In the harbor area of Taichung, Taiwan, stands the imposing silhouette of the Tien Li Offshore Wind Blade Factory, a sprawling facility in shades of charcoal. It’s the sole offshore wind blade plant outside of Europe for Vestas, the world’s largest wind turbine supplier.

Inside, the assembly lines hum with activity, producing blades for the 9.5MW offshore wind turbines destined for the Zhong Neng Offshore Wind Farm. These blades, stretching 85 meters long, surpass even a Boeing 747 in length and outweigh two tour buses.

Just the day before this visit by CommonWealth, they celebrated the rollout of its 200th blade.

Among the proudest individuals is Sanjeev, the production line manager from India, who has been with Vestas for 16 years and in Taiwan for 2. "It was a nightmare at the beginning," he admits, recounting how Taiwan lacked prior experience in wind blade manufacturing, posing a steep learning curve for all involved.

The production of Taiwan's first indigenous wind turbine blade took over 1,000 hours. But through countless trials and adjustments, the process now yields a blade in just 48 hours, making this line the most efficient for Vestas globally.

"We're soaring now!" Sanjeev beams, gesturing triumphantly with both hands.

Yet, his pride may be short-lived. Despite Vestas’ initial optimism about Taiwan's offshore wind power market in 2020, the company, which chose to collaborate with Tien Li in producing turbine blades, has opted not to participate in the Phase 3.2 development blocks, effectively forfeiting its future involvement in Taiwan's wind farms.

70% Localization Requirement Pushes Prices Up

Imagine a bakery suddenly boasting that 70% of its ingredients are locally sourced, including organic flour, sugar, cream, and chocolate. Consequently, the price of its cakes would shoot up by 50%. No matter how delicious they may be, there's a risk of tepid demand and unsold inventory.

This analogy encapsulates the current dilemma facing Taiwan's offshore wind power sector. The Ministry of Economic Affairs, unlike previous bid rounds, now mandates a minimum 70% localization for the supply chain in Phase 3 block development.

By the April 10 deadline for bids on the 3.2 blocks, six developers had submitted proposals to the Bureau of Energy. 

However, industry insiders fear that Taiwan's exceptionally stringent localization requirements could render Taiwan’s offshore wind farms too expensive to construct.

So why would developers still be willing to bid? The prevailing interpretation within the industry is that they're simply reserving a seat at the negotiating table. After all, "winning the bid doesn't necessarily mean signing the administrative contract, and even if you do, there's no guarantee the wind farm will be built, so the losses are minimal."

However, manufacturers of wind turbine blades cannot play such games.

Foremost among them is Vestas, which currently has orders to fulfill for just over a year, including turbines for the Zhong Neng and Taipower Phase 2 9.5MW projects. As early as next summer, they may have to depart Taiwan.

This decision comes as CIP's Fengmiao Offshore Wind Farm, the sole user of Vestas' 15MW turbines in Phase 3.1, has yet to secure any power purchase agreements.

But what about exports? Wind power consultants reveal that even factoring in shipping costs, European-made blades are still 20% cheaper than their Taiwanese counterparts, rendering Taiwanese products noncompetitive internationally.

With an uncertain future, Vestas has decided to bow out.

During an interview, Purvin Patel, Vestas' Asia-Pacific President, explained that their analysis of Phase 3 block development indicated that the inflated electricity prices resulting from localization would likely deter buyers, rendering most wind farms financially unviable and dissuading Vestas from tendering bids.

Vestas' withdrawal means that Siemens Gamesa will likely be the sole supplier for Taiwan's future offshore wind projects, with their blades manufactured in Denmark, signaling the imminent end of blade localization efforts.

18 Wind Farms May Remain Unbuilt

Moreover, there's a grave concern that none of Taiwan's Phase 3 offshore wind farms, totaling 6GW across 18 sites, may come to fruition.

How would prices spike by 50%?

In contrast to the Greater Changhua Offshore Wind Farm, which signed a 20-year power purchase agreement with TSMC without localization requirements, bidding prices for Phases 3.1 and 3.2 are rumored to approach NT$6 per kWh, substantially higher than the sub-NT$4 rate previously seen.

Regardless of the importance of green energy, a 50% price increase would be difficult for even major purchaser TSMC to swallow. Multiple wind power developers reveal that TSMC's maximum offer was less than NT$5 per kWh, leaving both parties at an impasse.

The localization requirement has made Taiwan's offshore wind farms the most expensive to build globally. A wind power industry consultant points out that, for wind farms of similar scale, construction costs in Taiwan are at least 2.5 times those in Europe.

Why such a discrepancy?

Firstly, offshore wind power is a nascent industry in Taiwan, with a steep learning curve. Europe took nearly 30 years to naturally develop a global offshore wind supply chain, whereas Taiwan aims to catch up within a decade, with insufficient scale to reduce costs.

For instance, a developer notes that Taiwanese-made underwater foundations cost at least over 30% more than those from Korea. They suggest that, for a NT$100 billion wind farm, selecting Korean or Malaysian foundations could instantly save NT$8 billion.

Furthermore, compliant large-scale turbines under localization requirements cost NT$850 million each, compared to NT$680 million for conventional turbines. For a 35-turbine wind farm, that's a difference of NT$6 billion in construction costs.

The harsh reality is that even with lofty localization targets, if expensive electricity finds no buyers, wind farms won’t be built, and onshore supply chains won’t materialize.

"Taiwan has painted itself into a corner," remarks a European offshore wind industry player. Taiwan's localization goals for offshore wind power not only rank as the strictest globally but also seek rapid attainment, and by withdrawing from feed-in-tariffs, the government compels developers to find willing buyers to finance wind farm construction.

Is Localization More Important Than Renewable Energy Goals?

"Why does it seem like localization in Taiwan is more important than renewable energy goals?" wonders Patel.

Alex Robertson, Vestas' General Manager in Taiwan, notes that Taiwan's localization requirements for offshore wind power surpass those of Japan and South Korea. 

According to publicly available information, Japan's offshore wind power evaluation system allocates only 20 points out of 120 for "local economic spillover." In Taiwan, under the same total score, localization accounts for a minimum of 70 points.

Some might argue that fostering a localized supply chain offers Taiwanese companies a chance to compete in Asia. However, according to a wind power developer, European or Korean products, even with shipping costs factored in, are 40% cheaper and of higher quality than those from local suppliers like Century Iron & Steel. "If it weren't for localization requirements, no developer would consider ordering from Century," the developer reveals.

Every offshore wind developer and supply chain player is asking: why is the Taiwanese government so adamant in its localization goals, unwilling to budge an inch?

In 2021, then-Economic Affairs Minister Shen Jong-chin faced questions from lawmakers about the high electricity prices of offshore wind power.

From that moment, the government abandoned the Taiwan Power Company's feed-in-tariff electricity pricing strategy, shifting the burden of high prices caused by localization policies onto businesses.

But the question is, who will buy it?

This poses another problem: with high investment costs in offshore wind power, developers need bank financing. If Taipower no longer purchases, and developers have to sell to businesses, banks will only provide financing if they see customers secured for the project, and they must be creditworthy.

Yet, among Taiwanese companies with significant demand for green energy and meeting international credit requirements, only TSMC stands out. 

If TSMC is unwilling to pay the high electricity prices, Taiwan's offshore wind power development will stagnate.

It would mean that over 500 employees at Vestas' proud blade factory could be out of a job in just over a year.

Patel finds this regrettable: "It's a missed opportunity because Taiwan is the fastest-growing offshore wind power market outside of China."

Vestas turbines are pre-assembled at Taichung Port. (Photo: Pei-Yin Hsieh)

What Happens if Offshore Wind Farms Don’t Get Built?

Raoul Kubitschek, Managing Director of NIRAS, a renewable energy consultancy firm, paints a bleak picture. If developers continue to drop out, Taiwan stands to lose not only over 5,000 offshore wind power jobs but also its reputation and international visibility.

For Taiwan's offshore wind power policy to move forward, industry consultants suggest two things: first, the government should consider launching a fourth bidding round, relaxing localization targets to make wind farms financially viable. Second, it could allocate budget subsidies to local manufacturers to promote localization goals without transferring costs, thereby allowing businesses to buy electricity at reasonable rates.

Vestas' plight serves as a wake-up call, signaling the need for a reassessment of Taiwan's offshore wind power policies.

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Uploaded by Ian Huang