Taiwan Needs Efficient Energy Market: Taipower

MITIGATION ACTIONS:
The ministry intends to introduce a loan guarantee program to address renewable energy producers’ concerns about the possibility of default

Taiwan needs an efficient energy market if it is to achieve net zero emissions by 2050, Taiwan Power Co (Taipower, 台電) Chairman Tseng Wen-sheng (曾文生) said at a climate summit on Wednesday.

Developing renewable energy requires new technologies and investments, and “decisions about it are multi-faceted,” Tseng said, adding that the government has to consider many factors, which can make the decision-making process slow and inefficient.

If renewable energy industries are allowed to develop in line with market logic, decisions can be made more efficiently, “but it all comes down to whether (renewable energy) can be traded in an (efficient) energy market,” he added.

The Electricity Law (電業法) was amended in 2017 as a first step towards liberalising the green energy market, allowing power generated by renewable energy plants to be sold directly to consumers.

Large Taiwanese companies that need large amounts of green electricity, such as members of RE100 – a global initiative calling on companies to commit to using 100% renewable energy sources – have largely chosen to enter into corporate power purchase agreements (CPPAs) lasting up to 20 years with renewable energy producers such as offshore wind developers.

However, renewable energy producers have concerns about the ability of weaker buyers to honor long-term contractual obligations and are therefore less willing to sign CPPAs with them. These concerns have led the Ministry of Economy to introduce a government-backed renewable energy loan guarantee program.

The programme is intended to help reduce the risk of corporate offtakers defaulting on their obligations, which could discourage renewable energy developers from signing contracts with them.

Twenty-year “one company, one generator” contracts can be “painful for any purchasing manager” because there is a chance that green energy will become cheaper in the future, and there is no way to trade the green energy purchased during that 20-year period, Tseng said.

He said a “mediation mechanism” needed to be established to “equalise the risk of uncertainty” the company might experience during the years covered by the contract.

As Tseng said, the indirect mechanism requires the cooperation of two parties.

“One is the supply side, such as financial institutions, which can help re-mix different batches of energy products into a relatively stable-priced product,” he said.

“The other side is the demand side,” Tseng said. “Since buyers may need different amounts of green electricity in different years, efficiency can only be achieved if they can freely pass on the purchased energy to others.”

Only such an energy market will enable a balance between supply and demand, Tseng said.

Tseng said he expects Taipower, as a renewable energy producer, will first cooperate with large state-owned enterprises to drive further development of the green energy market.