A Conversation with Taiwan’s Energy Administration

Taiwan’s energy landscape has undergone significant transformations in recent years, punctuated by a pivotal restructuring in 2023 when the Bureau of Energy was elevated to become the Energy Administration. This change reflects a broader commitment to enhancing Taiwan’s energy policies and capabilities amid global shifts toward sustainable practices.

In a detailed discussion with Deputy Director General of the Energy Administration Lee Chun-li, TOPICS explored the nuances of Taiwan’s energy transition and its adoption of innovative technologies and new energy sources. Below is a summary of the conversation.

How does President Lai Ching-te’s energy policy differ from that of former President Tsai Ing-wen?

As a member of the global community, Taiwan is committed to achieving net-zero carbon emissions. The first phase of our energy transition policy came in 2016 when President Tsai took office. Her policy marked a significant shift from a high-carbon energy mix, predominantly coal-fired – accounting for about 45% of our power generation – to a more sustainable, low-carbon mix. At the time, coal-fired plants produced significantly more carbon dioxide compared to gas-fired plants, which made up about 35% of our energy.

Under President Tsai’s leadership, we aimed to adjust this balance to reduce carbon emissions. By 2025, our goal was to decrease coal use from 45% to 30% and increase natural gas to 50% by 2025. Additionally, we set an ambitious target to boost renewable energy from 4% to 20%.

In 2022, we entered the second phase of our energy transition – focusing on achieving net-zero emissions by 2050. This phase involves enhancing the role of renewable energy to account for 60-70% of our total energy consumption, with hydrogen energy contributing between 9-12%. Although natural gas will still play a role, we plan to integrate carbon capture technologies to mitigate its emissions.

While continuing these initiatives, President Lai places a stronger emphasis on diversifying our renewable energy sources beyond solar and wind. Given our location in the Pacific “Ring of Fire,” we are particularly focusing on geothermal energy, leveraging our many hot springs.

We’re also supporting the administration with deep energy conservation through initiatives like expanding the capabilities of Energy Service Companies (ESCOs), which play an important role in enhancing our industrial energy efficiency.

Another focus is on bolstering the resilience of our power grid. With climate change increasing the frequency of extreme weather events, enhancing grid stability is essential. The government has allocated significant funding to Taiwan Power Co. (Taipower) to upgrade infrastructure, ensuring our grid can withstand such challenges and integrate an increasing proportion of renewable energy seamlessly.

What is being done to enhance energy security and resilience?

Energy security and resilience are of paramount importance to Taiwan, especially in light of recent international geopolitical tensions, such as those between Russia and Ukraine. Traditionally, these issues might not have seemed urgent in Taiwan, but they have now become critical.

Given that 97% to 98% of our energy is imported, it’s crucial for us to enhance our energy independence and resilience. We tackle this challenge through two main strategies.

The short-term strategy is to diversify our energy sources. For instance, we’ve ceased purchasing coal from Russia and have shifted to sourcing from the United States, among other countries. We also source natural gas from over 10 countries, with our most significant suppliers being democratic nations like Australia, which provides around 50% of our coal and nearly 40% of our natural gas. This strategic alignment with democracies helps fortify our energy security.

Another important part of our short-term strategy is maintaining adequate energy reserves. For example, legal mandates require a minimum stockpile of 90 days for crude oil – 30 days maintained by the government and 60 days by enterprises. However, we typically stockpile over 110 days. For coal, the legal minimum is 50 days, but we usually keep it around 70 days. Natural gas poses more challenges due to storage and system requirements, leading to a minimal 8-day reserve, although we aim for about 14 days.

In the long term, our primary goal is to reduce our dependence on imported energy by boosting our indigenous resources. By 2025, we aim for 20% of our energy to be renewable, sourced from wind and solar. By 2050, we plan to increase this portion to 60-70%, significantly enhancing our energy independence.

What will you do to improve the investment climate for renewable energy in Taiwan?

We are committed to further developing renewable energy sectors like wind and solar, which are now mature industries in Taiwan. The government’s goal is to maintain stable policies to ensure that developers can confidently predict future operations. Beyond wind and solar, we are also focusing on smaller, emerging sectors like medium hydropower and exploring new technologies such as hydrogen and marine energy.

Although Taiwan is an island, making marine energy a theoretically ideal fit, the high costs and the lack of mature commercial systems globally are challenges we are still addressing. We are actively engaging in demo projects and international collaborations to advance our capabilities in these areas.

For example, we recently participated in a tri-nation conference with Australia and Japan, discussing hydrogen energy developments. Japan is heavily invested in hydrogen technology, and Australia has the potential to produce green hydrogen thanks to its solar and wind resources. There are already numerous cooperative projects between Japan and Australia in this field, and Taiwan’s strategic location along the hydrogen transport route from Australia to Japan positions us as a vital partner in this venture.

We are also committed to increasing our cooperation with experienced international partners. This collaboration extends beyond funding and testing to include necessary regulatory adjustments.

One challenge with expanding our hydropower beyond small and medium installations is the geological and environmental constraints. Taiwan has a long history with hydropower, but nearly all viable sites have been developed, and the construction of large dams is often opposed due to earthquake risks.

The logistics of connecting remote potential sites to the grid also involves extensive infrastructure challenges and costs. Assessing whether an investment is justifiable is a continuous process. Our strategy focuses on starting with the more accessible projects and gradually tackling the more complex ones as we expand our renewable energy footprint.

How would you describe the status of the offshore wind sector?

Our installed capacity of offshore wind exceeds two gigawatts, ranking us seventh globally, just behind Belgium. By the end of this year, I expect that Taiwan will surpass Belgium to become sixth.

But it hasn’t been without its challenges. Initially, we had no experience in offshore wind development. To overcome this, the government implemented demonstration systems and offered substantial incentives. We provided subsidies and attractive pricing to draw pioneering companies to invest here. This strategy was essential to encourage experienced offshore wind enterprises to set up operations in Taiwan.

The government has established a very stable regulatory framework to maintain a consistent pace when opening the market to new suppliers. This stability makes Taiwan an appealing market for offshore wind developers. Even though some may criticize our system, their continued interest and participation in the market are testaments to its viability.

When we first opened the market, many developers joined the competition, initially drawn to a set price of NT$5.5 per unit. However, as the market matured, competition drove prices down dramatically, at times to NT$0. This price point may seem unreasonable, but it’s part of the developers’ strategy to secure permits and find their own customers, particularly as Taiwan’s export-heavy economy and strong semiconductor industry, including giants like TSMC, increasingly demand green power.

Developers bet on securing contracts directly with these industrial giants, which allows them to offer a bid price of zero for sales to the government if they don’t find private buyers. But reaching an agreement that satisfies both developers and industrial buyers is still difficult.

Given Taiwan’s location in the Pacific “Ring of Fire,” the government is particularly focusing on geothermal energy, leveraging the island’s many hot springs.

Taiwan has seen meaningful shifts in its development of geothermal energy as of late. What potential does geothermal hold here?

By the end of next year, we anticipate the operation of five new commercial geothermal power plants in Taiwan. Currently, we have about 20 small geothermal projects ongoing. Despite this progress, geothermal development lags behind solar and wind. This slower pace can be attributed to the higher risks associated with geothermal projects compared to other renewable energies.

For instance, developers can easily measure wind speeds or solar intensity to estimate the potential output of a wind or solar farm, allowing for straightforward cost-benefit analysis. Geothermal energy, however, poses unique challenges. Even with advanced geochemical and geophysical research, the actual results of drilling a well are unpredictable. From our experience with crude oil, the success rate of drilling is low – often, only one in three wells produces a viable resource. This uncertainty makes geothermal investments particularly risky, and many potential developers are hesitant.

To mitigate these risks, the government has implemented a policy to encourage exploration – if a company drills and the well fails, they receive government compensation. This approach is designed to lower the barrier to entry for geothermal development. For example, if a company invests NT$200 million and the project fails, the government will compensate them with up to NT$100 million. This safety net is intended to stimulate trial and innovation in geothermal energy.

Additionally, we are intensifying our efforts to better understand our geological landscape. The state-owned CPC Corporation, which has historically focused on oil and natural gas, is now pivoting toward geothermal resources. A partnership between Taipower and CPC is currently exploring geothermal potentials, with a notable joint venture project in Yilan County expected to commence operations by the end of this year.

What would you like to tell significant energy users in Taiwan who worry about accessing renewable energy?

Taiwan’s semiconductor industry has a serious demand for green electricity, largely because our economy relies heavily on exports. With increasing environmental regulations like the carbon tax in Europe, the need for green energy has heightened here. Although we have sufficient green energy capacity, the challenge lies in the lack of a mature market that facilitates transparent transactions between buyers and sellers. Currently, most deals are negotiated privately, which means prices and other terms remain undisclosed.

The government is actively working to establish a more open and transparent market for green electricity. While we have started some smaller markets, they are not yet mature. Our long-term goal is to enhance market transparency, allowing everyone to know where and at what price they can buy green electricity.

Additionally, there’s the common issue of local resistance to energy facilities. While some objections from residents are reasonable, others oppose purely to gain personal benefits, threatening to block projects unless they receive something in return. This kind of coercion is illegal in Taiwan, and we are addressing it by collaborating with the judicial system. We’ve set up a platform where developers can discuss the challenges they face. Regular communication meetings are held monthly or each season to ensure that any legal issues are quickly managed by the judiciary.

Carbon capture technology is widely considered an important part of achieving net-zero carbon emissions. What is the Energy Administration doing in this space?

We currently have several demonstration projects for carbon capture technology, which are still in their early stages. Specifically, we have supported the development of two major demo systems.

The first is the Taiwan Carbon Capture and Storage System, located at the Tai-chung Power Plant. This project is a collaborative effort in which we provide funding to Taipower to implement the demo system within the Taichung facility. The choice of Taichung’s coal-fired power plant was strategic due to the higher carbon density in coal emissions, which makes carbon capture more feasible there compared to a gas-fired power station.

The second project involves CPC, also in Taichung, utilizing an exhausted natural gas well. With the natural gas depleted, this site now serves to reinject CO2 into the earth, effectively using the old gas well for carbon storage.

These projects represent our initial steps towards developing effective carbon capture and storage technologies, showcasing our commitment to innovative solutions in reducing carbon emissions.