Global Offshore Wind Trends-Implications and Challenges for Taiwan May 16, 2018

1. Global Offshore Wind Trends:
Implications and Challenges for Taiwan
Paul J. Cassingham
Senior Legal Consultant
16 May 2018
www.eigerlaw.com

2. Disclaimers
• Not exactly trends
• Not about technology
• Not about economics
• Not inside stories
My perspective - identifying, heading
off and solving Taiwan foreign
investment problems

3. ZERO SUBSIDY AUCTION BIDS

4. First competitive OWF license
auction in Germany - April 2017
Ørsted
240MW OWP West
240MW Borkhum Riffgrund West 2
EnBW
900MW He Dreiht
Zero subsidy bids

5. Important milestone for Europe
- not so much for Taiwan
• Construction deadline is 2024 – lots
of time to build
• No grid connection requirement
• Efficiencies of scale – other OWFs
nearby
• Mature industry – strong supply
chain, declining costs

6. None of these factors applies to
Taiwan auctions
• Taiwan has challenges of new industry
Construction vessels
Port facilities
Local content
Taipower grid connections
• Not necessarily problems, but big
sources of uncertainty for auction bids
• Risk of lowball bids

7. One source of uncertainty
- Taipower grid connection 1
• Developer must obtain “confirmation of grid
connection” before applying for project
approval
• Project approval by year-end 2019 starts 2-
year clock for starting construction
• Does “confirmation of grid connection” mean
grid connection actually exists? Or just
planned?

8. One source of uncertainty
- Taipower grid connection 2
• Not clear how timing of grid connection
construction fits with OWF construction
Government Procurement Law leads to
risk of multiple bids, bid protests,
construction delays
• Can developer wait to start after Taipower
finishes?
• Can developer claim damages if Taipower is
delayed?

9. DEALING WITH SUPPLIER
DEFAULT

10. Trianel Windpark Borkum phase 1
(aka Borkum West II) - April 2013
• Failure to install DolWin 1 export cable
on time
• Always "nearly ready“, eventually about
2 years late
• Trianel claimed damages of €144 million
• Complicated damage issue due to
change of German law

11. What if this problem arose in
Taiwan?
• Need to distinguish sale of goods from
sale of services
• Not always clear whether Civil Code
provisions are mandatory or gap fillers
• Differences between Taiwan law and
Anglo-American law can be subtle or
quite direct

12. Buyer burdens in sale of goods I
"The buyer is bound to examine without delay the thing
received in accordance with the nature of such thing and
as far as the ordinary procedure of affairs allows it, and
should he discover any defect for which the seller is
responsible, he shall immediately notify the seller of such
defect.
If the buyer delays giving the notice mentioned in the
preceding paragraph, he is deemed to have accepted
the thing, except in case where the defect is one which
would not have been revealed by ordinary examination.
Should a defect, which could not have been discovered
immediately, be discovered subsequently, notice shall be
sent to the seller without delay after the discovery. If the
buyer delays giving such notice, the thing is deemed to
be accepted." (Civil Code, Art. 356)

13. Buyer burdens in sale of goods II
"A buyer, who declines to accept a thing forwarded from
another place by asserting that it is defective, is bound to
preserve it in his custody temporarily, when the seller
has no agent in the place of delivery.
In the case specified in the preceding paragraph, if the
buyer fails to take proper measures immediately to prove
the existence of the defect, it is presumed that the defect
asserted did not exist at the time of the delivery." (Civil
Code, Art. 358)

14. Buyer burdens in sale of goods III
"Where there has been delivery of a thing which is
defective, the right of the buyer to rescind the contract,
or to claim a reduction of the price is extinguished by
prescription, according to the provision of article 356, if
the buyer does not exercise his rights within six
months after notice or after five years from the date of
delivery. (Civil Code, Art. 365)
How do these clauses apply to an OWF?

15. Taiwan Statutes of Limitations
• "The period of prescription may not be
extended or reduced by juridical acts. The
advantage of prescription may not be
waived in advance." (Civil Code, Art. 147)
• Very different from Anglo-American law
• Limitations periods are complex, depend
on type of contract and remedy, and
contracting parties usually may not
change them!

16. Sale of Goods Limitations Periods
• General limitations period for damage claim
is 15 years (Civil Code, Art. 125)
• Right to rescind contract – ends 6 months
after notice or 5 years after delivery (Civil
Code, Art. 365)
• Right to reduce price – ends 6 months after
notice or 5 years after delivery (Civil Code,
Art. 365)
• Risk of waiver of warranty claims (Civil Code,
Art. 356)

17. Hire of Work Limitations Periods
• Buyer must discover defect within one year
after completion of work (Civil Code, Art. 498)
• OR 5 years for a building or works "on land"
(Civil Code, Art. 499)
• Ruling says 5 year limit applies to onshore
wind farm. Is OWF "on land"?
• Period can be extended but not shortened
(Civil Code, Art. 501)
• BUT claim must be brought within one year
after defect discovered (Civil Code, Art. 514)

18. Limitations Periods in OWF
• Civil Code periods are mandatory, but not
consistent or intuitive
• Goods – 15 years for damage claim, but risk
of waiver if no notice given
• Services – must find defect within 1 year, or
5 years, or longer if agreed
• AND must claim 1 year after defect is found
• A hidden problem for OWF contracts?

19. DEALING WITH DEVELOPER
INSOLVENCY

20. Windreich Bankruptcy -
September 2013
• Windreich GmbH began development of
400MW Merkur Offshore OWF
• Windreich filed for bankruptcy in September
2013
• Rights to Merkur transferred to Merkur
Offshore GmbH
• Shareholder Willi Balz and 7 others charged
with fraud, obtaining credit by false
pretenses, falsification of balance sheets,
fraudulent preferences and insider trading

21. "Transfer of Rights" – Sounds
Simple, but How? 1
• If developer is incorporated:
• Transfer only includes physical assets
• In other countries, bankruptcy trustee may
assume or reject “executory” contracts
• Taiwan bankruptcy trustee has no right to
assume/reject PPA, lease, construction or
O&M contracts

22. "Transfer of Rights" – Sounds
Simple, but How? 2•
• Taipower PPA - Taipower may terminate for
"dissolution, liquidation, bankruptcy
settlement, bankruptcy declaration or
reorganization“
• Other contracts are usually similar
• New PPA – may have lower future tariff,
uncertainty in future tariff makes valuation of
physical assets very difficult, creates
obstacle for efficient transfer

23. "Transfer of Rights" – Sounds
Simple, but How? 3
• If developer is not yet incorporated:
• Concept of preparatory office ("PO") simple --
and short term
• Not much law on POs
• One or more promoters subscribe for shares
• Promoter can sign contract for PO

24. "Transfer of Rights" – Sounds
Simple, but How? 4
• All promoters are liable for PO debts
• OWF regulations extend short-term POs for
years – at least 2017-2020
• Not clear whether interest in PO is
transferable even in legal theory
• Promoters’ shares can’t be transferred for 1
year – why should interest in PO be different?

25. Practical Problems of Long-Term
Offshore Wind PO
• Opening a bank account – whose
authority?
• Converting money – whose quota?
• Signing a lease – who’s the tenant?
• Hiring employees – who’s the employer?
• Proof of who are the promoters?
• Use of promoter as nominee - practical ,
but practical obstacle to transfer

26. Conclusions
• Stuff happens
• Documents matter
• Even the law matters
• In Europe, OWF life's not perfect
• Taiwan’s even less certain than Europe

27. Thank you