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Number of prospective shallow-water projects in decline

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Technical challenges of deep waters would increase funding

need

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Policy change to quicken growth creates investment

uncertainty

By Sudarshan Varadhan and Ben Blanchard

SINGAPORE/TAIPEI, Sept 9 (Reuters) - Taiwan's bid to

propel its billowing offshore wind power market will entail huge

government support for prospective suppliers to achieve capacity

goals as projects move to deep, technically challenging waters,

industry officials and analysts said.

The densely populated island, long reliant on coal-fired

power, has more than quadrupled its wind capacity to 4 gigawatts

from less than 1 GW before the COVID-19 pandemic, and aims for

60% renewably sourced power by 2050.

The government was widely expected to provide details in

June of an auction for contracts to supply up to 3 GW of

offshore wind power, but the energy administration told Reuters

it is still gathering feedback on the bidding mechanism. Still,

it stuck to its offshore wind target of 10.9 GW of installed

capacity by 2030.

Industry participants said lower-cost projects in shallow

waters that incentivised aggressive bidding in past auctions

will soon run out, ending a period of rapid growth, even as

Taiwan's vast and growing semiconductor industry demands more

power, including from wind.

"Most of the offtakers, they are the supply chain of the

major IT giants. For example, TSMC, they need to

fulfil all these Apple ( AAPL ) (environment-friendly)

requirements. So basically, this is a must-have," said Scott

Hsu, Taiwan director at consultancy and engineering firm

Ramboll.

"Everybody is now considering how to push the fixed-bottom

technical capabilities from 60 metres to up to 90 metres, before

we find a way that would allow floating offshore wind to take

over," Hsu said, referring to turbines fixed to the seabed

versus those on floating structures.

Auctions last year saw most developers bid for so-called

strike prices of T$0 per kilowatt hour and sign direct supply

deals with corporate customers.

Strike prices are target earning rates: If the market price

is lower, the project receives a subsidy; if higher, the project

repays the difference.

Denmark-based Aegir Insights expects strike price bids of

T$5/kWh to $6/kWh in the upcoming auction, about double the

T$3/kWh for power from coal, reflecting greater uncertainty

about the economics of offshore wind power projects.

"The Taiwanese offshore wind market will need subsidies for

the foreseeable future. Like in Europe, the struggles of the

offshore wind industry necessitate governmental support," said

Aegir analyst Simon Engfred.

Aegir expects Taiwan's operational offshore wind capacity to

be just over 10 GW by 2035, short of its 18.4 GW target.

Taiwan's energy administration in November tweaked auction

rules to remove a mandate for winners to purchase equipment such

as turbine blades from local manufacturers, a change aimed at

scaling up generation capacity while keeping costs in check.

David Chiang, energy Collaborative lead at SEMI, a global

semiconductor industry group, said the rule change rattled

stakeholders and made it more difficult to plan investment.

"Removing this requirement so abruptly has contributed to

policy turbulence, making it very difficult for both local and

international stakeholders to plan and commit new investments,"

he said.

Alternatives to fixed-bottom technology, such as floating,

are largely untested, and a significant risk for an industry

rocked by setbacks such as soaring costs and cancelled projects.

"There is a major backtracking from floating offshore all

over the world and existing players would be very careful on

spending money on something that might not work," said Edgare

Kerkwijk, board member at the Asia Wind Energy Association.