmental impact studies and other early, but costly, work required to qualify for auctions.

An allocation framework for Taiwan in the future should “avoid that you have overlapping and redundant development work going on by multiple developers for the same area”, Neubert demanded.

“It is the same challenge we have in Japan, where there is no site exclusivity. Everyone can go for the same site, everyone is doing and replicating the same type of work, which is just not very economic, and not very efficient.”

A much better model would be the approach taken by the UK or the US, which first assign acreage of the seabed upfront, which companies can develop over many years to configure it in an optimal way, Neubert suggested.

Maximum project size
Taiwan to the chagrin of the wind sector has imposed a 500MW cap on project sizes for the next auction, which under certain circumstances can be increased to 600MW, a scale Orsted considers too small for a maturing market.

“A good size would be not going below 900MW. That is basically the size of the first two rounds if you take our projects we built.

“It is more expensive [to build] smaller. You need the same transmission infrastructure, and the scale effects which you simply have from going towards gigawatt size as compared to something artificially small, like 500MW” are missing.

Neubert stressed that optimal project sizes in mature markets such as the UK and even in a new market such as the US are now in the 1.2-1.7GW range. In Germany, which had at first allocated smaller projects of around 400MW, developers later have bundled several projects into one, such as Orsted did with its (now) 900MW Borkum Riffgrund 3 complex.

Price cap and local content
The island is also lowering the bidding price cap to 2,490 new Taiwan dollars per megawatt hour ($83.64/MWh), a huge drop from the NT$5,500/MWh cap valid in round one.

While in Europe, the levelised cost of energy (LCOE) for large-scale projects has reached some €50/MWh, one should “never compare and make a benchmark of that for any project in [the] US or Asia,” Neubert said, adding that Taiwan in its auction design doesn’t foresee a compensation mechanism for future inflation either.

“The North Sea has ideal wind conditions. You have a mature and established supply chain, you have no seabed risks, you have no earthquake risks. Earthquake resistance comes with cost.”

At the same time, Taiwan is also imposing much stricter local content requirements than in earlier auctions.

Orsted said the local content requirement is 60% of all listed mandatory items (25 of them) including foundations, nacelles, transformers, turbine cables, blades, or towers. It is not a generic requirement of 60% of the overall package, but rather a requirement that 60% of all the mandatory items listed by the government need to be produced locally.

While Orsted in principle welcomes the emergence of a local supply chain, not least to avoid ever higher shipping costs, building up that supply chain initially also comes at an elevated cost.

The industry cannot make the mistake of simply comparing the situation in 2018/19 – when Taiwan ran its previous tendering round – with 2022, Neubert stressed.

“At that time, we had no supply chain bottlenecks, we had zero interest rates and we had very low commodity prices. We cannot just ignore the world around us.”

The “trilemma” of a too small project cap, a price cap and fixed feed-in tariffs without inflation indexation – coupled with very ambitious local content requirements – “is a huge challenge in that framework”, Neubert said.

“We will channel and allocate our resources, our capital commitments, our efforts to markets where we have already built a strong footprint. But for us it is also very important [to look] where we can economically realise projects.”

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Source:https://www.rechargenews.com/…

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