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The surging demand of green energy in Taiwan will drive the T-REC price up in the near term
09 March 2021Shan Xue
After several years of regulation amendment, Taiwan's first
renewables indirect supply transaction was fulfilled in 2020,
signifying the establishment of renewables trading market.
Nowadays, developers can trade renewables either on the
conventional market to Taiwan Power Company (Taipower) at approved
feed-in tariffs (FITs) or auction-awarded prices or on the
liberalized market to end users at a bilaterally negotiated tariff
without any price restrictions. Switching between the two markets
is also legitimate.
The deregulated renewables trading market provides a sourcing
path for green power demanders through the Taiwan Renewable Energy
Certificate (T-REC).[1] Purchasing renewables from large power
generation farms combined with T-RECs via bundled corporate power
purchase agreements (CPPAs) is anticipated to be mainstream in
terms of transaction volume. And the demand and supply balance for
wheeling renewables will play a decisive role in T-REC price
setting.
Demand for renewables is expected to soar driven by both
mandatory renewable portfolio standard (RPS) requirements and
voluntary green power procurement. From 2021, large electricity
consumers with more than over 5 MW contracted capacity are
obligated to achieve a 10% RPS renewable portfolio standard within
five years by setting equipment or procuring renewable
certificates. In fact, to increase long-term industrial
competitiveness, many enterprises located in Taiwan have raised
more challenging renewables procurement targets than the
government's requirements. In 2020, Taiwan Semiconductor
Manufacturing Company (TSMC), the world's biggest chipmaker and a
giant electricity consumer, joined RE100.[2] and pledged to use 100%
renewables by 2050. Given TSMC and other RE100-related companies'
commitments, as well as the large user regulation's impacts, IHS
Markit estimates the entire market is calling for about 4.5 TWh of
renewable energy supply in 2025, translating to 3.6 GW of solar
photovoltaic (PV), or 1.2 GW of offshore wind capacity.
According to IHS Markit outlook, cumulative renewable capacity
is projected to achieve more than 25 GW in 2025, with solar,
offshore wind, and onshore wind accounting for 68.3%, 17.3%, and
3.1%, respectively. However, whether there will be enough supply to
satiate the skyrocketing green power demand by 2025 lies in
developers' willingness to join the deregulated market. The go-to
market strategy may vary by technologies and contract statuses. New
project developers and tender winners might be more profitable in
the liberalized market owing to shrinking FITs and very low auction
awarded prices. However, for most developers already signed utility
power purchase agreement (UPPAs), it might not be worthwhile to
switch markets considering the costs of terminating contracts,
possible financial risks, and complicated legal issues. IHS Markit
anticipates this nascent renewable trading market will be tightly
balanced until the injection of auctioned awarded offshore wind
from 2025. T-REC price, therefore, is predicted to fluctuate at a
high level under market forces, with the ceiling at about 4.1 New
Taiwan dollars per kWh.
Shan Xue is a principal analyst on the Climate and
Sustainability team at IHS Markit and focuses on Asian power market
modeling.
Posted on 9 March 2021.
[1] One
T-REC represents one megawatt-hour (MWh) of renewable energy.
[2] Led
by the Climate Group in partnership with Carbon Disclosure Project
(CDP), RE100 is a global initiative bringing together the world's
most influential businesses driving the transition to 100%
renewable electricity.
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