ARKANSAS, Nov 20 (Future Headlines)- The offshore wind industry in Taiwan, once considered a thriving market, is encountering challenges as Japanese companies withdraw from projects due to escalating costs and delays, echoing a broader global trend affecting the renewable energy sector.
Last week, oil refiner Eneos Holdings Inc. expressed the possibility of exiting the Yunlin Offshore Wind Project in the Taiwan Strait. The decision followed regional utility Shikoku Electric Power Co.’s withdrawal from the same project due to profitability concerns arising from delays. Shikoku Electric Power Co. decided to pull out of the Yunlin Offshore Wind Project, citing delays that could impact the project’s financial viability.
Electricity generator Jera Co. completed the sale of its stake in Formosa 3, another Taiwanese offshore wind project, in June. The challenges faced by Taiwanese wind projects reflect broader issues affecting the global offshore wind industry. The after-effects of the COVID-19 pandemic have contributed to rising costs of labor and borrowing, impacting the financial feasibility of wind developments.
Wind developments are often locked into contracts to sell power at rates set years ago, making it challenging to offset cost changes. Denmark’s Orsted A/S withdrew from a partnership developing offshore wind in Norway due to rising costs. BP Plc and Equinor ASA recently reported impairments on projects, indicating the broader challenges in the industry. Eversource Energy incurred a $331 million after-tax impairment charge in Q2 for its offshore wind operations.
Taiwan aims to increase the share of electricity from renewables to 20% by 2025, up from 8% in the previous year. The goal includes having 5.7 gigawatts of offshore wind capacity by 2025, compared to the current 2.1 gigawatts.
Taiwan is actively working on reducing coal usage, eliminating nuclear power, and increasing the adoption of natural gas. The island is, however, facing challenges in meeting its renewable energy targets on schedule. The wind industry in Taiwan faces cost escalation due to various factors, including the impact of the pandemic, labor costs, and borrowing expenses.
Rigid regulations mandate developers to procure 60% of their equipment from local manufacturers, leading to increased project costs. Strict local procurement rules can result in higher offshore tariffs, burdening ratepayers with increased electricity prices. The withdrawal of companies may reduce competition, lead to undersubscription in tenders, and potentially jeopardize Taiwan’s renewable energy targets.
The challenges faced by Japanese companies in Taiwan’s offshore wind projects underscore the broader issues affecting the global renewable energy sector. Rising costs, delays, and contractual obligations have created headwinds for wind developments worldwide. Taiwan, with ambitious renewable energy targets, is grappling with the need to balance industry growth with cost-effectiveness. Navigating the complexities of local procurement requirements and addressing delays are crucial for the sustainable advancement of Taiwan’s offshore wind industry. As the industry evaluates solutions, collaboration between stakeholders, regulatory adjustments, and strategic investments may play pivotal roles in overcoming these challenges and ensuring the continued growth of the renewable energy sector in Taiwan.
Reporting by Kevin Wood; Editing by Sarah White