Taiwan's Three Bright Spots
Where do Taiwan's opportunities lie amid the rising tide of eco-friendly business? Who will be the winners, as everyone struggles to grab a piece of the promising green industry pie?
Taiwan's Three Bright SpotsBy Elaine Huang
From CommonWealth Magazine (vol. 439 )
The world is facing its third industrial revolution, with a shift to sustainable renewable energies – the energy revolution.
Governments and corporations around the world are jockeying to get good starting positions in the burgeoning renewable energy sector. Getting into the green energy market at an early stage is a matter of national prestige and corporate competitiveness.
In the new green energy industry chain that is gradually taking shape, what are the "bright spots" where Taiwan should focus its efforts? And what strategies should Taiwan adopt to secure a favorable position?
Bright Spot No. 1: Solar Goes Global
The Industrial Economics Knowledge Center (IEK), part of Taiwan's Industrial Technology Research Institute (ITRI), forecasts that the annual output of the global photovoltaic industry will triple by the year 2015 from US$28 billion in 2009. During the same period newly installed capacity will jump worldwide from 6GW to 20GW, roughly equaling the capacity of six nuclear power plants. There is already concern that there will be an excess supply due to the rapid expansion of solar power generation.
Taiwanese companies are eager to jump on the solar energy bandwagon. In the forth quarter of last year, Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest dedicated chip foundry, announced that it will take stakes in the two domestic solar cell makers Motech Industries and Neo Solar Power (NSP) for the sake of vertical integration. Industry insiders assessed TSMC's move as aiming to expand into the downstream electric utility industry.
LCD panel maker AU Optronics (AUO), for its part, has not only invested in two solar battery module production lines, but last year also bought a 50-percent share in silicon wafer maker M.Setek of Japan. Through the deal AUO also gained indirect control over M.Setek's supply of silicon wafers to Taiwanese competitor E-ton Solar Tech, which has long cooperated with the Japanese company. Subsequently, AUO provided solar modules for a 2.9 megawatt-peak solar park in Germany, which started operation in December, demonstrating that it is resolutely expanding both upstream and downstream.
When prices for silicon and silicon wafers toppled in the first half of last year, Taiwan's leading electronics makers developed an appetite for the island's fledgling solar energy industry. This year they will become the key players in an industry that they previously shunned for its unprofitability. Through vertical integration of upstream and downstream products, they expect to boost their chances of finding buyers overseas and to secure a good position in the global solar energy market.
Up to now, Taiwan's strengths in the global industry chain have been midstream products such as silicon wafers, batteries, and modules. It boasts the world's fourth largest output of solar cells alone. But it has lacked strong players in the more profitable upstream and downstream areas. Taiwanese companies have been struggling as lone fighters, selling their products to foreign photovoltaic (PV) system manufacturers. When the system makers set up their own module factories or when a certain national government has adjusted its solar energy incentives, the Taiwanese manufacturers have found themselves out in the cold.
Taiwan's domestic market is not big enough to support its photovoltaic industry. On top of their dependency on imported raw materials, Taiwanese manufacturers now also face stiff competition from large Chinese manufacturers that, thanks to vertical integration and government support, can export their modules at low prices. On the other hand, South Korea's large conglomerates Hyundai, Samsung and LG are scrambling to enter the entire industry chain.
Citing his own company's cooperative relationship with TSMC, Motech Industries CEO Yuan-Huai Simon Tsuo urges: "Get into the global solar energy industry big league," by forging an alliance with a major corporation that has brand recognition and financial prowess, and cooperating with downstream international power companies and power generation system providers to win bids for solar power plants overseas, thus creating an export market.
After all, the photovoltaic industry is a game that requires massive funding. Players need to burn money if they want to gain a foothold in overseas markets. Most of China's PV manufacturers, for instance, are kept afloat by state banks. The Chinese government recently bailed out the country's sixth largest solar wafer manufacturer LDK when it was on the verge of bankruptcy.
"The big will still keep getting bigger," declares S.J. Ho, executive vice president of Taiwanese PV company DelSolar. He predicts that the wave of mergers and acquisitions within Taiwan's PV industry and the founding of new solar joint ventures will continue this year.
Bright Spot No. 2: LED TVs Drive Demand
The LED industry definitely counts among the green industries that did brisk business in 2009.
While the LED industry amounts to just 3 percent of the semiconductor industry in Taiwan, large corporations from across the spectrum of the electronics industry are eager to snatch a piece of the LED market, estimated to total US$14 billion worldwide.
Chip foundries TSMC and UMC, panelmakers AUO and Chi Mei Optoelectronics, electronics contract manufacturer Hon Hai Precision Industry, component maker Lite-on Technology and consumer electronics brand Tatung are all branching out into the LED business.
Bill Wiseman, a partner with McKinsey & Company in Taipei and a longtime observer of clean energy trends, is quite optimistic about the LED market this year. Wiseman points out that growth in the LED industry usually stems from the emergence of new applications. In the past personal computers, mobile phones, automobile lighting and later on notebook computers which massively boosted demand for LED lamps. In 2010 LED growth will be driven by two forces, one being LED TV backlighting, the other commercial and industrial lighting, Wiseman predicts.
IEK forecasts that by 2015 output value in the LED industry will almost jump fivefold to US$40 billion from US$8.2 billion in 2008.
Industry market research company DisplaySearch estimates that the LED penetration rate for notebook computers stood at 53 percent in the third quarter of 2009, which means more than half of all notebook computers already use LED backlighting. Now that Samsung has rolled out an LED TV line, other large consumer electronic brands such as LG, Sony and Toshiba are following suit.
Lee Biin-jye, chairman of Taiwanese LED maker Epistar, believes that almost 24 million LED TVs will be sold worldwide this year, causing a spike in demand for LEDs. A notebook computer needs six times more LEDs than a handset, but an LED TV requires 80 times as many. Therefore, Taiwan's LED suppliers are ramping up production in order to keep pace with soaring demand.
Moreover, the use of LEDs is currently gaining ground in the lighting industry.
The greatest growth drivers are government policies and legislation that favor energy saving. A few countries have already outlawed incandescent light bulbs, which lose some 70 percent of their energy to heat, and others plan to phase them out over the coming years. China, for instance, has instituted the "Ten Cities, Ten Thousand Lights" Plan, a program to revamp 6 million traditional streetlights with LED lights by 2011.
However, at the moment not everybody is ready to switch to LEDs, because they are still comparatively expensive and not reliable enough. Currently, LEDs are still 1.8 times more expensive than ordinary energy-saving light bulbs. Major lighting manufacturers such as Philips are reluctant to completely switch to LED, because the related service and maintenance networks are not yet fully developed.
Taiwan's LED suppliers are aware of the huge potential that new LED applications present. But like their colleagues in the photovoltaics industry, they are seeking to build stable export markets.
Epistar and other Taiwanese LED makers that supply Samsung are presently profiting from the South Korean company's brisk sales in mobile phones and LED TV sets. But they also need to worry that should Samsung nurture its own supply chain, they will lose a lucrative export market.
Allen Lin, head of energy research at IEK, believes that the LED industry has already entered the stage where economies of scale matter, and smaller competitors are being crowded out. Against this backdrop, vertical integration and the development of distribution channels are a must. "That's a challenge that the Taiwanese companies with no experience developing distribution channels need to overcome," notes Lin.
Bright Spot No. 3: New Openings in the EV Supply Chain
The year 2010 might go down in history as Year 1 of the electric vehicle era. Major carmakers in countries around the world are introducing new models of either hybrid vehicles or pure electric cars. Forecasts put global demand at 3 million vehicles for the coming decade.
The shift from gasoline-fueled cars to zero-emission electric cars is helping pry open the once tightly closed automotive supply chain. For Taiwanese suppliers this offers an unprecedented opportunity to join the global supply chain for electric cars.
E-One Moli Energy, which belongs to the Taiwan Cement group, supplies the lithium-ion battery for the Mini E electric vehicle by German carmaker BMW. Taichung-based Fukuta Electronics & Machinery Company produces the motor for the high-performance electric sports car Tesla Roadster made by industry newcomer Tesla Motors. And even the company that helped the Californian electric vehicle maker design the system for the US$125,000 Roadster – AC Propulsion – is 80-percent funded by Taiwanese investors.
The electric car boom is most significant in that it will lead to a reshuffle in the automotive industry. New players keep emerging in a market that was long dominated by North American, European and Japanese carmakers such as Ford, GM, Daimler-Benz, Volkswagen and Toyota.
IEK figures show that presently at least 35 carmakers are working on electric vehicle projects. Of these, 18 are newcomers in the automobile industry, including Tesla Motors and Zap from the United States, Byd from China, Tata Motors from India, and Aixam Mega from Britain.
"These new carmakers are also establishing their own supplier systems," notes Wu Bi-chu, head of urban science at IEK. "These new supply chains are an opportunity for Taiwanese companies."
Wu believes that Taiwanese manufacturers could join the automotive supply chain on two fronts, providing battery modules to new carmakers and providing battery cells to the large traditional carmakers.
But Taiwan's automotive manufacturers could do more than just provide car parts. Yulon Motor, which builds Taiwan's only homegrown car brands Luxgen and Tobe, has been faster than many large auto brands to release electric versions. The electric 7-passenger Luxgen EV+ was unveiled at the Dubai International Motor Show in December. With the cheaper Tobe M'car EV, Yulon is preparing to tap China's vast domestic market before tackling other export markets.
If electric cars are to be widely used, government subsidies on the purchase of zero emission vehicles alone will not do the trick. Essential is a dense network of charging stations to make recharging more convenient and prevent electric vehicle drivers from getting stranded. Taiwan actually offers ideal conditions for electric vehicle use. With a distance of just 400 kilometers from the island's northern to southern tips, plus a complete national power grid and a dense network of gas stations, it makes an ideal testing ground for the novel cars.
These days Yulon Motor President Kou-rong Chen keeps talking about the "last mile" of making electric vehicle use a common thing. Chen believes that the power grid of state utility Taipower leaves nothing to be desired. What still needs to be done is clearing away legal hurdles. With relevant changes to the Electricity Act and the Building Act, gas stations could double as battery charging stations. New buildings would also be required to provide charging facilities that would allow charging electric cars during off-peak hours at night.
In Year 1 of the electric car era, Taiwan has finally managed to gain entry into the new world of the electric vehicle.
Translated from the Chinese by Susanne Ganz