Taiwan offshore wind: the challenges

We have already looked at the opportunities the growth of Taiwan as a hub for offshore wind energy in the Asia-Pacific region presents for both energy investors and the supply chain. Here, we examine some of the expected, and unexpected, issues these companies have had to contend with.

Vessel flagging

While Taiwan does not currently restrict the use of foreign flagged vessels for offshore wind farm construction activities, unlike mainland China and Japan, Taiwanese government agencies have been considering introducing restrictions in response to complaints from local ship owners and operators. This possibility could affect developers where local vessels may not meet necessary specifications, are not available, or may be more expensive.

One further concern if the position changes, however, is the requirement for local crew on Taiwanese-flagged vessels. It is a requirement that half of the crew on Taiwanese-flagged vessels are Taiwanese, but a one year temporary exemption to reduce the ratio to one third can be obtained if local crew members cannot be found.

Tariffs

Policy-driven subsidies such as feed-in tariffs are expected to reduce over time, reflecting the reducing costs of delivering offshore wind. However, arbitrary reductions present additional regulatory risks. Notably, this year, the tariff for Taiwanese offshore wind power purchase agreements (PPAs) was cut by around 5.7% compared to the 2018 tariffs.

The reduction was widely seen as a political response to domestic concerns that the tariff in Taiwan was considered unreasonably high when compared to similar projects around the world. However, as is often the case, it is difficult to compare project costs and returns based solely on the regulated tariff. Currently, Taiwan's local supply chain is undergoing development. As projects are built and commissioned, allowing a local supply chain to further develop, unit costs should reduce with tariffs similarly falling to reflect lower costs.

Local content requirements

An underlying policy element in Taiwan's offshore wind programme was to establish the island as a regional supply hub for offshore wind projects. Use of the local supply chain was therefore an important factor considered by the Taiwanese government when selecting winning projects during its 2018 allocation round.

The ability of developers to meet these 'local content' requirements has been impeded by a shortage of experienced local talent. However, leveraging Taiwan's advanced manufacturing industry, these challenges should not be insurmountable and training institutions, university programmes and internships have been set up to train talent - although this will take time.

Sourcing the sophisticated machinery required by these projects, such as wind turbine installation vessels, from domestic suppliers will be a greater challenge.

Geographical factors

The offshore waters of Changhua, where Taiwan's offshore wind farms are concentrated, are almost entirely high risk areas for soil liquefaction. Although soil liquefaction risk can be mitigated by the construction method, this adds complexity to the design and engineering of the turbines.

Sand waves present another challenge when erecting turbines in the Taiwan Strait. As the sediments washed from the mountains to the seabed are mostly sand, the seabed sediment layer is not flat but rather like 'waves', with peaks and troughs of about five to 10 metres. These waves move by around 10 to 16 metres annually, according to satellite photo analysis.

Although there is no risk of immediate damage to the wind turbine, the movement of the waves means that some of the underwater foundations buried in the sedimentary layer will be exposed to seawater in a few years and other parts covered. This will affect the configuration of the submarine cable and the design of the underwater foundation. Accurate information will be required to help engineers find the design that best meets these requirements.

There are other geographical concerns arising from the region's history of typhoons and earthquakes. This is impacting the cost and long term availability of natural catastrophe insurance.

Construction-related difficulties

Construction, never easy in the offshore environment, is especially difficult in the Taiwan Strait, which is prone to strong winds, severe weather conditions and typhoons. The window for carrying out installation work is relatively narrow, from April to September, but this is also peak typhoon season so vessels and personnel need to closely monitor weather conditions while carrying out work.

'Jackup' vessels, used during the construction phase, are a scarce resource, and must be booked two to three years in advance. Similarly, the ordering and production of cables, piles, turbine fans, port preparation and personnel training must all be done in advance, in order to be in place at the right moment. This is a sophisticated, complex and closely integrated programme, and any interruptions caused by severe weather could cause significant delays to the installation work.

Related infrastructure lagging behind

Taiwan's ports have traditionally been commercial ports or fishing ports, so are unsuitable for offshore wind turbine assembly and installation. Some modification works have now been done to facilitate to this work, particularly around the Port of Taichung.

Installing turbines can be as much of an engineering challenge as one of design and manufacture, requiring large specialist vessels which are scarce in number and in very high demand. Progress is, however, being made to curb the shortage with local companies purchasing vessels from abroad or developing their own.

Offshore wind projects often also give rise to grid connection challenges. It is unlikely that areas with high wind resource will have high load, so the grid network must be developed in order to connect the turbines to the main grid, which may be located some distance away. In addition, the introduction of large amounts of intermittent generation requires grid augmentation to absorb this.

State-owned power company Taipower has said that it will provide grid connection to all the new offshore wind capacity allocated during the government's auctions. However, it has not made any commitment on timing, and has not agreed to provide any compensation if grid power is delayed. There is therefore some uncertainty for developers on their ability to test and commission the plant once ready.

If you would like further information on the Taiwanese Offshore Wind market, including a more comprehensive legal/commercial Update Paper, please contact: [email protected].

James Harris, Melanie Grimmitt, Bernard Ang, Nick Carlin are renewable energy experts at Pinsent Masons, the law firm behind Out-Law.