Sustainable Development of Taiwan Energy Policy

1. G. Do you think that the lifestyle of the inhabitants of your town
or city reflects behavior that is in line with the concept of
sustainable development? In your opinion, what should be
improved?

2. Table of Contents
Executive Summary 3
Market Overview 5
Problem and Suggestions 9
Conclusion 13
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3. Executive Summary
3

4. Executive Summary
 In 2016, the Taiwan government announced a “non-nuclear power by 2025” energy policy.
 In 2016, nuclear power accounted for 13% of total energy generation. The 2025 goal will be reached due to an increase in
renewable energy, from 6%(14.6 TWh) to 20% (53 TWh) of total energy generation.
 Of an increase in renewable energy, solar power will increase from 0.1% (1.1 TWh) to 9% (25 TWh, or two-thirds of solar power
generated in Germany in 2015) of total energy production by 2025.
 Taiwan Power Company (TPC), a state-owned company and the only electricity distributer in Taiwan, buys energy from
independent power producers (IPP) at US$ 0.2 / KW, which are above selling prices US$ 0.08~0.1 / KW
 Expected annual loss from TPC transactions is estimated at US$ 2.4 billion by 2025, which will become financial burden for
Taiwanese society – which is not sustainable.
 To create a sustainable energy market, we need to figure out how to boost solar energy production and mitigate financial loss.
Here are my suggestions:
 Suggestion A: Decrease purchase cost
1.Subsidize CAPEX while decreasing purchase price, saving US$ 800 million annually
2.Request IPP to purchase domestic products, boosting domestic economy.
 Suggestion B: Decrease or diverse energy consumption through increasing daytime electricity price while subsidizing solar panels
and energy storage system
1.Encourage household electricity production by installing solar power panels.
2.Diverse electricity consumption, relieving production overload from peak hour.
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5. Market Overview
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6. 6
Sustainable Development Policy: Nuclear Phase Out
Solar and wind power will replace nuclear power by 2025
 In 2016, the Taiwan Government announced a policy of phasing out nuclear power by 2025. Solar and Wind
power are promoted to compensate for the energy shortfall.
 Most solar power is generated by IPP. TPC purchased the power and resells it to end users.
 By 2025, increases in wind power generation will be supported by foreign-invested offshore wind farms, while
increases in solar power generation will be supported by domestic IPP.
11
Total
Consumption:
267 TWh
Energy Consumption in 2025
Unit: TWh
Sources: TPC website
11
Total
Consumption:
219 TWh
Energy Consumption in 2016
Unit: TWh

7. 7
Power Production Cost and Selling Price in 2016
 Thermal Power includes oil-fired, coal-fired and gas-fired (LNG) power. In 2016, coal-fired power and
gas -fired power accounted for 36% of total power generation. Oil-fired power accounted for less than 5%.
 Power generation costs cannot be lowered, because the public wants to reduce high air-pollutant coal-fired
plants and replace them with clean energy sources. Coal-fired power is expected to slip from 36% to 30% of
overall power production by 2025.
 TPC subsidizes solar power development though high purchase prices. The price is fixed since TPC made the
20-year power purchase agreement with IPPs. More and more IPPs, encouraged by stable revenue, joined the
market.
USD/ KW
0.06
0.12
0.04
0.07
0.08
0.05
0.08
0.20
0.11
-
0.05
0.10
0.15
0.20
0.25
Thermal
Power
Oil Coal Gas Nuclear
Power
Water Wind Solar Others
Average Production Cost:
US$ 0.065.
Average Selling price
Residential: US$ 0.086
Industrial: US$ 0.082
Now and the Future: Energy Cost Rises
Solar power production costs twice as much as other energy sources
Sources: TPC website

8. Reasons to Support Solar Power
Solar power is the only energy that can be developed easily
#1
Creates Serious Air Pollution. The Taichung Power Plant, the largest coal-
fired power plant and carbon dioxide emitter (about as much as Switzerland )
in the world, has evoked severe opposition due to the air pollution it creates.
Coal-Fired Power
#2
Lack LNG Storage Capacity. Without new storage capacity, gas-fired power
cannot increase production. However, the construction of a third LNG storage
area is pending, and the complete date is not set.
Gas-Fired Power
#3
Requires Foreign Investors and Expertise. Local wind power producers lack
experience and knowledge in operating offshore wind farms. Foreign investors
such as Dong Energy are entering the market, but the process is slow.
Wind Power
#4
Limit to New Capacity. After 20+ years of development, hydropower plants
have already been built at most of the available locations. Incinerators and
landfills are usually banned by local citizens, so biogas is not an option.
Hydropower,
Biogas, and others
8
Complete Supply Chain. In the midstream, solar cell and module capacity
makes up 15% of global capacity. In upstream and downstream, it is easy to
find qualified manufacturers and materials to set up solar power plants.
Decent Financial Return to IPP. Internal rate of return (IRR) in operating
solar power plants is around 8~10%. More financial institutions, PE funds and
companies in the solar industry are engaging in playing IPP roles.
Solar Power
Difficulties to develop alternatives
Strength to develop more solar power

9. Problems and Suggestions
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10. 10
 Energy Consumption = TPC Production + TPC Purchase ( IPP production)
 Energy Consumption
1.Quantity: Increase, followed by GDP growth rate. Expected GDP growth rate from 2016~2025 is 1.5%~2.5%.
2.Selling Price: No change. The government doesn’t want to offend voters by increasing the price of electricity.
 TPC Production
1.Quantity: Uncertain. Without new LNG storage capacity, TPC cannot increase gas-fired power.
2.Production Cost: Will gradually increase. The price of coal and gas has been at a relatively lower point for the past couple years. A
significant drop of material price is not expected. The growth of gas-fired power will increase more than coal-fired power, while the
production cost of gas-fired power is 90% more than that of coal-fired power.
 TPC Purchase:
1.Quantity: Increase. Solar power and wind power development is advancing.
2.Purchase Price: No change. The government doesn’t want to discourage companies by lowering IRR.
 Consequence: More losses related to the use of expensive electricity
 In 2025, TPC will face annual loss of US$ 2.4 billion from buying and selling of solar energy.
 Production costs of wind and gas-fired power don’t exceed the selling price, but they compresses the TPC’s gross profit margin.
 The problems need to be solved: How to boost solar energy production and mitigate financial loss?
Problem: Current Policy Turns TPC to Great Loss
Pricing policy and energy development strategy is so rigid that TPC has no flexibility to adjust

11. 11
Suggestion A: Decrease Purchase Cost
Secure decent IRR for IPP, while create more positive effects to domestic companies
Subsidize CAPEX
while decrease purchase price
Request IPPs purchase
domestic products
Reasons  IPPs can maintain 8~10% IRR, if the government
subsidizes the initial investment of solar plants
but decreases discount cash inflow in the future.
 IRR of investment in solar power plants is much
higher than current interest rates
 Some IPPs buy solar power plates and
related parts from China, but the product
quality is not better than Taiwanese parts.
Methods  Use good credit rating and low interest rate.
1. Taiwan government: S&P: AA-. 30-year
government bond: interest rate 2%
2. TPC: Fitch: AA-. Corporate bond or bank
borrowing: interest rate 1.4%~1.7%
 To support the local supply chain, the
government should request IPPs to use
domestic products to acquire subsidies.
Effects  Increase sales of domestic products,
boosting economy.
 Net annual saving US$ 800 million, or one-third of
loss from buying solar power.
 According to TPC, IPPs will invest US$ 40 billion
to increase solar power generation by 23.9 TWh.
If the government borrows US$ 10 billion and
subsidizes to CAPEX, it will increase interest
expenses US$ 200 million but save US$ 1 billion
in buying electricity.

12. 12
Subsidize household solar panel Subsidize energy storage system
Assumption  Because power plants operate 24/7, if the energy generated in the nighttime can be used in the
daytime, TPC would not need to purchase as much expensive electricity such as oil-fired power or
solar power.
 According to TPC’s statistics, the peak time is usually in 10:00~12:00 and 13:00~17:00.
 The TPC can increase the daytime electricity price, enlarging price gap between peak time
(daytime) and low time (nighttime).
Methods  Average monthly energy consumption is 303
KWh/ household, or 10 KWh/ day
 Considering average sunlight hours in Taiwan
are 2.5~3.6 hours, household can install on
roof 3~4 KWh solar panel on the roof, which
will cost US$ 8,000~10,000
 Households can install 3~4 KWh energy
storage systems, enabling storing energy at
night time and supporting daytime energy
consumption. The system will cost US$
1,000~2,000
Effects  TPC can avoid overloading in peak hours and
reduce the purchase of expensive electricity.
 TPC can diversify electricity consumption,
increasing electricity usage at night.
 The system can help households reduce
energy costs and be a backup power source.
 The warranty period of the system is 10 years,
and extra costs are generally not needed.
 TPC can avoid overloading in peak hours
and reduce the purchase of expensive
electricity.
 TPC can diversify electricity consumption,
increasing electricity usage at night.
 Households can be self-sufficient.
 The warranty period of a solar panel is 20
years, so extra costs are limited.
Suggestion B: Decrease or Diverse Energy Consumption
Encourage household electricity production and energy storage

13. Conclusion
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14. 14
 The Taiwan government wants to build a non-nuclear energy policy, and at the same time promote cleaner
renewable energy and reduce air-polluting coal-fired energy. However, even though using price as an
incentive is the easiest way to achieve the goal, the methods the government has used are problematic. The
current policy will bring this country a huge financial burden which threatens to collapse the entire policy.
 To solve the problem—to relieve financial burden to TPC and the government —I propose two suggestions
that may help the government achieve its goal while spending less money. For the IPPs, I believe that
maintaining decent IRR can support them to keep investing in the solar energy business. I believe the
government can stimulate citizens to install solar power panels and energy storage systems which can
reduce energy consumption and disperse energy usage time.
 In conclusion, even though the TPC or the population may need to pay slightly more than before for
electricity, it is worthwhile to do so. The Fukushima nuclear disaster and Chernobyl disaster are irreversible,
and humans still cannot find a workable plan to deal with spent nuclear fuel. On the other hand, even though
the production cost of solar energy is relatively high, it has been lowered to a more reasonable price and
may continue to decrease in the future as technology improves. Moreover, considering their durability and
long-term contribution, solar power plants deserve more investment and should be prioritized in energy
production. So, I believe this plan would improve the weakness of the policy and create some supplements
to increase benefits of sustainable development.
The Energy Policy should be Changed
Intention of energy policy is good, but methods are problematic