Danish offshore wind developer Ørsted A/S announced on January 19 that it has ceased all activities concerning the development of its offshore wind farms located near the western coast of Taiwan, just off the shores of Changhua County. In notices sent from its HQ to the suppliers participating in these projects, Ørsted stated that it has suspended carrying out its contract with Taiwan’s government because it is dissatisfied with the terms of the power purchasing agreement.
Ørsted was one of the four offshore wind developers that received tenders from Taiwan’s government in 2018. However, several proposed changes in Taiwan’s FiT scheme for offshore wind have compelled the company to reassess the viability of the whole venture. Ørsted has long insisted that its projects in the area, including Greater Changhua 1 and 2a, will be subsidized at a FiT rate of at least TWD 5.8/kWh, or the rate under last year’s scheme. Taiwan’s government, on the other hand, is considering cutting the rate to TWD 5.1/kWh. Disappointed with the turn of events, Ørsted has decided to halt all work on the Greater Changhua projects and renegotiate the procurement agreements made with Taiwan-based suppliers (mainly supply contracts that have yet to be executed). This action will have a major impact on the operation of local suppliers including China Steel Corp., Century Iron & Steel Industrial Co., and Star Energy Corp.
Cheng Hsuan, VP of Star Energy, told the Economic Daily News that nearly TWD 7.3 billion worth of contracts are now at risk. Star Energy has already made investments and expanded its workforce so as to meet the demand related to the Greater Changhua projects. The company is therefore at a loss of what to do with the additional workers and the capital that has been committed. Ørsted previously indicated that it would scale back its prepayments to suppliers, but now the company has sent legal notices saying that most procurement agreements made with local suppliers will have to be revamped.
On its part, Ørsted contends that the company has a very narrow time frame to complete the Greater Changhua projects. The turbine installation is scheduled for completion in 2021, and Taiwan’s government has yet to confirm the changes made to the FiT scheme. Hence, the company has to put the projects on hold to prevent its suppliers and itself from incurring greater losses in the future. Ørsted also estimates that the FiT rate of TWD 5.1/kWh, which Taiwan’s government is proposing right now, will result in a total revenue loss of almost TWD 100 billion for the projects. So even if the Danish developer later decides to continue with the contract, it will certainly demand local suppliers to lower their prices.
Besides the rate reduction, Taiwan’s government is also proposing to set a production cap of 3,600 annual full-load hours and scrap the mechanism that allows gradual rate adjustments once the cap has been reached. If these changes to the FiT scheme are implemented, then electricity produced in excess of the yearly limit will be bought at a flat rate of TWD 1.9/kWh. The very low price clearly excludes the cost of generation. Participants of Taiwan’s offshore wind projects have expressed opposition to the policy revisions because the new changes actually discourage the installation of advanced, high-efficiency wind turbines that Ørsted offers. Some of them even said that foreign investments might have avoided Taiwan’s offshore wind projects if the government had stipulated conditions like production cap in the first place.
From Ørsted’s perspective, the government’s demand for domestic content in turbines has already increased the overall cost of the Greater Changhua projects when compared with similar ones in Europe. Another problem is that Changhua County has been dragging its feet in issuing the building permit for the wind farms due to the dynamics of local politics. The delay has now lasted for about a month. Frustrated at these developments, Ørsted is now threatening to abandon the projects and withdraw from Taiwan’s offshore wind market.
A day before the announcement on the Greater Changhua projects, Ørsted and Tokyo Electric Power Company Holdings (TEPCO) signed a MOU to form a partnership in developing offshore wind projects near the coasts of Japan. Henrik Poulsen, president and CEO of Ørsted, told the media covering the event that the alliance with TEPCO will “contribute to making Japan a leading offshore market in the Asia-Pacific.” Industry watchers have also noted that Japan has a strong industrial and technological foundation for building a domestic supply chain for offshore wind energy. There has been no reaction from Taiwan’s government to this news.
(This article is an English translation of news content provided by EnergyTrend’s media partner TechNews. Image Credit: Tee Cee via Flickr CC BY 2.0)