Taiwan's referendum on nuclear and feed-in tariff reductions – Implications for investors

This article was co-authored by Ariel Huang and Billy Wu, Associates, LCS & Partners.

On 24 November 2018 Taiwanese voters passed a referendum to remove Article 95 of Taiwan’s Electricity Act that provided for the phase-out of nuclear energy by 2025. Within the week, the Ministry of Economic Affairs (MOEA) announced its intention to cut the feed-in tariff (FIT) for offshore wind by 12.71% and the FIT for ground-mounted and water-floating PV plants by 12.15% and 11.16% respectively for 2019.

A Trend Survey Research poll commissioned by pro-nuclear activists prior to the vote indicated drivers for the referendum result were voter concern over both the price and instability of renewable energy sources. Whether the announced cuts to the FIT rates were a response to voter sentiment is unclear. In accordance with Article 9 of Taiwan’s Renewable Energy Development Act, FIT rates are to be reviewed and adjusted every year following in committee discussion and a hearing involving stakeholders.

Whilst the announcements for the 2019 FIT rates came relatively late, they were made in Q4 as usual and apply only to projects for which PPAs are signed in 2019. What was perhaps more surprising for investors and stakeholders, was the lower FIT of NT$1.94 per kWh proposed to apply to offshore wind power generated above 3600 hours (or other threshold). Windfarm developers have decried the proposed cuts as unsustainable for the industry considering they are being pushed to bear the multi-billion NT$ grid connection and enhancement costs. They have stated that downstream supply contracts will be terminated if the FIT is reduced as currently proposed. They are seeking a FIT rate reduction of no more than 4.25% in line with the estimated international average for 2019.

What does this mean for Taiwan’s energy policy?

Under Taiwan’s Referendum Act, a law repealed in a referendum is required to be rescinded three days after the Central Election Commission officially announces the result. Accordingly, Article 95 of the Electricity Act has been rescinded. Notwithstanding this, the referendum result does not mandate a reintroduction of nuclear power and does not infer that the planned share of renewables in Taiwan’s energy mix will be reduced to accommodate the retention of nuclear capacity. Whilst a Government spokesperson confirmed that the referendum result would be respected, they noted that the Government will continue with the active development of renewable energy.

Lee Chun-li, the deputy director general of the Bureau of Energy at the MOEA noted that the deadline for applications to postpone the decommissioning of Taiwan’s first and second nuclear plants has already passed, and whilst it was still possible to apply for an extension for Taiwan’s third nuclear power plant, the Government’s plan to generate 20% of power by renewables should alleviate the need to do so.

Taiwan set itself on a course to increase its proportion of renewables as part of the energy mix with the promulgation of the “Statute for Renewable Energy Development” (also known as the Renewable Energy Development Act) in 2009 and amendment of the Energy Administration Act in 2009. The Government’s plan was to limit Taiwan’s carbon emissions at 2008 levels by 2016 and 2000 levels by 2025, with the development of renewable and pollution-free sources of energy given priority in terms of low-carbon energy generation. The 2011 Fukushima nuclear disaster in Japan galvanised public opinion to achieve a nuclear-free Taiwan and, notwithstanding successful safety checks, a number of Taiwan’s nuclear units were taken offline and a greenfield nuclear project, the Lungmen nuclear plant, mothballed.

Whilst Wu Cheng-cheng, a researcher at Green Citizens' Action Alliance claims that the passing of deadlines for extending the legal licences for the nuclear plants make it practically very difficult to continue the use of nuclear power after 2025, it is within the Government’s power to revise the law setting the application deadline. In 2015, nuclear power provided Taiwan with 5,028 MWe capacity, accounting for approximately 8.1% of Taiwan’s energy consumption and 19% of its electricity generation.

Following the shutdown of one nuclear reactor in 2017, Taiwan suffered from blackouts causing concern for Taiwan’s semiconductor industry. The lead time and geographical constraints to successfully achieving Taiwan’s ambitious renewables targets (20% of the energy mix to come from renewable energy sources by 2025) may have fuelled voter concern over supply reliability. To achieve the renewables target, solar PV project capacity would need to reach 20 GW, whilst offshore wind power should reach 5.5 GW, by 2025. Realistically, however, given current available land resources, it is anticipated that just 6.2 GW of solar capacity will be reached by 2020. 

In relation to voters’ pricing concern, whilst costs blew out on the Lungmen nuclear plant due to project management issues and a series of delays, the cost of power generation from nuclear capacity in Taiwan in 2014 was NT$ 0.72 per kWh versus the considerably higher 2018 solar FITs of between NT$4.24 – 6.41 per kWh (excluding additional incentives) and 2018 offshore wind FIT of NT$5.8498. Whilst much more competitive than the offshore wind FIT, the tariffs awarded to 1.66GW of offshore wind capacity in 2018 via auction were still higher than nuclear at between NT$2.2245 and 2.5481 per kWh.

Taiwan has been one of the most promising markets for renewables at scale in Asia (excluding India and Mainland China), offering investors a stable regulatory environment. Taiwan’s next general election will be in January 2020 and although the anticipated successor ruling party (the KMT) supported the pro-nuclear activists during the referendum, the KMT may not want to be seen as taking a step back from clean pollution-free energy. However, whether they would respond to pricing and stability concerns by decreasing renewables as part of the energy mix (or manage any shortfall in achieving renewables targets) in favour of nuclear or conventional power, remains to be seen.

Taiwan is aware that changes undermine investor confidence, adversely impacting investment and has a transparent process for considering investor feedback. The MOEA held public hearings in December ahead of finalising the FITs (still pending). In giving feedback, the government was clear that if developers wanted to see an increase in the government's proposed rates they would need to provide substantial evidence that the proposed FITs would prevent the recovery of their investment.