Connecting Vision with Opportunities

Transnational subsea cables, also known as interconnectors, have become a hot topic recently. To many, at first glance, it seems like a far-fetched concept, yet it appears to make some sense. However, once political factors are added, the discussion becomes difficult to focus on. In reality, building transnational subsea cables and offshore wind farms are two sides of the same coin. The primary condition should be to confirm whether Taiwan has a long-term demand for renewable energy. The answer to this is obvious: Taiwan undoubtedly has a long-term need for renewable energy. In addition to meeting the demands of important international clients and fulfilling corporate ESG responsibilities, Taiwan must also shoulder its responsibilities to the international community by participating in energy transitions to mitigate climate change and achieve net-zero carbon reduction goals.

The next question is: Where will the renewable energy come from? Local development is an inevitable choice, but when the target demand far exceeds the capacity and speed of supply, to ensure a continuous and stable supply, other options should be considered, including the import of renewable energy.

As a matter of fact, this issue should be approached from several perspectives, including energy transition, energy security, and energy mix, with careful consideration of the importance of balancing energy. Only then should the discussion move to the distribution of power plant locations.

Cross-Border Energy Cooperation for Island Nations

Taiwan has semiconductor and electronics manufacturing industries that are extremely important for economic development but consume a significant amount of electricity. If Taiwan further aims to play a significant role in the global development of AI data centers in the future, it cannot continue to rely on fossil fuels to power these centers. Increasing the proportion of renewable energy is essential to support sustainable development in the industry. This transition is critical not only for environmental reasons but also for enhancing energy security and meeting international climate commitments.

Taiwan's solar energy development has entered a phase of slow growth. In the foreseeable future, apart from geothermal energy, which is still in the experimental stage, and other renewable energy technologies that are not yet mature, the only viable solutions to meet the island’s substantial renewable energy demand are either to construct more offshore wind farms or to import renewable power from other countries via interconnectors.

Each country has suitable renewable energy projects due to differences in geographic environments, infrastructure, and industrial composition. Transnational submarine cables can enhance the diversity and flexibility of the energy mix, contributing to the resilience of the power grids in the countries at both ends of the cable. The continuous growth of renewable energy and electricity demand in the Asia-Pacific market has fostered cooperation and synergy in interconnecting different grids in the region. This presents an excellent opportunity for Taiwan, which has an independent grid, to improve energy security and achieve diversification in its energy mix, further stimulating the development of renewable energy and accelerating the energy transition.

Interconnectors, like fuel transportation by vessels, come with both risks and advantages, yet they remain viable options for energy transportation, each contributing to enhanced energy security. The technology for long-distance submarine cable transmission has matured, as evidenced by several operational submarine cables in Europe that span hundreds of kilometers. According to publicly available operational data, the actual operational data shows that the loss coefficient for using high-voltage direct current (HVDC) transmission technology is around 3%, demonstrating significant commercial value. Hence numerous larger-scale projects are currently in the planning or construction phases in the international market.

The UK and Singapore, both island nations, have energy strategies regarding interconnectors planning that are highly worth learning from and good references for Taiwan

On the other side of the globe, the UK, like Taiwan, sees industrial electricity accounting for a large proportion of its total energy usage. However, the difference is that the UK has North Sea oil fields and pipeline natural gas connections with other countries, and it develops nuclear energy alongside other energy sources. In order to maintain energy security, diversify the energy mix, and achieve national energy transition goals, the UK is not only actively developing renewable energy but also strategically and gradually completing the establishment of interconnected subsea cables with European countries like Norway, Denmark, and France. This ensures that their renewable energy supplies can complement each other, balancing supply and demand to maintain long-term grid stability. In the past decade, the UK has already completed six interconnectors, achieving a transmission capacity of 8.84 GW, with a goal of reaching 18 GW by 2030.

Singapore is also an island nation with limited land area and scarce renewable energy resources, which has led it to adopt a different energy transition strategy: importing low-carbon electricity from neighboring countries while encouraging cross-border renewable energy development. This approach has fostered cooperation among participating countries to establish a regional power grid aimed at achieving net-zero carbon reduction goals. In 2022, Singapore set an ambitious target to import up to 4GW of low-carbon electricity, with proposals from invited companies including plans to transmit electricity to Singapore via interconnectors from Vietnam, Cambodia, Indonesia, and Australia. Recently, the Singaporean government even raised this target to 6GW by 2035, reflecting the high priority they place on this initiative, as well as the positive market response and the business opportunities it has created.

However, interconnector projects inevitably face complex international political and regulatory environments, along with project timelines of 8 to 10 years and substantial investments. In addition to requiring professional developers and investors to lead these projects, government cooperation and support are absolutely essential. Given the respective internal political environments and external geopolitical influences, it will take the efforts of several visionary and decisive political leaders and administrative teams over time to achieve success. The fact is, if we don't start planning and taking action now, we still won't have any interconnectors available for use in ten years.

Commercial Basis for Interconnector

Surplus energy from renewable power plants loses its economic value when it is not demanded by the market. If such energy cannot be accepted by the grid, it becomes wasted electricity, known as curtailment. The continuous growth of solar and wind energy, along with their intermittent generation characteristics, has led to an increasing scale of curtailment. The cost of battery storage and the challenges of suitable installation locations must be considered, and the infrastructure for hydrogen applications is still in a very early stage, facing many challenges as well.

Building interconnectors can integrate the electricity demands of different markets, effectively reducing the issue of curtailment. Taking Taiwan and the Philippines as examples, the two neighboring countries are actively developing renewable energy, with wind and solar energy being the most important combinations to achieve their goals. The generation of renewable energy will only increase, and the problem of wasted electricity will eventually come to the forefront.

The shortest distance between Taiwan and the Philippines is less than 400 kilometers. According to respective official estimates, by 2040, renewable energy generation for both countries will reach approximately 170 billion kilowatt-hours each. Using the global market's average curtailment rate of 3% as a reference, the differences in electricity demand between Taiwan and the Philippines at different times could be leveraged through an undersea cable connecting the two sides, transforming otherwise wasted electricity into significant economic value.

In 2023, Japan's renewable energy generation reached 208 TWh. Of this total, curtailment of electricity, particularly from solar and wind energy, amounted to 1.76 TWh. If Japan had interconnections via submarine cables with neighboring countries, this curtailed electricity could have been traded as energy, potentially generating hundreds of millions of US dollars.

The construction of interconnectors based on this foundation does not have a direct impact on the overall insufficient power generating capacity of the two countries or the typical market electricity prices; instead, it can even serve as one of the solutions for improvement.

Managing the Changes Against the Headwind

Shifting the focus back to Taiwan's offshore wind industry, it has been experiencing turbulence since 2023. Although the ups and downs are part of any industry’s development, those within it feel anxious and uncertain about when the sector might thrive again. The block development policy took shape during 2021/2022, and given the circumstances at the time, Taiwan’s policy was ahead of many other countries worldwide. The stable development of 1.5　 GW in capacity annually until 2035, coupled with localization requirements, provided developers and the supply chain with a clear forecast of future market demand, allowing them to formulate participation or investment plans.

However, after the outbreak of the Russia-Ukraine war, European countries began to aggressively promote exponentially growing offshore wind development projects. This, along with supply chain strains, rising construction costs, and increased sensitivity to geopolitical risks, led to a decline in Taiwan’s relative competitiveness. What was once a strong policy framework has now become a burden on the industry. As a result, conducting reviews of policies on a rolling basis to keep pace with changing circumstances has become crucial for maintaining the industry's competitive edge.

Learning From Other Countries

In Europe, the UK, which leads in offshore wind power capacity, raised its 2030 offshore wind target to 50GW. After encountering the issue of no participants in the last bidding round, they quickly adjusted regulations and policies to attract numerous developers. In September this year, they awarded a total of 5.3GW of installed capacity in one round. After the Labour Party came into power, they aggressively established Great Britain Energy, a government-funded entity, to directly invest in renewable energy projects, driving the industry forward to ensure their goals will be met.

Another wind power leader, Denmark, currently has a total offshore wind capacity of 2.7GW, with renewable energy accounting for over 70% of its electricity supply. Denmark's electricity demand is less than one-eighth of Taiwan's. To continue advancing offshore wind energy development, Denmark launched a tender this year (2024) for six offshore wind farms with a total capacity of 6GW. Developers also have the option to build additional capacity to produce hydrogen or other green fuels, potentially increasing the total installed capacity to 10GW. These six wind farms are required to be completed and connected to the grid by the end of 2030. While they won't receive government subsidies, there will be official funding covering 20% of the equity, greatly boosting investor and financing banks' confidence in the projects. Besides energy security and climate goals, the Danish government plans to use the scale of the project to attract investment and gain benefits through economies of scale.

Enlarging the Scale of Development to Regain Market Advantages

Taiwan's block development offers a 3GW tender every two years, which, when compared to the current scale of other international markets, is relatively small. Additionally, localization policies have faced numerous challenges. As a result, while this development plan was initially well-received, it has quickly lost competitiveness and appeal due to its failure to respond in time to rapidly changing global conditions.

The encouraging news is that the Ministry of Economic Affairs has announced that future localization requirements will be decoupled from development tenders, allowing wind farm construction costs to normalize and return to free market mechanisms.

Taiwan ranks among the top 20 globally in terms of total electricity consumption, yet renewable energy accounts for only about 10% of its energy mix. To meet internationally agreed-upon climate goals, Taiwan must significantly increase its reliance on renewable energy. This shift will require substantial green investments, which in turn present enormous commercial opportunities that are highly attractive for the market.

The suggestion is that Taiwan should immediately reassess our climate goals and renewable energy demands, followed by setting more ambitious energy transition targets. For offshore wind power, new technologies such as floating wind farms should be considered, and the installed capacity for the next round of tenders should be significantly increased to keep pace with other international markets. This would create greater market advantages and attract more international developers and investment into the value chain.

While the localization policy will be phased out, expanding the market will create opportunities for the local supply chain to participate in projects due to increased demand and market competition. The government could also design tenders that encourage join forces or equity partnerships between Taiwanese state-owned or private enterprises and foreign developers, thus supporting the local supply chain through involvement in wind farm development and operations.

The government's role is to establish clear renewable energy targets and adjust them in a timely manner based on dynamic market conditions. It should ensure that the established frameworks and resources are capable of effectively accommodating the expanding market. Let the mechanisms of a free market handle the rest, enabling the industry to navigate its own path forward.