Amendments to the Electricity Act approved by the Executive Yuan on October 19 are intended to further two goals that President Tsai Ing-wen has made cornerstones of her administration: eliminating nuclear power and greatly increasing power generation from renewable energy sources. The amendments will now go the Legislative Yuan for deliberation, and if passed will be implemented in two stages.
The first stage – to occur over the next two and half years – will allow green-energy producers to sell directly to customers, either through their own transmission and distribution lines or through the grid of the state-run Taiwan Power Co. (Taipower). The second stage, to be carried out over six years, according to Bureau of Energy sources, will transform Taipower into a holding company with two entities: a power generation company and a transmission and distribution company. Both entities will continue to be state-owned and regulated, while power generation will be further opened up for private investment. The amendments also reconfirm the elimination of nuclear power while establishing a fund for decommissioning the three existing nuclear plants.
The Tsai administration has ambitious goals for renewable energy in Taiwan. It has allocated some NT$1.4 trillion (US$44.3 billion) for developing 20 gigawatts (GW) of installed solar photovoltaics and 3GW of offshore wind power by 2025. Liberalizing the market is seen as crucial to developing renewable energy without leading to consumer price hikes or the ruination of Taipower’s finances.
The amendments raise a number of questions, however. As renewable energy systems are more expensive to install than conventional power generators, Taiwan follows the lead of many nations in employing Feed in Tariffs (FiT), which are policy mechanisms to incentivize investment in renewable power facilities by the guaranteeing the owners an attractive price for electricity they generate and supply to the grid. These FiTs are usually fixed in long-term Purchasing Power Agreements (PPA) of 15-20 years. For example, the FiT for rooftop solar, which will account for nearly all of Taiwan’s 970 megawatts (MW) of installed solar power generating capacity in 2017, will be NT$6.02/kilowatt hour (kWh), while ground-mounted systems will receive NT$4.35/kWh and floating systems will earn NT$4.87/kWh. In comparison, the average price paid by consumers is only NT$2.8/kWh. Note: these FiT rates are tentative and won’t be fixed until January.
In addition, Taiwan has installed capacity of nearly 700MW of onshore wind power, which earns NT$2.88/kWh (close to the average rate charged to users). But offshore wind, which is still in the early stages of development, is slated to earn an FiT of NT$5.98/kWh. Biogas, meanwhile, produced mainly from pig farms, earns NT$5/kWh.
The high FiT figures compared with what consumers are currently paying raises the question: will customers, particularly large-scale, publicly traded companies, agree to pay far more per kilowatt-hour for green energy? The government says that the specific rates for renewable energy can be negotiated directly between seller and buyer, and that buyers would potentially be able to negotiate cheaper prices. But that leads to a further question: will renewable energy producers agree to sell their power for less than the official FiT? Solar and wind power generation typically reach only 15% and 30% of capacity respectively, putting a premium on each kilowatt-hour produced.
The government sees the answer to both questions in the global agreement to mitigate global warming, the Paris Accord negotiated last November by the United Nations Framework Convention on Climate Change (UNFCCC). The Paris Accord, successor treaty to the Kyoto Protocol, calls for signatories to make steep reductions in greenhouse gas emissions, primarily carbon dioxide (CO2). Although Taiwan is not a member of the UN nor a signatory to the Paris Accord, the government has committed through passage of a Greenhouse Gas Reduction Act to similarly cut emissions. Further, the government foresees that the carbon footprints of Taiwan’s exports to the European Union and the United States will be scrutinized.
The government forecasts that the need to demonstrate carbon footprint reductions will spur demand for renewable energy. Some officials, in fact, expect the result to be a rise in the value of renewable energy to levels that exceed the FiT rates offered by the government. Under the amended law, renewable energy providers will have the option of selling directly to customers at a negotiated price or to Taipower at the FiT rate. Further, they will not be required to install their own power lines connecting them to their customers, and instead can pay a transmission fee to transfer their power through Taipower’s grid.
Several multinationals with significant operations in Taiwan, particularly Google and Apple, have been pushing for the amendments in order to gain greater access to renewable power.
The second stage called for by the amendments, the breakup of Taipower, is even more far-ranging. Although the proposed amendments fall short of privatizing the utility as the Democratic Progressive Party has long advocated, they will set the stage for at least partial deregulation of the power sector. The amendments are largely a compromise after efforts to privatize the state-owned monopoly fell afoul of Taipower’s influential unions.
The model being considered in the amendments seems to be a hybrid encompassing practices in different countries. For example, a number of U.S. states allow for competition within the power generation and retail segments while retaining either government ownership or strict regulation of transmission and distribution networks. These systems likewise allow consumers to purchase power directly from producers, many of them renewable energy producers. States and regions that have deregulated power markets, particularly Texas, California, and the Northeast, have seen significant increases in the development of renewable energy. The United States, however, doesn’t employ FiTs and instead uses a variety of tax incentives and other financial means to stimulate renewable energy development. In Germany, also has a semi-deregulated power market, FiTs are paid by all residential consumers through a special levy regardless of the source of the power generated.
The amendments are potentially transformative, but how well the new system would work remains to be seen. For example, the decision to offer renewable energy through parallel private and public channels seems novel, and its success may depend on global market conditions. The administration has vowed not to raise electricity prices, and the amendments include price regulations and a fund to stabilize prices. The amendments also guarantee annual net profits for power producers, suggesting that if the market refuses to pay a premium for renewable energy, the state will.
As the legislation is taken up by the Legislative Yuan, many AmCham Taipei member companies will be closely following developments. Manufacturers are concerned as to whether Taiwan will continue to enjoy a sufficient and stable power supply at reasonable prices, while others are looking forward to new business opportunities from the generation or use of renewable energy.