The Role of Policies and Regulations in Reducing the Risk and Cost of Taiwanese Offshore Wind:

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www.ITPEnergised.com Earth | Smart | Solutions

The Role of Policies and Regulations in Reducing the Risk and Cost of Taiwanese Offshore Wind:

International Experience

Dr. Mark Leybourne - 雷博明

Taipei, 14^th November 2017

mark.leybourne@itpenergised.com

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ITPEnergised Group

• International consultancy for renewable energy providing technical, policy & environmental advisory services

• ~100 employees

• Key international offices in India and Australia

• Presence in South America, Europe and China

• 36 year history with

+1,500 projects in over 120 countries

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Earth | Smart | Solutions

Taiwan Offshore Wind Training & Guidelines

• 2014 - 2016 working with Ramboll and BMT, we provided a series of offshore wind guidelines and training to Taiwan’s emerging

industry

• Project was funded by Taiwan’s Bureau of Energy for Industrial Technology Research Institute (ITRI)

• Delivered 3 sets of best practice guidelines covering all phases of an offshore wind project’s lifecycle, including:

Planning & Preparation - Design & Construction - Operations & Maintenance

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Topics to Cover

• Market Scale and Visibility

• Site Development

• Grid Policy

• Support Mechanisms

• Local Supply Chain Development

• Environmental Protection & Social Impact

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Key Project Development Risks

• Technical

⎻ Site conditions: wind resource, met-ocean, seabed

⎻ Grid connection: approval, location, upgrades, cost

• Commercial

⎻ Supply chain; bottlenecks, quotes & engagement

⎻ Availability and cost of finance

⎻ Foreign exchange rate

• Policy/Regulatory

⎻ Obtaining a site concession

⎻ Permits and licences – EIA (Environmental and Social)

⎻ Policy or FiT changes

⎻ Consent and project timing restrictions

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Typical European Development Timeline

Year 1 2 3 4 5 6 7 8

Site Awarded Consent

Granted

Fully Commissioned Final Investment

Decision (FID)

First Power

Risk

Information

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Typical European Development Timeline

Year 1 2 3 4 5 6 7 8

Site Awarded Consent

Granted

Fully Commissioned Final Investment

Decision (FID) Area & Site Finding

Concept Design

Feasibility Studies

Environmental Scoping

FEED Study

EIA Surveys and Assessment

Design & Fabrication

Onshore Construction

Offshore Construction Site Investigations

First Power Procurement

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Market Scale and Visibility

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What Does Everyone Want?

• Industry

⎻ Generally; a stable, long term industry with clear objectives

⎻ Developers; sufficient returns, acceptable risks & market growth potential

⎻ Supply Chain; opportunities to recover large up front costs

⎻ Financiers; healthy and diverse range of companies and opportunities

• Government

⎻ Solution to future energy demands and carbon reduction targets

⎻ Jobs, investment, local industrialisation

⎻ Affordable plan and technology

• Population

⎻ Reliable electricity, low energy bills, low carbon

Recommendation; Ask what the Taiwanese stakeholders want

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What We Don’t Want….

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Drivers for Cost Reduction - Policy

• Relative impact of each driver on cost of energy

• Market:

⎻ Market scale: the amount of capacity to be installed

⎻ Visibility: the level of

information available about this future pipeline at a market level

⎻ Confidence: the extent to which industry believes in government statements on market scale and visibility

SOURCE: Approaches to cost-reduction in offshore wind A report for the Committee on Climate Change

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Europe vs Taiwan Context

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Multiple Zones as One Development

4 x 500 MW Projects For example….

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Multiple Zones as One Development

1 x 2000 MW Project For example….

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Site Development

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Site Selection Considerations

• Site Conditions

⎻ Wind energy resource

⎻ Water depth

⎻ Distance from shore

⎻ Metocean

⎻ Seabed, geology, faults

⎻ Distance from ports and electrical grid

• Hard Constraints

• Soft Constraints

• Criteria can be weighted by their influence on a project

and their perceived relative importance

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Role of Planning and De-Risking in Reducing the

Cost of Energy

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Strategy for Industry Management

Competition for Pre-Defined Projects

Competition for Defined Areas

Ad-hoc Proposals for Sites

Government Led Developer Led

Gov’t led site selection

& de-risking prior to competition

Developer led site selection after

competition

Developer led site selection prior to competition RISK TO DEVELOPER

TW - 2014 TW - 2017

UK - 2001 UK - 2016

DK - 2009 NL - 2016

DE - 2012

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Three Different European Markets

Denmark Netherlands

UK

» Danish government undertakes EIA

» Bidders commit bidding costs

» Winning bidder pays

government for EIA (~£83m), &

places security (~£30m) against termination

» Subsidy is through CfD for first 50,000 full load hours

» Delay of up to 2 years permitted before subsidy and deposit lost

» Energenet.DK provide grid, to their standard design and timetable

» Dutch government undertakes majority EIA, some obligations outstanding

» Bidders commit bidding costs

» Winning bidder puts down security against termination

» Winning bidder does not pay development costs,

» 4 years to build

» Tennet provide grid, and grid costs and charges are

socialised

» Developer undertakes EIA at risk, committing all development costs

» Developer applies separately for a CfD, which is contingent upon but not guaranteed by securing consent

» Developer applies separately for a grid connection, which is dependent upon activity by other developers and connections, developer underwrites

» Different delivery dates

specified in lease, consent, grid, CfD

» Grid transfers to OFTO (no OFTO build trusted to date)

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Danish & Dutch Tenders – De-risking

Netherlands: http://offshorewind.rvo.nl

Denmark: http://www.energinet.dk/EN/ANLAEG-OG-PROJEKTER/Anlaegsprojekter-el/Kriegers- Flak-havmoellepark/Sider/data.aspx

• Government undertakes large amounts of upfront work to gather site information and plan the grid connections

⎻ Geophysical investigations

⎻ Geotechnical investigations & geological Model

⎻ UXO (Unexploded Ordnance) survey

⎻ Geotechnical investigations at planned OSS locations

⎻ Metocean & wind monitoring and models

⎻ All relevant EIA surveys

⎻ Workshops, Q&A and consultations

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Thoughts on Government Led Approach

• Reduction of up front risk to developers – but how valuable is this?

• Reduce EIA risk / first-come-first-served risk

• Developers have less control over the sites – some will prefer this, whilst others may not

• Is Government the best organisation to do this job?

⎻ Staffing, time, expertise, risk, budget etc

• How to design a suitable and efficient competition for the sites

• Ask developers if this is what they want…

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Grid Policy

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Who is Responsible for What?

• In Europe, a third party is responsible for the ownership

and operation of the offshore transmission

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Selected Approaches to Offshore Transmission

Country Who does what? Who pays? Issues

UK Construction: Project

developer

Operation, Maintenance &

Decommissioning: Offshore Transmission Owner (OFTO)

Project Developer pays regulated construction cost which is refunded by the OFTO tender winner.

Project pays transmission system costs during operations

Developers like to build their own transmission

Developers concerned that OFTO availability incentive is weak Tender is complex & costly Point to point connections Germany Construction and operation in

the North Sea: Tennet 3 other offshore grid companies

Investment costs covered by regulated grid usage fees paid by electricity consumers

Big Job for Tennet

In 2013 offshore grid companies paid c€500m for connection delays

Hub and spoke system France RTE is responsible for the

construction and operation of all transmission including offshore

The public electricity network user tariffs (TURPE) are regulated and paid by all network users

Conflict of interest as RTE’s parent (EDF) is investing in offshore generation

Have not yet had to deliver a project USA National Grid USA are building

and will operate the offshore transmission for Block Island

Regulated tariffs paid by local electricity consumers

Project operations to start later this year

30MW pilot offshore windfarm

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State Grid Development

• Denmark, Netherlands, Germany, France, Belgium – Offshore

transmission is responsibility of state’s TSO (Transmission System Operator)

• Developer focuses on financing and constructing the wind farm rather than the grid

• Offshore transmission assets are lower risk than the OWF

• Grid costs are ‘socialised’ and slowly recouped through transmission charges

• Potential issue with grid readiness – risk to developer and TSO – compensation possible

• Liabilities for future grid outages

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UK - OFTO – Offshore Transmission Owner

• Over £2.3bn has been invested in OFTOs since 2009 - equity and debt investors - £1.5bn in the tender process

• OFTO has saved customers £270m so far - Ofgem

• Offshore transmission built and financed by developer then sold to a third party to own and operate.

• OFTOs contracted through bidding round managed by Ofgem (UK’s gas and electricity regulator)

• Licences to operate and manage the asset for a 20-year period, in return for a regulated, stable revenues

• Solid returns on relatively low risk profile underwritten by stable regulatory framework overseen by Ofgem

• Availability and contracting risks to OFTO

• Frees up capital from developer and project financiers

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Grid Capacity – New Connections?

These sites represent ~8GW

• Potential for all sites around Changhua to be consented in 2017

• Grid strengthening to accept 6.5GW of new capacity by 2025

• Do the dates for grid strengthening match up to planned OWF commissioning dates?

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Thoughts for Taiwan - Grid

• Onshore grid strengthening plans must match the industry growth strategy

• Redundancy / resilience (UK Security and Quality of Supply requirements on 1.8 GW)

• Set a well defined, transparent grid connection application process including a timeline for process

• Strict timeline for grid connection readiness – what happens if there are delays?

• Taipower is also a project developer… conflict of interest?

• Consider third party offshore transmission development and/or ownership

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Support Mechanisms

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How Does a Government Support?

• Generation based income – tariffs / certificates

• Capital grants

• Fiscal support – developers and supply chain

• Loan guarantees / low cost finance

• Provision of project development costs

• Grid development costs

• Port development costs

• Innovation / R&D support – cost reductions

Often a mixture of all of the above

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European Offshore Wind Auctions

• Auctions have led to significant recent cost reductions in Europe

• Introduced more competition in the industry

• Benefitted some types of developers more than others

• Not yet delivered on the prices that have recently made the headlines – expecting future developments

• Caution of suitability for immature industry and supply

chain

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Local Supply Chain Development

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How to Develop Local Supply

• Where should Taiwan focus its efforts in developing local supply chain capabilities?

⎻ Undertake a study on local capabilities and strategic industrialisation plan

• Support the local suppliers that fit the plan

• Engage developers to understand their plans for procurement – develop supply chain plans

• Encourage the use of local content and supporting the development of local suppliers

• Fund initiatives to increase skills & provide training

• “Meet the buyer” events

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Developer Procurement Plans

• The UK and France require developers to submit plans stating their intended procurement approaches

• UK has a less prescriptive approach. These look for how a developer is;

⎻ increasing competitiveness – avoid relying on incumbent suppliers

⎻ innovating and supporting innovation

⎻ ensuring necessary skills

• France seeks commitments to French industrialisation and local content.

Plans are marked as part of the developer’s bid for sites

• French industrialisation plans seek information on;

⎻ The use of French factories (encouraging new ones)

⎻ Job creation

⎻ Business for SMEs

⎻ Provision of training

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UK Offshore Wind Industrial Strategy

• Published in 2013 in response to the low levels of UK content within offshore wind projects

• Objectives;

⎻ economic growth creating tens of thousands of long term UK jobs

⎻ a clear and sustainable project pipeline

⎻ major manufacturing facilities in the UK

⎻ the development of a competitive UK--based supply chain

⎻ a technology cost--competitive with other low carbon technologies

• Provided funding to establish;

⎻ Manufacturing Advisory Service - GROW: Offshore Wind service

⎻ Offshore Wind Investment Organisation

⎻ Offshore Renewable Energy Catapult

https://www.thecrownestate.co.uk/media/5890/km-ex-sc-supply-082013-offshore-wind-industrial-strategy-business-and-government-action.pdf

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Environmental Protection &

Social Impact

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European Approach

• European markets tend to provide single window agencies giving a lower risk and more streamlined process

• Large Marine Spatial Plans (MSP) exist for each country’s territorial waters

• Offshore wind component of MSP is aligned to government’s policy and targets

• Strategic environmental assessment (SEA) undertaken on MSP

• Large number of EU laws and directives – familiar considerations across the markets

• Active data and experience sharing between countries

• Social and Environmental factors are both included in EIAs and SEAs

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Typical EIA Topics for European Projects

• Marine Physical Processes

• Marine Water & Sediment Quality

• Ornithology

• Marine & Intertidal Ecology

• Fish & Shellfish Ecology

• Marine Mammals

• Commercial Fisheries

• Shipping & Navigation

• Other Marine Users

• Marine & Coastal Archaeology

• Military & Civil Aviation Activities

• Visual and Seascape

OFFSHORE ONSHORE

• Landscape & Visual Impact Assessment

• Socio-Economics

• Tourism & Recreation

• Geology, Water Resources & Land Quality

• Terrestrial Ecology

• Land Use & Agriculture

• Terrestrial Archaeology

• Traffic & Access

• Onshore Noise & Vibration

• Air Quality

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Offshore Wind in the UK – Since 2001

• +5GW operational with 5GW to be delivered over next 3 years

⎻ Round 1 – developer proposed sites

⎻ Round 2 – developer proposed sites in strategic areas

⎻ Round 3 - Competitive tender for pre-defined zones

• Concession competition judged on ability to successfully deliver a project rather than the cheapest price

• Reduction of risk and introduction of competition to tariff support through CfDs

• Key roles played by the Crown Estate and PINS

• Strong industry body and co-ordination – RenewableUK

• Previously - poor industry strategy and supply chain planning

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Offshore Energy SEA Steering Group

• Objective: to provide objective technical and general advice to facilitate the BEIS offshore energy SEA (Strategic Environmental Assessment)

process, to promote stakeholder involvement and to achieve timely

preparation of quality documents to inform leasing/licensing decisions..

• The Steering Group’s role is to:

⎻ Input to the scoping, consultation and methodology selection for the SEA

⎻ Critically review proposed data collection objectives, scope and methods

⎻ Participate in the assessment phase of the SEA

⎻ Critically review the drafts of the SEA documents

⎻ Promote stakeholder awareness and engagement in the SEA process

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Offshore Energy SEA Steering Group

• Dep. Business Energy Industry & Skills

• Department for Transport

• Department for Environment, Food &

Rural Affairs

• Department for Communities & Local Government

• Scottish Government

• Welsh Government

• The Crown Estate

• Centre for Environment, Fisheries &

Aquaculture Science (CEFAS)

• Marine Scotland

• Natural Resources Wales

• Natural England

• Scottish Natural Heritage

• Joint Nature Conservation Committee

• Environment Agency

• Marine Management Organisation

• Oil & Gas UK

• RenewableUK

• World Wildlife Fund (WWF)

• Scottish Environment LINK

• Wales Environment Link

• Royal Society for the Protection of Birds

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UK’s Crown Estate – De-risking

• The Crown Estate was proactive to de-risk Round 3

⎻ Aerial bird surveys of zones

⎻ Development of the consents framework

⎻ Funding for key agencies

⎻ Marine mammal survey and research strategy

⎻ Funding to support radar mitigation

⎻ Supply chain events to communicate to industry

⎻ Engagement with relevant bodies to undertake strategic planning for offshore grid

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UK- Offshore Wind Industry Council

• Co-Chaired by industry and UK Energy Minister

• Subgroups to discuss sector issues and solutions between industry and UK Government

• Develop coherent communication plans and public messaging

• Manage the offshore wind

programme board and a

series of ‘task forces’ to

investigate key issues

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Commercial Fisheries

• Key maritime stakeholder group with significant influence

• Consult and openly converse as early as possible and develop mitigation

• Examine records of typical catches, locations and quantity

• In necessary determine compensation

• There are benefits for

the industry

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Commercial Fisheries – UK Lessons

• Centre for Environment, Fisheries and Aquaculture Science (CEFAS) - principal source of advice to the government on marine environmental issues

• Fishing Liaison with Offshore Wind and Wet Renewables (FLOWW) group

• Appoint a Fisheries Liaison Officer and a Fishing Industry Representative

• Consult industry at site selection and project definition stage – ask opinions on plans

• Find mutually acceptable developments

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Thoughts for Taiwan - EIA

• Streamline consenting and approvals process

• Include social receptors within the EIA and SEA studies

• Statutory consultees and consultation process

• Better engagement earlier on in the process

• Include pre and post construction monitoring

• Huge knowledge bank of data and research in Europe – avoid unnecessary duplication of lessons and experience

• Revise the country’s SEA given the latest issues found

• Review EIA process after December – remove time pressure; this introduces high risk and could lead to deficiencies

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Concluding Remarks

• Remove the future uncertainties surrounding the industry – what’s next?

• Better consultation between government and industry stakeholders

• Understand the industry’s concerns and perceived risks

• Focus on finding solutions and reducing risk

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