Developmental Features & Systemic Inertia

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6.1.1. Developmental Features & Systemic Inertia

With the above aims in mind we begin answering RQ4(i) by making an observation that is by now both quite familiar to us (see Part I), and also essential to understanding the background to certain institutionalized barriers affecting the growth of the renewable energies market. i.e., that Taiwan‟s lack of natural resources and somewhat unique developmental trajectory have shaped (and continue to shape) developments in the energy and industrial sectors of Taiwan‟s economy. These developments, which are really more like entrenched features, include:

 Existing patterns of supply and consumption (1): Taiwan as an island nation is heavily reliant on relatively cheap but carbon intensive foreign energy imports to meet what have been historically growing energy demands; demands which, beginning in the 50s, and then gathering speed in the late 70s and 80s as Taiwan began a period of rapid (state-led) industrialization and export growth, have only recently begun showing signs of leveling off. The net result of these trends, in addition to the competitiveness of modern day global markets for manufactured and processed goods, has encouraged what is now a fairly high level of

dependence on cheap electricity (and oil and petroleum products) to power the nation‟s economic and industrial growth, and an interdependence between government and industry (including the energy industry) to see that there aren‟t any major disturbances to this business as usual approach.

 Existing patterns of supply and consumption (2): Coal-, Oil-, and LNG-fired power stations accounted for approximately 78% of Taiwan‟s total electricity generating capacity and around 44% of its total output in 2009 (BOE, 2010). The single largest consumer of this electricity was Taiwan‟s Industrial sector at 50%

of the total, with the Services (20.46%), Residential (19.5%), and Energy Sector Own Use (8.7%) also figuring strongly (refer to Figure 7 over page). Focusing now on the industrial sector of Taiwan‟s economy, and we find that a number of sub-sectors feature more prominently than others in terms of overall energy

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consumption and CO₂ emissions⁵⁰ – these include the manufacturing of nonmetal mineral products, basic metal products (including steel, metal, and metal

products), chemical materials, and paper-making and paper products, with growing energy consumption in recent years reflecting continued growth in these industries‟ economic output (Huang et al, 2010). So, while the majority benefit from the low energy and electricity prices in Taiwan, clearly those with the highest levels of consumption (and biggest profits) benefit disproportionately.

 Centralized control of Taiwan‟s electricity generation, transmission, and distribution networks: Another legacy of Taiwan‟s earlier strong-State

development approach is the size and scope of operations for which Taipower has primary responsibility. Indeed, while the situation has improved markedly since the introduction of legislation in 1994 allowing IPPs (Individual Power Producers) to supplement Taiwan‟s electricity supply and enter into long-term purchasing agreements with Taipower,⁵¹ Taipower still retains control of approximately 70%

(excluding cogeneration plants) of electricity generating capacity, guides thinking on fundamental grid policy issues, and as we have already reported on in this thesis,⁵² major influence over the application and approvals process for new renewable energy projects. Such an arrangement has obvious ramifications for the ability of new energy technologies like solar PV to gain a substantial place in the market, and for the general competitiveness of these new market entrants.

50 China Steel Corp (中鋼) at 15.1%, China Petrochemical Development Corp (中石化) at 9.9% and CPC Corp, Taiwan (CPC, 台灣中油) at 4.3%, are the three largest individual emitters of CO₂ after Taipower (51.1%), based on 2008 figures (Huang et al., 2010).

51 Wang, K (2006). Readers should perhaps note that major private concerns, in addition to their core business interests have also become IPPs since deregulation began. The 1,800MW Mailiao coal-fired power station owned by Formosa Plastics, for example, sells about three-quarters of its output to Taipower.

The Ho-ping plant (1,297MW), which is a joint venture between Taiwan Cement and China Light and Power Corporation, underlines again the interconnectedness of large (energy intensive) industries and the power generation sector in Taiwan.

52 Taipower currently oversees most aspects of the applications, approvals, and grid-connections process for renewable developments.

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Figure 7: Structure of Taiwan‟s Total Domestic Consumption (By Sector): 1989-2009

Figure from the BOE‟s Energy Statistical Handbook (2010, p.29)

 Electricity pricing and resistance to change: Readers are probably well aware by now that Taiwan‟s electricity prices are some of the lowest in the world, with the non-industrial sector subsidizing electricity for industrial purposes.⁵³ As has already been explained, these prices have been kept artificially low to benefit certain sectors of Taiwan‟s economy and to help bolster their economic viability.

Despite rising global prices for coal, oil, and natural gas (main electricity generating sources), Taiwan‟s wholesale electricity prices have remained

relatively static, with cumulative adjustments equal to around NT$0.45 per KWh (or approximately US$ 1.5 cents) over the last 20 years (BOE, 2010). Thus, with price signals largely absent from Taiwan‟s electricity and energy market, there are few incentives for those larger energy consuming sectors of Taiwan‟s economy to

53 The retail price for electricity for „light‟ users is almost NT$0.5 per KWh more expensive than electricity for industrial purposes.

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modify operating methods or step-up energy efficiency efforts. Finally, and in the face of what seems to be a critical weakness in government plans to reign in energy consumption, improve efficiency, and promote renewable energy use at home, there has been little progress to date in rationalizing energy prices to reflect the true cost of their production and consumption.

 The (lack of) competition (at least from a renewables‟ perspective) in Taiwan‟s energy market: We have already shown that Taiwan‟s energy market is dominated both by Taipower who retains centralized control, and by more carbon-intensive forms of electricity production which Taipower employs to minimize wholesale and retail electricity prices. And while the government has recently taken

legislative steps in hopes of altering this situation (e.g., through the passage of the Act and other legislative measure slated for introduction soon), it remains to be seen whether current FIT and subsidy support levels are sufficiently good to attract new investors into the renewables market, thereby dragging down the cost of electricity production from solar and other sources. Indeed, without this initial investment from those less risk averse „innovators‟ or „early adopters‟, the domestic market for solar PV in Taiwan will struggle to reach that critical point where adoption „takes off‟ and the market becomes more self-sustaining (IEA, 2010).⁵⁴

The major explanation, therefore, as to why renewable energies like solar PV face such stiff resistance when entering the energy market, is that a significant expansion of renewable energy poses a challenge to each of these fairly well established features of Taiwan‟s energy supply and consumption network, as well as the stable and mutually beneficial relationships that have developed between government, Taipower, and local business interests.

54 The ultimate goal is to get to a point where the market is sufficiently mature (through a culmination of learning improvements and reduced system prices) to allow government support for solar PV to be phased down. The IEA identify „innovators‟ and „early adopters‟ as playing a critical role in helping the market for a new energy technologies reach „take off‟.

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