Sharply Rising Complexity, 4 Major Challenges in Financing Offshore Wind Power Block Development Projects

published: 2022-08-09 9:30 | editor: | category: News

Taiwan's offshore wind power has entered the third stage of block development. However, due to rules and conditions differing from past instances, developers will face 4 major issues in project financing. Denmark's Copenhagen Infrastructure Partners (CIP) and China Trust jointly organized the "Banker's Day 2.0" project financing seminar to analyze challenges and opportunities. CIP also announced that China Trust will serve as financial advisor for block development.

The first round of block development plans to release 1.5GW of development capacity each year from 2026 to 2035, with a total of 15GW. If the financing for 1MW capacity is estimated to be about NT$200 million, then 15GW capacity is NT$3 trillion, but the development rules are different and the environment also comes with different project financing challenges. Keith Hsu, Chief Financial Officer of CIP Taiwan, pointed out that compared with the second stage, third-stage wind project financing will face four major challenges.

Keith Hsu pointed out that the scope of localization is wider and the difficulty of core technology is increased. Whether these developers are ready and whether the localization project is reasonable needs to be discussed with the supply chain. The localization project of block development is more difficult than in the second stage and costs will naturally increase. Due to the Russian-Ukrainian war, Europe has stepped up its pace to promote renewable energy and the world is scrambling for offshore wind power resources.

In addition, there is a single unit development capacity limit, which means it is not easy to create economies of scale, and the upper limit of bids may lead to a decoupling of the bid price from actual cost. The source of wind farm income has also changed from the original 20-year Taipower wholesale rate to corporate power purchase agreements (CPPA), Keith Hsu pointed out that some wind farms in the tender can be acquired if there is surplus electricity but if the income cannot be covered, it will be a great risk to banks and developers.

Although CPPA is a trend, it still has relatively unstable financing conditions compared with renewable energy transfer power purchase agreements (PPAs). Remington Huang, Principal Partner of the Baker & McKenzie International, pointed out that it is also necessary to consider the credit rating of corporate users and their degree of guarantees and the complexity and operability of the collective power purchase and sale contract. CPPA power generators are also obliged to set up "backup power supply capacity" according to law, resulting in the uncertainty of increased costs during operation.

However, for the third stage of block development, CIP also said that they are ready. They have previously held two CPPA seminars in Hsinchu and Taichung to communicate face-to-face with green power users. Focusing on potential customers, they will also understand each other's needs. Keith Hsu pointed out, we will not continue to rely on Taipower's wholesale rate and we will mainly focus on CPPA customers in the future.

Marina Hsu, managing director of CIP Taiwan, said that in the third stage of block development, CIP is also honored to continue with China Trust as the financial advisor in the selection stage. The two parties will continue to work together to create new prosperity for Taiwan's energy transition and green finance.

Claire Lohan, chief executive of the CIP block development plan, mentioned that the financial model of the third stage of the block development plan is more complex than the second stage and it is bound to be more accurate and detailed in financial management and operation. The stage must be carefully considered and the developer's professionalism, performance, experience and resources must be strictly evaluated to ensure that the third stage wind farm development plan can be completed on schedule and with high quality.

(Image: TechNews)

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