臺灣離岸風力發電投資計劃可行性分析 - 政大學術集成

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(1)國立政治大學商學院國際經營管理英語碩士學位學程 International MBA Program College of Commerce National Chengchi University. 碩士論文政治. 大. 立Master’s Thesis. ‧. ‧ 國. 學 sit. y. Nat. 臺灣離岸風力發電投資計劃可行性分析 n. al. er. io. An investment case on offshore wind energy in Taiwan. Ch. engchi. i n U. v. Student: Eric Mehner Advisor: Professor George Kuo. 中華民國一〇五年七月 July 2016.

(2) 臺灣離岸風力發電投資計劃可行性分析 An investment case on offshore wind energy in Taiwan. 研究生：孟逸朗. Student: Eric Mehner. 指導教授：郭維裕. Advisor: George Kuo. 國立政治大學. 學. ‧ 國. 立. 政治大. ‧. 商學院國際經營管理英語碩士學位學程碩士論文. er. io. sit. y. Nat. A Thesis. n. a to International MBA Program Submitted iv l C n U NationalhChengchi University engchi. in partial fulfillment of the Requirements for the degree of Master in Business Administration. 中華民國一〇五年七月 July 2016.

(3) Abstract An investment case on offshore wind energy in Taiwan By Eric Mehner The worldwide offshore wind market has been growing rapidly over the recent years and also. 政治大. the Taiwanese government has announced to rely more on offshore wind power as future. 立. energy source. The goal of this paper is to evaluate if an investment in offshore wind energy. ‧ 國. 學. in Taiwan is worthwhile. This has been done by analyzing the development of the world energy market and the recent growth in renewable energies. Furthermore, the essential steps. ‧. of the development of an offshore wind farm and the lifecycle were overviewed. Based on. y. Nat. io. sit. this information, together with an analysis of relevant factors regarding the development of an. n. al. er. offshore wind farm in Taiwan, a profitability analysis was performed. Statistical data and. Ch. i n U. v. experience from European offshore wind projects was taken as a benchmark for the. engchi. calculations. The results show that despite some risk due to natural disasters and the immaturity of offshore wind industry in Taiwan, an investment in an offshore wind farm seems to be a very attractive choice under current conditions. From the two subsidy options offered by the Taiwanese government, the splitted feed-in tariff plan, with higher payments in the first 10 years and lower payments in the following 10 years, is clearly the better option for potential investors.. Keywords: Offshore, Wind, Energy, Taiwan, Investment. i.

(4) TABLE OF CONTENTS 1. Introduction .......................................................................................................................... 1 1.1. Global trends in the energy market ................................................................................. 1 1.1.1. Change in worlds energy consumption .................................................................. 1 1.1.2. Renewable energies ................................................................................................ 2 1.1.3. Global offshore wind energy .................................................................................. 3. 政治大 2. Offshore wind farm development ....................................................................................... 5 立. ‧ 國. 學. 2.1. Project lifecycle ............................................................................................................... 5 2.2. Project costs..................................................................................................................... 7. ‧. 2.3. Energy production ......................................................................................................... 10. y. Nat. al. er. io. sit. 2.4. Power prices and subsidies ........................................................................................... 11. n. 2.5. Operating costs .............................................................................................................. 13. Ch. engchi. i n U. v. 2.6. Project end options ........................................................................................................ 14 3. Detailed analysis of conditions for offshore wind in Taiwan .......................................... 16 3.1. Market conditions .......................................................................................................... 16 3.1.1. Power consumption .............................................................................................. 16 3.1.2. Power generation .................................................................................................. 17 3.1.3. Potential of renewable energy sources ................................................................. 19 3.2. Taiwanese subsidy scheme ............................................................................................. 21 3.3. Factor conditions........................................................................................................... 22 ii.

(5) 3.3.1. Wind conditions .................................................................................................... 22 3.3.2. Depth of water ...................................................................................................... 24 3.3.3. Country specific risks of natural disasters ............................................................ 25 3.4. Other issues ................................................................................................................... 26 4. Profitability analysis ........................................................................................................... 27 4.1. Assumptions for exemplary offshore wind park in the Taiwan strait ............................ 27. 政治大. 4.2. Revenue through energy production .............................................................................. 27. 立. 4.2.1. Estimation of Annual Energy Production ............................................................. 28. ‧ 國. 學. 4.2.2. Feed-in Tariff ........................................................................................................ 30. ‧. 4.3. Initial investment ........................................................................................................... 31. sit. y. Nat. 4.4. Operation expenditures ................................................................................................. 32. n. al. er. io. 4.5. NPV analysis.................................................................................................................. 33. v. 4.5.1. Interest rate ........................................................................................................... 33. Ch. engchi. i n U. 4.6. IRR analysis ................................................................................................................... 34 4.7. Profitability calculations ............................................................................................... 35 4.7.1. Scenario 1 with 20-year continuous FIT .............................................................. 35 4.7.2. Scenario 1 with 2-period FIT split ........................................................................ 37 4.7.3. Scenario 2 with 20-year continuous FIT .............................................................. 39 4.7.4. Scenario 2 with 2-period FIT split ........................................................................ 40 5. Conclusion ........................................................................................................................... 42. iii.

(6) 6. Reference ............................................................................................................................. 43 7. Appendix .............................................................................................................................. 45. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. iv. i n U. v.

(7) List of Figures and Tables Figure 1: World energy consumption ..................................................................................... 2 Figure 2: Usage of renewable energies by region (excluding hydropower) ......................... 3 Figure 3: Global cumulative offshore wind capacity in 2015 ............................................... 4 Figure 4: Project lifecycle ........................................................................................................ 6 Figure 5: Foundations for different depth of water .............................................................. 8. 治政 Figure 7: Electricity prices by country ................................................................................. 12 大立 Figure 8: Total operating costs for offshore wind projects ................................................. 13 Figure 6: Total project costs for offshore wind projects ....................................................... 9. ‧ 國. 學. Figure 9: Electricity consumption in Taiwan for 2000 - 2014 ............................................. 16. ‧. Figure 10: Power generation by source in percent .............................................................. 18 Figure 11: Possible example for a future energy mix .......................................................... 20. y. Nat. er. io. sit. Figure 12: Water depth map of Taiwan ................................................................................ 24 Figure 13: Probability Density Function of Total AEP ....................................................... 29. n. al. Ch. i n U. v. Figure 14: Cumulative Distribution Function of Total AEP............................................... 30. engchi. Figure 15: Revenue stream comparison for both feed-in plans ......................................... 31 Figure 16: Cash flows for continuous FIT ............................................................................ 36 Figure 17: Cash flows for 2-period split FIT........................................................................ 38 Figure 18: Feed-in tariffs for Taiwan 2016 ........................................................................... 45. v.

(8) Table 1: Power generation by source in GWh ..................................................................... 18 Table 2: Feed-in tariff for offshore wind in Taiwan ............................................................ 21 Table 3: Comparison of wind conditions in Europe and Taiwan ....................................... 23 Table 4: Annual Revenue for different feed-in plans........................................................... 31 Table 5: Capital Investment per installed MW in NTDm ................................................... 32 Table 6: Capital Investment for 200MW installed capacity in NTDm .............................. 32 Table 7: Operation costs per MWh in NTD ......................................................................... 33. 政治大. Table 8: NPV Sensitivity analysis scenario 1, 20yr FIT ...................................................... 36. 立. Table 9: IRR Sensitivity analysis scenario 1, 20yr FIT ....................................................... 37. ‧ 國. 學. Table 10: NPV Sensitivity analysis scenario 1, 2-period FIT.............................................. 38 Table 11: IRR Sensitivity analysis scenario 1, 2-period FIT ............................................... 39. ‧. Table 12: NPV Sensitivity analysis scenario 2, 20yr FIT .................................................... 39. y. Nat. sit. Table 13: IRR Sensitivity analysis scenario 2, 20yr FIT ..................................................... 40. n. al. er. io. Table 14: NPV Sensitivity analysis scenario 2, 2-period FIT.............................................. 41. i n U. v. Table 15: IRR Sensitivity analysis scenario 2, 2-period FIT .............................................. 41. Ch. engchi. vi.

(9) 1. Introduction This paper aims to analyze the market situation on the energy market, particularly in Taiwan, and see whether investments in offshore wind energy in Taiwan are profitable. It will have a close look at all factors which need to be considered when investing in offshore wind farms in Taiwan. Profitability calculations for an exemplary offshore wind farm will be made to get a better understanding of a wind farm needed capital investment, profit opportunities, challenges. 政治大. and risks. The first chapter will take a look at the trends on the worlds energy market in order to. 立. understand the environment for an investment in the power generation business.. ‧ 國. 學. 1.1. Global trends in the energy market 1.1.1. Change in worlds energy consumption. ‧. During the last 25 years the worlds energy consumption has been rising constantly. This trend. y. Nat. er. io. sit. was mostly driven by the fast economic growth of many emerging economies. To a maturity the high demand in those countries was met by fossil energy sources such as coal, gas and oil,. n. al. due to their relatively low costs.. Ch. engchi. 1. i n U. v.

(10) 立. 政治大. ‧ 國. 學 Figure 1: World energy consumption1. ‧. 1.1.2. Renewable energies. y. Nat. io. sit. In recent years, external effects of using fossil fuels as primary energy source including air. n. al. er. pollution and the climate change have become more severe all over the world. Especially in. Ch. i n U. v. areas with high population density, the air pollution has reached a critical level and population. engchi. struggles with serious health issues. The second major problem is the greenhouse effect, caused by the huge amount of emitted carbon dioxide when burning fossil fuels. Weather anomalies including heavier rain, stronger winds or higher temperatures occur more often than in the past. These increasing problems caused a higher demand for clean energies. People in many countries ask for change in energy politics and governments intervened in the energy market with penalties for pollution and subsidies for renewable energies. These changes led to a big growth of renewable energies, especially in Asia, Europe and North America. 1. (BP p.l.c., 2015) page 42. 2.

(11) 立. 政治大. ‧ 國. 學. Figure 2: Usage of renewable energies by region (excluding hydropower)2. ‧. 1.1.3. Global offshore wind energy. y. Nat. io. sit. The three major renewable energy sources wind, solar and water have big disadvantages: they. n. al. er. are only in some regions sufficiently available and depend highly on weather conditions.. Ch. i n U. v. Offshore wind power is a relatively new form of renewable energy. Wind turbines for offshore. engchi. wind power are installed on the sea rather than land. Its main advantage to onshore wind is its higher availability. Wind on the sea is comparatively stable and stronger. This makes offshore wind power more eligible as a energy source to replace fossil fuels in terms of stability and cost efficiency. Especially European countries such as Germany, Denmark and UK have identified this potential very early and supported the development of offshore wind. Despite those countries there is huge potential for offshore wind energy all over the world.. 2. (BP p.l.c., 2015) page 37. 3.

(12) 立. 政治大. ‧. ‧ 國. 學. n. al. er. io. sit. y. Nat. Figure 3: Global cumulative offshore wind capacity in 20153. 3. Ch. engchi. (Global Wind Energy Council, 2016). 4. i n U. v.

(13) 2. Offshore wind farm development This chapter will explain the most important factors for the development of offshore wind farms as well as the project lifecycle. This information is essential to understand the steps for the realization of an offshore wind project and will help to create the profitability analysis based on profound knowledge. Statistical data and experiences from the well-developed European offshore industry will help to gather this information.. 2.1. Project lifecycle. 立. 政治大. As every project, offshore wind farms go through a project lifecycle. The project lifecycle of. ‧ 國. 學. offshore wind farms can be described with the phases of development, maturation, construction. ‧. and operation. The project development, maturation and construction usually takes about 10 years for offshore wind projects. This is followed by an operation period of about 20 to 30 years. y. Nat. n. er. io. al. sit. until repowering or decommissioning.. Ch. engchi. 5. i n U. v.

(14) Project development. Maturation. •Profitability analysis •Project rights •Wind study •Geological study •Project design •Landowner agreement •Building application •Grid connection application. Construction. •Detailed wind study •Detailed design •Procurement and reservation contracts •Updated profitability analysis •Financial consent •Final investment decision. •Construction •Commisioning. •Operation and Maintenance •Technical and Commercial management •Investment evaluation •Repowering or decommisioning. 政治大. Figure 4: Project lifecycle4. 學. ‧ 國. 立. Operation. The project development phase includes several important steps for making an investment. ‧. decision. This includes a wind study at potential sites, because strong and consistent wind will. y. Nat. sit. increase the produced energy and make the wind farm more profitable. Also a geological study. n. al. er. io. needs be conducted, because factors such as soil conditions, depth of water and distance to. i n U. v. shore can influence the total project costs significantly. After those steps, the design of the. Ch. engchi. project can be created, which defines factors such as type of turbines, place of grid connection or most suitable foundations for geological conditions. This is followed by a first profitability analysis. Furthermore, the developer need to deal with several formalities including application for project rights, landowner agreements, building application or grid connection application. The development phase is followed by a maturity phase, which prepares the project for its realization. Major tasks in this phase are the finalization of the design, the preparation of contracts with turbine manufacturers, construction companies and other involved parties. After 4. (Deloitte Touche Tohmatsu Limited, 2015). 6.

(15) an updated profitability analysis with all new changes is created and a financing consent is found, investors will make a final investment decision (FID). After the FID, the construction of the wind farm can begin. The construction is usually completed within one year, with variations depending i.e. on the size of the wind farm. During the construction process, the foundations will be installed and with the turbines on top. Also the submarine power cables will be laid on the seafloor between the turbines and from the wind farm to the closest connection point with the energy grid. Once the construction is completed,. 政治大. the wind farm can be commissioned. Depending on the design of the wind farm, some bigger. 立. ones can also be partially commissioned after a certain amount of turbines is installed. The. ‧ 國. 學. construction phase is also the period when most of the capital is needed. The costs before the beginning of construction are rather insignificant compared to the construction.. ‧. The operation phase is the longest phase with about 20 to 30 years. During this period the initial. y. Nat. sit. investment will be amortized through the revenue for produced energy. However, several task. n. al. er. io. are necessary to keep the wind farm operating. This includes maintenance and reparation of the. i n U. v. turbines and commercial and technical management. These tasks continuously cause operation. Ch. engchi. costs. Furthermore, the operator needs to set aside funds for decommissioning, overhaul or repowering at the end of the lifecycle.. 2.2. Project costs The project costs include all costs which occur during planning and construction of a wind farm until its commissioning. The major cost drivers are wind turbines, foundations, construction costs and grid connection. Depending on the conditions at site, costs can differ a lot. Soil conditions, depth of water and distance to shore are main factors which can significantly change the total project costs.. 7.

(16) Deeper waters require different foundation structures. In general, costs increase with increasing depth of water and there are limits to the feasibility of offshore wind farms in very deep waters. The following figure gives an overview of foundations for different depth of water.. 立. 政治大. ‧. ‧ 國. 學. Figure 5: Foundations for different depth of water5. sit. y. Nat. The most common and cheapest type of foundation is the monopile. This is due to the fact that. io. er. most of the realized offshore wind farms are in shallow waters. For waters of about 25 to 50. al. v i n C hdevelopment. ForUsuch deep waters, the turbine will be more than 50 meters are still under engchi n. meters of depth, jacket-foundations or tripods are used. Foundations for a depth of water of. attached to a floating structure, which is fixed to the ground with ropes. Wind farms in those areas are currently economically unviable due to higher level of project costs or risks through technical immaturity. In addition to the type of foundation, a longer distance to shore will increase the project costs. A higher distance requires longer submarine power cables for grid connection, which increases total project costs.. 5. (European Wind Energy Association, 2013) page 20. 8.

(17) Deloitte compiled the following benchmark of total project costs based on market reports and 39 offshore wind projects commissioned after 2010 in Europe. For some offshore wind farms the project costs per MW installed capacity were more than double than for other offshore wind farms due to different conditions at site or less economic realization.. 立. 政治大. ‧ 國. 學 ‧. Figure 6: Total project costs for offshore wind projects6. According to the Deloitte report, it was also observed that the project costs per MW installed. y. Nat. er. io. sit. capacity are likely to be higher when turbines with a higher capacity are used. This was mostly due to the higher price of bigger turbines, which are new to the market. In regard to this it is. n. al. Ch. i n U. v. expected that the turbine prices for bigger turbines will decrease, once they reach mass. engchi. production. This development was already observed with smaller turbines, which became significantly less expensive after they reached mass production. At the point of time when bigger turbines reach mass production the project costs per installed MW capacity with bigger turbines is likely to become similar to projects using smaller turbines which are already in mass production. In addition to that, when turbines with a higher capacity are used, a lower amount of turbines is necessary to reach a certain capacity. This means less foundations and sea cable connections are needed. Furthermore, lower operation costs can be expected when fewer 6. (Deloitte Touche Tohmatsu Limited, 2015) page 8. 9.

(18) turbines are used in the wind farm.7. 2.3. Energy production The amount of energy which can be produced at the wind farm site is essential for the profitability of an investment in an offshore wind farm. The local wind conditions are directly affecting the amount of produced energy. For this reason, the wind conditions must be analyzed before making an investment decision. Wind power density maps can give a good first. 政治大 wind power density directly determines cost efficiency in using wind energy at a certain 立. estimation for the available wind power in an area before performing a detailed wind study. The. ‧ 國. 學. location. A wind farm in an area categorized with low wind power density will lead to a lower capacity utilization and therefore have a lower cost efficiency than a wind farm in an area with. ‧. higher wind power density.8. sit. y. Nat. After a potential site in an area with a high wind power density is selected, a detailed wind study. io. er. over several years should be created to make sure there are sufficient and consistent wind. al. speeds for a cost efficient wind energy production. After the wind study is completed, a suitable. n. v i n C h based on the local type of wind turbines can be chosen e n g c h i U wind conditions. There are many different wind turbines in the market, which differ in size, capacity, cut-in wind speed, cut-out wind speed or efficiency at different wind speeds. With the information of the wind study and the specifications of the wind turbine, an estimation for the annual energy production can be generated. This estimation will help to calculate a potential annual revenue and to evaluate the. 7. Cf. (Deloitte Touche Tohmatsu Limited, 2015) page 7-10. 8. (European Wind Energy Association, 2002) pages 58-59. 10.

(19) profitability of the wind farm.9 Even after a detailed analysis about wind conditions and the expected annual energy production with different wind turbines, there is still a production uncertainty. In a study of Deloitte this uncertainty was evaluated with a standard deviation of 11% of the average expected annual energy production. 10 During the profitability analysis of the wind farm, this production uncertainty needs to be taken into consideration.. 2.4. Power prices and subsidies. 政治大 Besides the amount of produced energy, the revenue of the wind farm also highly depends on 立. ‧ 國. 學. the power price on the energy market and government subsidies. Due to different market and political situations, the operation of an offshore wind farm and green energies in general, can be. ‧. profitable in some countries and not profitable in other countries, even when the other. sit. y. Nat. conditions are similar.. io. er. Electricity prices differ a lot by country. This can be seen in the comparison chart below. In. al. countries with higher electricity prices a profitable operation of renewable energy plants is. n. v i n more likely, because the amountC paid to the energy producer is probably higher as well. Italy, he ngchi U Germany and the United Kingdom have comparatively high energy prices between 14 and 16. U.S. Dollar cents per kilowatt hour, while Canada, Sweden and Finland only have energy prices of half or even lass as high.. 9. 10. Cf. (Deloitte Touche Tohmatsu Limited, 2015) page 10-15 Cf. (Deloitte Touche Tohmatsu Limited, 2015) page 12. 11.

(20) Electricity prices in US dollar cents per KWh. 18 16 14. 12 10 8 6 4 2 0. 立. 政治大. Figure 7: Electricity prices by country11. ‧ 國. 學. In order to support the development of renewable energies, many governments give subsidies to make investments in renewable energies more attractive for investors. The kind of subsidy. ‧. methods differs by countries and 3 different main subsidy schemes can be found:12. sit. y. Nat. Feed-in tariff: A feed-in tariff can be a fixed amount paid per MWh in addition to the market. io. er. price or a fixed payment regardless of the power price.. al. v. n. Renewables Obligation: A renewable obligation forces power utility companies to generate a. i n C certain part of their energy from renewable h e n g sources. chi U. Tax credits: Tax credits can be given to utilities, organizations and households who produce energy from renewable energy sources. Even some countries might use the same subsidy methods, they can still differ in amount or duration. Therefore, conditions need to be analyzed in detail in order to make a judgement about the profitability of renewable energies in each market.. 11. (Statista GmbH, 2016). 12. Cf. (Deloitte Touche Tohmatsu Limited, 2015) page 15. 12.

(21) 2.5. Operating costs During the operation of an offshore wind park occur different kind of operation costs. Main cost drivers are commercial and technical management, maintenance, repair, insurance costs, port activities and land rental. Also funds for decommissioning at the end of the operation period have to be set aside. In the Deloitte report on European offshore wind farms, the operation costs of different offshore wind farms in Europe were compared by amount and source.. 立. 政治大. ‧. ‧ 國. 學 sit. y. Nat. n. al. er. io. Figure 8: Total operating costs for offshore wind projects13. i n U. v. Similar to the total project investment costs, the operation costs per produced MWh can differ. Ch. engchi. between offshore wind farms. A major factor which influences the operation costs per produced MWh are the different wind conditions on different sites, which directly affect the energy production of a wind farm. A wind farm at a site with less wind produces a lower amount of energy, but the operations costs will be similar to a wind farm at a site with stronger and more consistent winds. Therefore, the operation costs per MWh will be higher on the site with less wind.14 13. (Deloitte Touche Tohmatsu Limited, 2015) page 17. 14. Cf. (Sustainable Enterprises Media, Inc., 2016) and (Deloitte Touche Tohmatsu Limited, 2015) page 16-17. 13.

(22) In addition to the wind conditions at site, also the size of the wind turbines affect the operation costs of the wind farm. Higher capacity wind turbines are taller and use more powerful winds at greater heights, which results in a higher energy output. Also, when bigger turbines are used, less turbines are needed to reach a certain capacity. A reduced turbine mass lowers operation costs, because less turbines need to be maintained and managed. Also the amount of defects per MW installed capacity decreases with less turbines, which lowers repairing costs.15. 2.6. Project end options. 政治大 Once the turbines reach the end of their lifecycle, there are three options for the wind farm 立. ‧ 國. 學. project: overhaul, repowering or decommissioning. For each option all costs and potential revenues need to be estimated to choose the optimal option. Particularly subsidy plans and. ‧. technological changes can be major factors which influence the decision.. sit. y. Nat. An overhaul could extend the lifetime of the project for several years, but its profitability. io. er. depends on the investment which is needed. Within the about 20 years of operation, the turbine. al. technology might have been advanced so much, that an overhaul might not be the most. n. v i n C hmight work moreUreliable, more cost efficient or produce economical solution. Newer turbines engchi more energy.. Another way to continue the operation of the wind farm could be repowering, which means to replace the old wind turbines with new ones. New wind turbines make better use of the available wind, which will reduce operation costs compared to the generation of wind turbines, which was used when building the wind farm. Due to the increasing efficiency of turbines, the energy output is likely to increase when the same amount of turbines is used. An installation of. 15. Cf. (Sustainable Enterprises Media, Inc., 2016). 14.

(23) fewer turbines can be also considered when repowering. The last option is decommissioning of the wind farm. This solution is the best, when overhaul or repowering are not economical. The decommissioning of an offshore wind park is as complex as the construction, because all the parts, including turbines, foundations and cables need to be deconstructed and transported back to shore. Many parts can be sold at the second hand market for recycling. The costs of decommissioning depend on the number of turbines and what kind of foundation is used. Funds for decommissioning are usually set aside during the operation period.. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 15. i n U. v.

(24) 3. Detailed analysis of conditions for offshore wind in Taiwan After the overview of the lifecycle if offshore wind farm projects, this chapter will take a closer look at the environment for offshore wind farms in Taiwan. This will include information about energy market situation, factor conditions, local subsidy scheme and supporting industries needed for the realization.. 3.1. Market conditions 3.1.1. Power consumption. 立. 政治大. An understanding of the Taiwanese electricity market will help to evaluate the potential of. ‧ 國. 學. renewable energies and offshore wind energy in particular. As typical for developing countries,. ‧. Taiwan’s electricity consumption is still rising.. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. Figure 9: Electricity consumption in Taiwan for 2000 - 201416 Over the past 15 years Taiwan’s electricity consumption has been rising rapidly. From about. 16. (Central Intelligence Agency, 2016). 16.

(25) 125 billion kWh in year 2000, Taiwan’s electricity consumption has doubled to almost 250 billion kWh in 2015. This implies that there is a demand for more power sources, to meet the increasing demand. Another important factor, which needs to be taken into consideration is the strong fluctuation in the electricity demand. In summer, the demand is much higher due to the large amount of air conditionings in the country. Furthermore, there is a strong change in demand during a day, where at daytime the consumption is high and at nighttime relatively low. This implies that the. 政治大. power supply needs to be able to adjust to these changes.. 立. 3.1.2. Power generation. ‧ 國. 學. Besides the demand side, also the supply side is important to understand potentials for. ‧. investments in renewable energies. The electricity in Taiwan is provided by the state-owned. sit. y. Nat. electric utility Taiwan Power Company (Taipower) to residential, industrial and commercial. io. er. customers. The company is responsible for the Taiwanese power grid and most of the power. al. generation. Taipower also purchases electricity from independent power producers. In 2014 a. n. v i n C hwas generated by U share of about 23% of the electricity e n g c h i independent power producers.. The following figure and table show the power generation by energy source. With coal 39%, gas 33% and oil 3%, Taiwan relies mostly on fossil fuels for its power generation. Nuclear power counts for 19% of the power generation. With only 4%, renewable energies take just a small share in Taiwan’s energy mix for electricity generation.. 17.

(26) 2% 3%. Pumped storage hydro. 4%. Oil 19%. Coal Gas 39%. Nuclear Renewable enery. 33%. 政治大. Figure 10: Power generation by source in percent17. 立. Nuclear and coal power plants supply a constant amount of electricity and cannot quickly adjust. ‧ 國. 學. to demand changes, which are typical for the Taiwanese electricity market. However, gas power plants, which also take a big share of the Taiwanese power generation, are flexible and able to. ‧. Nat. sit. the daily and seasonal changes in the power demand in Taiwan.. y. adjust quickly their power output. Therefore, the current energy mix is very eligible to adjust to. er. io. Table 1: Power generation by source in GWh18. Energy source. Power generation in GWh. n. al. Ch. Pumped storage hydro Oil. engchi. iv 3,108 n U 6,259. Coal. 82,349. Gas. 70,915. Nuclear. 40,801. Renewable enery. 8,788. Total. 17. ( Taiwan Power Company (Taipower), 2014). 18. ( Taiwan Power Company (Taipower), 2014). 212,220. 18.

(27) 3.1.3. Potential of renewable energy sources Taiwan relies mostly on energy imports, such as coal, oil and gas. Before the Fukushima nuclear disaster in Japan 2011, nuclear power was a central part of the Taiwanese energy policy. After the disaster the public opinion about nuclear power changed. After long protests against nuclear power, the government decided to abandon nuclear energy by approximately 2025. Due to the still increasing demand for electricity, the Taiwanese government is forced to establish. 政治大 Taiwan makes the further extension of fossil fuels as energy source difficult. Therefore, the 立. new energy sources to supply the country with the demanded energy. The high air pollution in. ‧ 國. 學. government is now more and more setting its focus on renewable energies and released programmers for their further development.. ‧. Taiwan as a high densely populated country is only eligible to use renewable energies to a. sit. y. Nat. certain extend. Big solar farms and onshore windfarms need lots of space to be build. The flat. io. er. west coast of Taiwan is one of the world’s most densely populated areas and the rest of the. al. island is very mountainous and hard to access. Therefore, there is not enough space to build. n. v i n Csolar enough onshore wind turbines or to supply the increasing demand. Hydropower h efarms ngchi U generation needs constant rain and mountains. Earthquakes and the irregular rain also limits the use of energy generated by hydropower. Earthquakes could cause floods when the hydroelectric dam takes damage. This makes hydropower also not eligible as a stable major energy source for Taiwan. Offshore wind on the other hand does not require large unpopulated areas on land. It can be constructed offshore near Taiwan’s coasts. Taiwan as an island has access to large areas on the sea and seems to be perfectly eligible for offshore wind. Furthermore, as mentioned above, offshore wind power is more stable than other renewable energy sources, which makes offshore. 19.

(28) wind energy more suitable as a major energy source. The generated power from renewable energy sources, including offshore wind cannot be adjusted to changes from the demand side. Nevertheless, in combination with flexible gas fired power plants, offshore wind power can be used to reduce the usage of coal and nuclear power and account for a big share of the energy supply to cover the basic demand.. Time. Day 1. Night 1. 立. Day 2. Night 2. 政治大. ‧ 國. 學. Gas. ‧. n. al. er. io. sit. y. Nat. Solar. Ch. engchi. i n U. v. Wind. Figure 11: Possible example for a future energy mix19 The figure above shows exemplary, how a possible energy mix could look like. Wind power accounts for a certain basic supply, depending on how much wind is available. Solar power can be used to cover the daily changes. The already existing gas fired plants can cover the remaining demand and adjust their output accordingly. An energy mix like this would be feasible and increase the share of renewable energies significantly.. 19. (Smart Energy for Europe Platform (SEFEP) gGmbH, 2016). 20.

(29) 3.2. Taiwanese subsidy scheme Similar to many other countries, the Taiwanese government released a subsidy scheme for renewable energies. From the three common subsidy methods, Taiwan choose to set up a fixed feed-in tariff system guaranteed for a certain time period. The amount paid per produced unit of electricity differs by electricity source. The tariff for offshore wind energy is shown in the table below.. 政治 FIT 大in NTD/kWh. Table 2: Feed-in tariff for offshore wind in Taiwan Feed-in tariff. 立. First 10 yrs.. FIT. Second 10 yrs.. ‧. 2-period. 5.7405. 學. ‧ 國. Continuous FIT 20yrs.. 7.1085 3.4586. For offshore wind power investors can choose between two different feed-in tariff options. The. y. Nat. io. sit. first option is a continuous tariff of 5.7405 NTD/kWh guaranteed for 20 years. The second. n. al. er. option splits the 20 years into 2 periods, where a tariff of 7.1085 NTD/kWh is paid for the first. Ch. i n U. v. 10 years of operation and 3.4586 NTD/kWh for the following 10 years.. engchi. Similar to observations in other countries where offshore wind energy is subsidized, a reduction of the feed-in tariff has to be expected with a further maturation of the industry. An example is Germany. In the German feed-in tariff regulation of 2014 (EEG 2014), an annual reduction of the feed-in tariff by 0.5 Euro cent was planned, which is approximately 0.182 Taiwan Dollar. With the reformation of the German feed-in tariff plan in 2016, further tariff reductions were forced by using a tendering system for future renewable energy projects. These possible changes need to be taken into consideration when planning an offshore wind farm in Taiwan.20 20. Cf. (FIZ Karlsruhe – Leibniz-Institut für Informationsinfrastruktur GmbH). 21.

(30) Nevertheless the Taiwanese feed-in scheme represents the best option of the 3 possible subsidy methods from an investor point of view. With guaranteed fixed feed-in rates, potential investors can easily calculate their expected revenues, which decreases the risk and makes an investment more attractive. This information will help in the following chapter to calculate the expected revenue for the profitability analysis. When comparing the paid subsidies with the current electricity prices, it can be discovered that the subsidies are in some cases higher than the power prices for consumers. This means that. 政治大. with every unit of electricity produced by an offshore wind farm, the state owned power utility. 立. company is making a loss. If the Taiwanese government really wants to increase the share of. ‧ 國. 學. renewable energies, an increase of the electricity prices will be unavoidable. That means, with an increase of the share of renewable energies, including offshore wind power, an increase of. ‧. Taiwanese power prices can be expected.. y. Nat. sit. 3.3. Factor conditions. er. io. 3.3.1. Wind conditions. al. n. v i n C hwind conditions are Besides high demand and subsidies, e n g c h i U an important factor for a profitable operation of wind farms. Wind power density maps can be used to evaluate the available wind. power. The world’s first offshore wind farms were built in Europe and Europe is still the world leader in offshore wind power. Currently the European North Sea and Baltic Sea are the areas with the world’s most offshore wind farms. To evaluate the available wind in Taiwan on its sufficiency to operate offshore wind farm, the wind conditions in Europe will be used as benchmark.. 22.

(31) Table 3: Comparison of wind conditions in Europe and Taiwan Europe. 立. Taiwan. 政治大. ‧. ‧ 國. 學 sit. y. Nat. io. er. Wind power density is a useful figure to evaluate the wind resources at a potential site. The. al. higher the wind power density the higher is the potential energy output at a potential wind farm. n. v i n C h in watts per Usquare meter, shows how much wind site. The wind power density, measured engchi. energy is available for conversation by a wind turbine at the site. Wind power density maps give an approximate value for the wind power density for a whole region. When comparing the wind power density maps of Europe and Taiwan, it can be discovered that both regions have areas with high wind power density of 650 watts per square meter or above. In Europe, those areas can be found in the North Sea, Baltic Sea, Irish Sea, Celtic Sea and North Atlantic Ocean. The Baltic Sea, North Sea and Irish Sea are also the areas, where most of the European offshore wind parks are located. In Taiwan areas with a high wind power density are especially in the Taiwan Strait between Mainland China and Taiwan Island. Those areas have wind power. 23.

(32) densities, which are similar to the ones at the European offshore wind farm sites. In addition to that, those areas with high wind power density are very close to the west coast, which makes them very eligible for offshore wind farms.. 3.3.2. Depth of water Besides the available wind, also the depth of water is an important factor which determines the feasibility of offshore wind farms. As mentioned in the previous chapter, only foundations for a depth of water of up to 50 meters are in mature stage at the moment. Therefore, offshore wind. 政治大. projects will be limited to a depth of water of up to 50 meters until foundations for deeper. 立. waters are matured.. ‧ 國. 學. The following graph shows the depth of water on Taiwan’s coast. While water at the eastern coast gets deep very near to the shore, there is a very big area with a water deepness of less than. ‧. 50 meters in the Taiwan Strait on the coast between Taichung and Miaoli.. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. Figure 12: Water depth map of Taiwan21 The Taiwanese Industrial Technology Research Institute estimated about 57 GW potential 21. (Hu, 2015). 24.

(33) capacity for offshore wind power in an area with a depth of water up to 50m, from which are 6.2 GW feasible. Compared to the worldwide installed capacity in 2015 of about 12 GW, the potential capacity for Taiwan is very big and an investment in the Taiwanese offshore wind market seems to be a highly extendable business.. 3.3.3. Country specific risks of natural disasters Compared to Europe, in Taiwan wind turbines face additional risks, particular through. 政治大 of Fire. This also means additional requirements for a potential wind park. The effect on 立. earthquakes and typhoons. Taiwan is located in a very seismically active zone, the Pacific Ring. ‧ 國. 學. foundations and turbines need to be assessed before realization of a projects. Eventually different or adjusted turbines and foundations need to be used in order to assure a smooth. ‧. operation over the whole lifecycle of the offshore wind farm.. sit. y. Nat. The same also applies to the risk of typhoons. Every year between July and October, Taiwan is. io. er. hit by several strong typhoons. These tropical storms can reach wind speeds of more than 200. al. km/h particularly on the ocean, where the offshore wind parks will be build. Foundations,. n. v i n Crobust turbines and blades need to build to withstand such strong winds in order to U h e nenough i h gc avoid damages.. In order to test feasibility of offshore wind farms in Taiwan, there are 3 test offshore wind farms currently under construction.22 These wind farms will also show, how different turbine models sustain earthquakes and typhoons. It is to expect that changes to the wind turbines will increase turbines costs. On the other hand, those costs might not be significant, since common. 22. (Hu, 2015). 25.

(34) offshore wind turbines already withstand wind speeds of around 250km/h23.. 3.4. Other issues In addition to the main factors above, there are several issues which need to be considered before starting the development of an offshore wind farm in Taiwan. The offshore wind industry is relatively new to Taiwan. Therefore, the local supply chain is very undeveloped. This includes manufactures of wind turbines, foundations, suitable harbours, construction. 政治大 the project plays an important role. The access to capital is essential to realize the big 立 vessels, partners for marine constructions or operation and management. Also the financing of. ‧ 國. 學. investment in an offshore wind farm. Currently local banks are still unfamiliar with offshore wind projects, which might complicate the access to capital. The same counts for necessary. ‧. insurances. Local insurers are unfamiliar with wind farm projects and are not able to assess. sit. y. Nat. the risk of offshore wind projects in Taiwan correctly. Those issues will make the realization. io. al. er. of first offshore wind farms more difficult, but should be solved once the first wind farms are. n. build. A cooperation with international partners could also be a possibility to overcome these issues.. 23. Ch. engchi. (Siemens AG, 2016). 26. i n U. v.

(35) 4. Profitability analysis 4.1. Assumptions for exemplary offshore wind park in the Taiwan strait In this chapter, the profitability of an exemplary offshore wind farm will be analyzed. The net present value and the IRR will be taken into account as measure for the profitability of a wind farm under different conditions. To have a better understanding of the investment volume of a real offshore wind farm, a typical medium size offshore wind farm with a capacity of 200 MW. 政治大. will be assumed.. 立. Because offshore wind energy is new to Taiwan, there is no statistical data about a local. ‧ 國. 學. offshore industry available. For the estimation of energy production, capital expenditures and operation expenditures, statistical data from the European offshore wind energy market will be. ‧. used for the calculations. There are several detailed statistics and surveys from the European. Nat. sit. y. Wind Energy Association or Deloitte, which give a good idea about investment volume and. n. a l production 4.2. Revenue through energy Ch. engchi. er. io. cost structure in the offshore wind energy business.. i n U. v. As mentioned before, the revenue for an offshore wind farm depends on the energy production, the price paid for the produced energy and the amount of governmental subsidies. In Taiwan, the subsidies are given in form of guaranteed feed-in tariffs for the produced energy. This means that the yearly revenue created by the offshore wind farm is a function of Annual Energy Production (AEP) and the Feed-in Tariff for offshore wind given by the Taiwanese government. 𝐴𝑛𝑛𝑢𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 𝐴𝑛𝑛𝑢𝑎𝑙 𝐸𝑛𝑒𝑟𝑔𝑦 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 (𝑖𝑛 𝑀𝑊ℎ) × 𝐹𝑒𝑒𝑑 𝑖𝑛 𝑇𝑎𝑟𝑖𝑓𝑓 (𝑖𝑛 𝑁𝑇𝐷 𝑝𝑒𝑟 𝑀𝑊ℎ). 27.

(36) 4.2.1. Estimation of Annual Energy Production In order to calculate the revenue, an estimation of the Annual Energy Production is needed. The European Wind Energy Association releases a statistic on wind power every year, which also includes data about total installed capacity and the estimated annual energy production of all offshore wind farms in Europe24. Since the offshore wind condition in Europe are very similar to the offshore wind conditions in the Taiwan strait25, the data of the European offshore wind. 政治大 installed capacity at the end of 2015 reached 11,027.3 MW and approximately 40.6 TWh of 立. industry gives a good estimate for Taiwan. The latest report stated, that Europe’s cumulative. ‧ 國. 學. energy can be produced in a normal wind year26. This information included data of 84 offshore wind farms with different wind turbines. When dividing the total Annual Energy Production by. y. Nat. calculated:. ‧. the installed capacity, the mean Annual Energy Production (AEP) per Installed Capacity can be. sit. n. al. er. io. 𝐴𝐸𝑃 40.6 𝑇𝑊ℎ = = 3681.77𝑀𝑊ℎ⁄𝑀𝑊 𝐼𝑛𝑠𝑡𝑎𝑙𝑙𝑒𝑑 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 11,027.3 𝑀𝑊. i n U. v. With this mean value, an estimated AEP for the exemplary offshore wind farm with 200 MW capacity can be calculated:. Ch. engchi. 𝐴𝐸𝑃200𝑀𝑊 = 3681.77𝑀𝑊ℎ⁄𝑀𝑊 × 200𝑀𝑊 = 736,354 𝑀𝑊ℎ Even this is a good estimation for the annual electricity production of a 200 MW wind farm in the Taiwan strait, there is still uncertainty over the expected production. In order to take this. 24. (European Wind Energy Association, 2016). 25. See wind density maps in previous chapter. 26. (European Wind Energy Association, 2016). 28.

(37) uncertainty into account, two different scenarios will be considered in this study: Scenario 1 with the expected Annual Energy Production mentioned above and Scenario 2 with a lower Annual Energy Production. A study of Deloitte analyzed the expected production uncertainty and estimated the standard deviation of the average gross Annual Energy Production as 11% of the mean Annual Energy Production27. With this information, a normal distribution can be constructed for the Annual Energy Production of the wind farm with 200 MW capacity. 𝑁(𝜇, 𝜎 2 ) = 𝑁(𝑚𝑒𝑎𝑛 𝐴𝐸𝑃, (11% × 𝑚𝑒𝑎𝑛 𝐴𝐸𝑃)2 ). 政治大. = 𝑁(736.354𝐺𝑊ℎ, (11% × 736.354𝐺𝑊ℎ)2 ). 立. The normal distribution function can be used to find a level for the Annual Energy Production,. ‧ 國. 學. which is very unlikely to be undercut. For the scenario with lower Annual Energy Production, the 10th percentile will be used. In the bell curve of the probability density function below, one. ‧. can see the 10th percentile value x[0.1] on the left of the mean value x[μ].. y. Nat. al. n. 0.005. er. io. 0.006. sit. Probability Density Function of Total AEP. 0.004 0.003. Ch. engchi. 0.002. i n U. v. x[μ]. 0.001. x[0.1]. 0 500. 550. 600. 650. 700. 750. 800. 850. 900. 950. 1000. x = AEP in GWh. Figure 13: Probability Density Function of Total AEP For the exemplary wind farm, it can be expected that the average Annual Energy Production would exceed the 10th percentile value with a probability of 90%. This is demonstrated in the 27. CF. (Deloitte Touche Tohmatsu Limited, 2015) page 12. 29.

(38) Cumulative Distribution Function below, where an AEP of x[0.1] or below, only account for 10% of the cumulated probability.. Cumulated Probability. Cumulative Distribution Function of Total AEP 1 0.8 0.6. 0.4 0.2 0 500. 600. 立. x[μ]. 政治大 x[0.1]. 700. 800. 900. 1000. x = AEP in GWh. Figure 14: Cumulative Distribution Function of Total AEP. ‧ 國. 學. The calculation of the 10th percentile value x[0.1] will give the level of Annual Energy. ‧. Production which will be exceeded with a 90% probability:. Nat. y. 𝑓𝑜𝑟 𝑁(736.354𝐺𝑊ℎ, (11% × 736.354𝐺𝑊ℎ)2 ) = 𝑓(𝑥). er. io. sit. 𝑥[0.1] = 632.550𝐺𝑊ℎ. Based on this information, for the expected scenario (scenario 1) an Annual Energy. n. al. Ch. i n U. v. Production of 736.354GWh (x[med]) and for the worse scenario (scenario 2) an Annual Energy. engchi. Production of 632.550GWh (x[0.1]) will be assumed.. 4.2.2. Feed-in Tariff As mentioned in the previous chapter, Taiwan currently offers two different feed-in tariff plans for offshore wind energy: One plan with a continuous feed-in tariff over 20 years and another plan with a split in 2 periods of 10 years each. The information about the feed-in tariff, together with the values for the annual energy production, allows the calculation of the annual revenue of the exemplary 200MW wind farm for both scenarios:. 30.

(39) Table 4: Annual Revenue for different feed-in plans Annual Revenue in. FIT in. Scenario 1. Scenario 2. NTDm. NTD/kWh. (AEP=736.354GWh). (AEP=632.550GWh). Continuous FIT 20yrs.. 5.7405. 4,227. 3,631. 2-period. First 10 yrs.. 7.1085. 5,234. 4,496. FIT. Second 10 yrs.. 3.4586. 2,546. 2,187. For the expected annual energy production (Scenario 1), the continuous FIT plan results in. 政治大 wind farm. In contrast to that, 立 the 2-period split FIT has very high yearly revenue of NTD. medium high yearly revenues of NTD 4,227m over the whole 20-year lifecycle of the offshore. ‧ 國. 學. 5,234m for the for the first 10 years and low revenue of NTD 2,546m for the second 10-year period until the end of the wind farm’s lifecycle. For the lower annual energy production, the. ‧. cash flows are lower accordingly. The following cash flow diagram shows the difference in. Revenue in NTDm. er. io. al. n. 6000 5000. sit. y. Nat. revenue cash flows for the continuous FIT and the 2-period split FIT.. Ch. 4000. engchi. i n U. v. 3000 2000 1000 0 1. 2. 3. 4. 5. 6. 7. 8. 9 10 11 12 13 14 15 16 17 18 19 20. Continuous FIT. 2 period FIT. Figure 15: Revenue stream comparison for both feed-in plans. 4.3. Initial investment At the beginning of the project there is a large initial investment related to the construction of. 31.

(40) the offshore wind farm. As mentioned in before, the construction is usually completed within one year, which means that the costs for construction also occur in a period of one year. The costs during the development and planning process before the construction are rather insignificant compared to the total project costs and are not taken into consideration separately for this analysis. Because Taiwan does not have a developed offshore wind industry at the moment, investors will be highly depending on imports for turbines and international firms as construction partners. This implies that the capital investment for an offshore wind farm in. 政治大. Taiwan is likely to be very similar to the capital investment for offshore wind farms in Europe.. 立. With this assumption the statistical data from the European offshore wind industry can be used. ‧ 國. 學. to estimate the initial investment for an offshore wind farm in Taiwan. Converted into Taiwan Dollars, the following range for the capital investment per installed MW capacity can be. ‧. expected:. sit. y. Nat. Table 5: Capital Investment per installed MW in NTDm28 171.13. io. er. 69.18. Based on this information, the initial investment for the exemplary 200MW wind farm is likely. n. al. Ch. range from NTD 13,836m to NTD 34,226m.. engchi. i n U. v. Table 6: Capital Investment for 200MW installed capacity in NTDm 13,836. 34,226. 4.4. Operation expenditures The operations costs include all costs which occur during operation of the offshore wind farm over its lifecycle. This includes costs for maintenance, repair, insurance and commercial and technical management. For this investment case it will be assumed that the operation costs of 28. (Deloitte Touche Tohmatsu Limited, 2015) page 8 together with the exchange rate of June 10 (EUR 1 = 36.41). 32.

(41) the offshore wind farm in Taiwan are also similar to the operation costs which were observed in offshore wind farms in Europe. The range of expected operation costs is between 743 NTD and 1,602 NTD per produced MWh29. Table 7: Operation costs per MWh in NTD 743. 1,602. 4.5. NPV analysis To evaluate an investment in offshore wind farms in Taiwan, an NPV analysis will be. 治政 the Net Present Value (NPV), cash inflows and cash outflows 大 will be discounted by an interest 立 rate, which is expected by investors (discount rate). The sum of all discounted cash flows makes. performed. The NPV is a method to analyze the profitability of a project. In order to calculate. ‧ 國. 學. the Net Present Value. If the Net Present Value is positive, then it represents a good investment.. ‧. A sensitivity analysis for a range of different investment costs and operation costs will be created for the NPV.. y. Nat. er. io. sit. 4.5.1. Interest rate. In order to calculate the NPV, an estimation of the required return rate is needed. The. n. al. Ch. i n U. CAPM-model will be used to estimate the discount rate.. engchi. v. 𝐸(𝑅𝑖 ) = 𝑅𝐹 + (𝑅𝑀 − 𝑅𝐹) × 𝛽𝑖 The variables in the equation represent the following: E(Ri) – Expected return for the project. This value will be taken as discount rate for the cash flows. RF – Risk free rate. The Taiwan 10-year bond yield is taken as risk free rate for this calculation. The latest 10-year bond yield was 0.77% annual return or 0.064% monthly return.30 29. (Deloitte Touche Tohmatsu Limited, 2015) page 17 together with the exchange rate of June 10 (EUR 1 = 36.41). 30. Values taken from (Fusion Media Limited, 2016). 33.

(42) RM – Market return. The return of the Taiwan Capitalization Weighted Stock Index is used as market return. The average monthly market return was 0.259% over the last 3 years.31 βi – beta stands for the sensitivity of an asset to a changes in the market return. To find a proper value, a Taiwanese company from the green industry sector will be used as a benchmark. SWANCOR IND. CO., LTD, which focuses on green energy and environmental protection products will be this benchmark company. In a linear regression the beta value for the benchmark company will be generated.32. 政治大. The monthly yields over a period of 3 years from June 2013 to June 2016 are used for the. 立. regression calculation of beta. Based on this data the beta equals 2.328. After inserting the. ‧ 國. 學. values in the CAPM formula, the required monthly return can be calculated. 𝐸(𝑅𝑚 ) = 𝑅𝐹 + (𝑅𝑀𝑚 − 𝑅𝐹𝑚 ) × 𝛽𝑚. ‧. sit. Nat. 𝐸(𝑅𝑚 ) = 0.518%. y. 𝐸(𝑅𝑚 ) = 0.064% + (0.259% − 0.064%) × 2.328. er. io. With the following formula the required annual return can be calculated:. n. a l 𝐸(𝑅 ) = ((1 + 𝐸(𝑅 ))12) −i v1 𝑚 n C𝑗h U engchi 𝐸(𝑅𝑗 ) = 6.212%. Based on the CAPM calculation, annual required return of 6.212% will be used for the NPV calculations below.. 4.6. IRR analysis The internal rate of return (IRR) is a measurement to evaluate the profitability of potential 31. Values taken from (Yahoo!, 2016). 32. Values taken from (Yahoo!, 2016). 34.

(43) investments. The value shows the discount rate for which the net present value (NPV) for this project equals to zero. For the exemplary 200MW offshore wind farm, the IRR can be used to compare the profitability of the project using different feed-in tariff plans and the two scenarios with different annual energy production. Similar to the NPV analysis, a sensitivity analysis for a range of different investment costs and operation costs will be created. The sensitivity analysis will help to understand how sensitive the IRR is to a change in the amount of initial investment and the yearly operation costs.. 4.7. Profitability calculations. 立. 政治大. The following calculations will analyse the profitability of an investment in an offshore wind. ‧ 國. 學. farm. Based on different conditions the NPV and the IRR will be calculated. In order to compare the values for different levels of initial investment and operation costs, a sensitivity. ‧. analysis will be conducted.. y. Nat. sit. The sensitivity analysis is an analysis that finds out how sensitive an output is to any change in. n. al. er. io. an input, while other inputs are constant. The analysis will show how much the NPV or the IRR. i n U. v. of the project is affected by a change of the initial investment or the level of operation costs. The. Ch. engchi. sensitivity analysis will also help to assess the risk of an investment in offshore wind in Taiwan. The values used in the sensitivity analysis are based on the values which were observed in offshore wind farms in Europe and introduced previously in this chapter.. 4.7.1. Scenario 1 with 20-year continuous FIT The first calculation will be based on the expected annual energy production of 736.354GWh for the 200 MW offshore wind farm in Taiwan (Scenario 1). Using the 20-year constant feed-in plan, there is a constant annual cash inflow over the whole operation period of 20 years. In addition to that, there is a high initial investment and annual operation costs. The cash flows. 35.

(44) over the whole lifecycle of the 200 MW wind farm with a capital investment of 120.15 NTDm per installed MW capacity and operation costs of 1172 NTD per produced MWh are shown in the figure below. 5000 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20. -5000. Operation costs. Capital investment. -10000. 政治大. -15000. 立. -20000. 學. ‧ 國. -25000. Revenue. Figure 16: Cash flows for continuous FIT. ‧. The NPV based on the previously calculated required return rate and the IRR can be calculated for different levels of capital investments and operation costs. The values from the figure above. y. Nat. io. sit. are marked in the table.. al. n NPV in Billion NTD Operation costs per MWh in NTD. er. Table 8: NPV Sensitivity analysis scenario 1, 20yr FIT. i n 120.15 U. v. Capital Investment per installed MW in NTDm. Ch. 69.18. e n94.67 gchi 22.56. 145.64. 171.13. 17.46. 12.36. 7.27. 743. 27.66. 958. 25.87. 20.78. 15.68. 10.58. 5.48. 1172. 24.09. 18.99. 13.89. 8.80. 3.70. 1387. 22.31. 17.21. 12.11. 7.01. 1.92. 1602. 20.52. 15.43. 10.33. 5.23. 0.13. From the sensitivity analysis for the NPV, we can see positive NPV for all observed situations. For the values shown in the cash flow diagram above, a NPV of 13.89 billion Taiwan Dollar is expected. In the worst case with the highest operation costs per produced MWh and the highest capital investment, the NPV is with 0.13 billion Taiwan Dollar still positive. In the best case with the lowest operation costs and the lowest capital investment, the NPV reaches to 27.66. 36.

(45) billion Taiwan Dollar. Therefore, an investment in a wind farm in Taiwan represents a good investment with a low risk, assuming the annual energy production will reach the expected level. From the NPV sensitivity analysis we can also see that the NPV reacts less strong to changes in the operation costs and stronger to a changes of the capital investment. Table 9: IRR Sensitivity analysis scenario 1, 20yr FIT Capital Investment per installed MW in NTDm. IRR Operation costs per MWh in. 94.67. 120.15. 145.64. 171.13. 26.35%. 18.82%. 14.25%. 11.09%. 8.74%. 17.91% 13.49% 治政 23.98% 17.00% 大12.72% 立22.79% 16.07% 11.94%. 10.43%. 8.14%. 9.75%. 7.53%. 9.06%. 6.90%. 8.36%. 6.26%. 743 958 1172 1387. 25.17%. 21.58%. 15.13%. 11.15%. 學. 1602. ‧ 國. NTD. 69.18. A similar conclusion can be made from the IRR sensitivity analysis. For the mean scenario. ‧. shown in the cash flow diagram, an IRR of 12.72% is expected. In the worst case with the highest operation costs per produced MWh and the highest capital investment, the IRR is still. y. Nat. er. io. sit. 6.26%, which is more than the required rate of return. In the best case with the lowest operation costs and the lowest capital investment, the IRR reaches to 26.35%.. n. al. 4.7.2. Scenario 1 with 2-period C FIT split. hengchi. i n U. v. Using the 2-period split feed-in plan, there is a high annual cash inflow over the first 10 years of operation and a lower annual cash inflow over the following 10 years. The initial capital investment and annual operation costs are the same. The cash flows over the whole lifecycle of the 200 MW wind farm with a capital investment of 120.15 NTDm per installed MW capacity and operation costs of 1172 NTD per produced MWh are shown in the figure below.. 37.

(46) 5000 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 -5000. Operation costs Capital investment. -10000. Revenue -15000 -20000 -25000. 政治大. Figure 17: Cash flows for 2-period split FIT. 立. The NPV based on the previously calculated required return rate and the IRR are calculated in. ‧ 國. 學. the following tables for different levels of capital investments and operation costs. The values from the figure above are marked in the table.. ‧. Table 10: NPV Sensitivity analysis scenario 1, 2-period FIT. MWh in NTD. 958 1172 1387 1602. 28.30. 23.20. 18.10. y. 120.15. 16.32 a l26.51 21.41 v i 24.73 19.63 14.53 n C 22.94h e n 17.85 g c h i U12.75 21.16. 16.06. 10.97. 145.64. 171.13. 13.00. 7.91. 11.22. 6.12. 9.44. 4.34. 7.65. 2.56. 5.87. 0.77. sit. 94.67. n. costs per. 743. io. Operation. 69.18. er. Nat. Capital Investment per installed MW in NTDm. NPV in Billion NTD. The observations for the NPV sensitivity analysis with the 2-period FIT are similar to the ones with the 20-year continuous FIT plan, only that the values for the NPV are higher with the 2-period FIT plan. For the scenario shown in the cash flow diagram, an NPV of 14.53 billion Taiwan Dollar is expected. In the worst case with the highest operation costs per produced MWh and the highest capital investment, the NPV is with 0.77 billion Taiwan Dollar positive. In the best case with the lowest operation costs and the lowest capital investment, the NPV reaches to 28.30 billion Taiwan Dollar.. 38.

(47) Table 11: IRR Sensitivity analysis scenario 1, 2-period FIT Capital Investment per installed MW in NTDm. IRR. 69.18. 94.67. 120.15. 145.64. 171.13. 743. 32.68%. 22.76%. 16.75%. 12.66%. 9.64%. 958. 31.41%. 21.75%. 15.89%. 11.88%. 8.92%. 1172. 30.14%. 20.72%. 15.00%. 11.07%. 8.17%. 1387. 28.84%. 19.67%. 14.08%. 10.24%. 7.39%. 1602. 27.52%. 18.60%. 13.14%. 9.37%. 6.58%. Operation costs per MWh in NTD. The same can be observed from the IRR sensitivity analysis. Also the IRR values are higher for. 治政大 costs per produced MWh and 15.00% is expected. In the worst case with the highest operation 立. the 2-period split FIT plan. For the mean scenario shown in the cash flow diagram, an IRR of. the highest capital investment, the IRR is still 6.58%, which is more than the required rate of. ‧ 國. 學. return. In the best case with the lowest operation costs and the lowest capital investment, the. ‧. IRR reaches to 32.68%.. sit. y. Nat. 4.7.3. Scenario 2 with 20-year continuous FIT. n. al. er. io. The calculations for scenario 2 are based on the lower annual energy production of. i n U. v. 632.550GWh, which will be exceeded with a 90% probability. Compared to the scenario 1, the. Ch. engchi. yearly cash inflows will be lower under this presumption.. Table 12: NPV Sensitivity analysis scenario 2, 20yr FIT NPV in Billion NTD Operation costs per MWh in NTD. Capital Investment per installed MW in NTDm 69.18. 94.67. 120.15. 145.64. 171.13. 743. 21.81. 16.71. 11.61. 6.51. 1.42. 958. 20.28. 15.18. 10.08. 4.98. -0.11. 1172. 18.74. 13.65. 8.55. 3.45. -1.65. 1387. 17.21. 12.11. 7.02. 1.92. -3.18. 1602. 15.68. 10.58. 5.48. 0.39. -4.71. From the sensitivity analysis for the NPV, we can see positive NPV for most of the observed situations. For a mean value of capital investment and operation costs (marked in the table. 39.

(48) above) a NPV of 8.55 billion Taiwan Dollar is expected. In the worst case with the highest operation costs per produced MWh and the highest capital investment, the NPV is negative 4.71 billion Taiwan Dollar. In the best case with the lowest operation costs and the lowest capital investment, the NPV reaches to 21.81 billion Taiwan Dollar. From this NPV sensitivity analysis it can be seen that the NPV only becomes negative when the initial capital investment is very high. Changes of the operation costs only have a small impact to the NPV. Table 13: IRR Sensitivity analysis scenario 2, 20yr FIT. 政治 94.67 大120.15. Capital Investment per installed MW in NTDm. IRR. MWh in. 15.81%. 11.72%. 8.87%. 6.72%. 958. 21.42%. 15.00%. 11.04%. 8.26%. 6.17%. 1172. 20.37%. 14.19%. 10.35%. 7.65%. 5.61%. 1387. 19.32%. 13.36%. 9.64%. 7.02%. 5.03%. 1602. 18.26%. 12.52%. 8.92%. 6.38%. 4.44%. ‧. NTD. 171.13. 立22.45%. 學. costs per. 145.64. 743. ‧ 國. Operation. 69.18. Analogue to the NPV analysis, the IRR sensitivity analysis shows an IRR which is higher than. y. Nat. er. io. sit. the required rate of return for most of the scenarios. For the mean scenario an IRR of 10.35% is expected. In the worst case with the highest operation costs per produced MWh and the highest. al. n. v i n capital investment, the IRR is stillC4.44%, but below the required rate of return. In the best case hengchi U with the lowest operation costs and the lowest capital investment, the IRR reaches to 22.45%.. 4.7.4. Scenario 2 with 2-period FIT split Using the 2-period split feed-in plan, the calculations the NPV and the IRR for scenario 2 can be found in the following tables for different levels of capital investments and operation costs.. 40.

(49) Table 14: NPV Sensitivity analysis scenario 2, 2-period FIT Capital Investment per installed MW in NTDm. NPV in Billion NTD Operation costs per MWh in NTD. 69.18. 94.67. 120.15. 145.64. 171.13. 743. 24.15. 19.05. 13.95. 8.86. 3.76. 958. 22.44. 17.35. 12.25. 7.15. 2.06. 1172. 20.74. 15.64. 10.55. 5.45. 0.35. 1387. 19.04. 13.94. 8.84. 3.75. -1.35. 1602. 17.34. 12.24. 7.14. 2.04. -3.05. Similar to the previous scenario, the NPV is higher with the 2-period FIT plan. For the mean. 治政大investment, the NPV is negative 3.05 operation costs per produced MWh and the highest capital 立. scenario, an NPV of 10.55 billion Taiwan Dollar is expected. In the worst case with the highest. billion Taiwan Dollar, but higher than with the continuous feed-in plan. In the best case with the. ‧ 國. 學. lowest operation costs and the lowest capital investment, the NPV reaches to 24.15 billion. ‧. Taiwan Dollar.. Table 15: IRR Sensitivity analysis scenario 2, 2-period FIT. MWh in NTD. 958 1172 1387 1602. y. sit. 69.18. 94.67. 120.15. 145.64. 171.13. 27.54%. 18.80%. 13.47%. 9.81%. 7.09%. 9.08%. 6.41%. 8.33%. 5.70%. er. 743. Capital Investment per installed MW in NTDm. a l 26.41% v 17.89% 12.67% i n Ch 25.27% 11.85% e n g16.95% chi U. n. costs per. io. Operation. Nat. IRR. 24.11%. 15.99%. 11.00%. 7.54%. 4.97%. 22.92%. 15.01%. 10.12%. 6.73%. 4.20%. Similar to the NPV, the IRR is higher for the 2-period feed in plan. For the mean scenario an IRR of 11.85% is expected. In the worst case with the highest operation costs per produced MWh and the highest capital investment, the IRR is still 4.20%, but below the required rate of return. In the best case with the lowest operation costs and the lowest capital investment, the IRR reaches to 27.54%.. 41.

(50) 5. Conclusion The report showed, that Taiwan has good factor conditions for offshore wind farms, similar to European offshore wind sites. Based on this information, the expected amount of annual energy production was estimated using statistical data from offshore wind farms in Europe. Together with the information about the feed-in tariff plan in Taiwan, we could estimate a potential revenue for an exemplary offshore wind warm. Also from statistical data, the initial investment for an exemplary 200 MW wind farm was. 治政 estimated in a range from 13.836 billion NTD to 34.226 billion 大 NTD. The initial investment can 立 vary extremely due to different conditions at the site. Depth of water, distance to shore and soil ‧ 國. 學. conditions are the main reason for those variation in offshore wind farms in Europe. The main. ‧. cost drivers are grid connections, foundations, turbines and construction related costs. Furthermore, the operation costs were estimated from statistical data of European offshore wind. er. io. sit. y. Nat. farms.. This data was used in a sensitivity analysis for both feed-in tariff plans and two different levels. n. al. Ch. i n U. v. of annual energy production. For the scenario with the expected annual energy production, the. engchi. analysis showed a positive NPV in all viewed options. For the lower annual energy production, the NPV was only negative, once the initial capital investment reached a very high level. The profitability analysis also showed, that the 2-period split FIT results into a higher profitability for the scenarios shown in this report. The report has shown that an investment in offshore wind farms in Taiwan is very likely to be a investment with a high return. If country specific risks due to the immaturity of the local offshore industry or natural disasters are assessed correctly, an investment in offshore wind in Taiwan is highly recommendable.. 42.

(51) 6. Reference Taiwan Power Company (Taipower). 2014. Sustainability Report. Taipei, Taiwan : Taiwan Power Company (Taipower), 2014. BP p.l.c. 2015. BP Statistical Review of World Energy June 2015 . London, UK : BP p.l.c., 2015. Central Intelligence Agency. 2016. The World Factbook. Country Comparison: Electricity Consumption.. 政治 28.大. [Online]. 立. 05. 2016.. https://www.cia.gov/library/publications/the-world-factbook/rankorder/2233rank.html.. ‧ 國. 學. Deloitte Touche Tohmatsu Limited. 2015. Establishing the investment case - Wind power. Copenhagen, Denmark : s.n., 2015.. ‧. European Wind Energy Association. 2013. Deep water - The next step for offshore wind. Nat. sit. y. energy. Brussels, Belgium : s.n., 2013.. n. al. er. io. —. 2016. The European offshore wind industry - key trends and statistics 2015. Brussels, Belgium : s.n., 2016.. Ch. engchi. i n U. v. —. 2002. Wind Energy: The Facts - An Analysis of Wind Energy in the EU-25. Brussels, Belgium : s.n., 2002. FIZ. Karlsruhe. –. Leibniz-Institut. für. Informationsinfrastruktur. GmbH.. energiefoerderung.info. Erneuerbare-Energien-Gesetz (EEG) 2014. [Online] [Zitat vom: 11. 07 2016.] http://www.energiefoerderung.info/foerderprogramm/7511. Fusion Media Limited. 2016. investing.com. Taiwan 10 Year Bond Yield. [Online] 13. 06 2016. http://www.investing.com/rates-bonds/taiwan-10-year-bond-yield-historical-data. Global Wind Energy Council. 2016. Global statistics. Global Wind Energy Council. [Online] 11. 07 2016. http://www.gwec.net/global-figures/graphs/.. 43.