What are the risks of investing in offshore wind in Taiwan?
The offshore market in Taiwan is becoming an increasingly popular choice for investors and developers, as falling prices and tough competition make Europe less attractive. However, are the risks associated with the country worth the potentially high returns? Ilaria Valtimora reports.
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The Asian island nation of Taiwan is currently among the most promising emerging markets for offshore wind, if not the most, and European developers and investors have been competing to secure a piece of the action for themselves.
Companies including Ørsted, Copenhagen Infrastructures Partners and Wpd were the biggest winners. European firms have been lured by excellent wind resources – speeds in the Taiwan Strait are around 12m/s – and high guaranteed power prices. As profit margins in their home markets have been squeezed by falling prices and competitive auctions, we understand why these companies have been looking at Taiwan as a very attractive investment opportunity.
In April and June, the government awarded the right to connect offshore wind projects totalling 5.5GW to the national grid. You can find out more about the winning projects in our Q3 Finance Quarterly report.
All in all, Taiwan would seem to present a golden opportunity to investors and developers alike.
However, beneath the seemingly alluring surface lurks a darker side to the story.
Typhoons, earthquakes, soil liquefaction and war. These are just some of the risks that wind developers and investors are set to face in Taiwan.
Such risks might be considered too high a price to pay for investing in the country’s offshore wind sector. However, as falling prices and tough competition in Europe have squeezed profit margins, some may have been forced into taking risks they otherwise wouldn’t, in order to secure higher returns.
“There are quite a few risks involved in Taiwan that you won’t see elsewhere”, says Robert Bates, offshore wind underwriter at GCube Insurance. This is because Taiwan has a peculiar natural catastrophe exposure, which includes typhoons, earthquakes and soil liquefaction. Bates explains that soil liquefaction occurs following an earthquake in sandy and clay environments, including the Taiwan Strait. This means that, after an earthquake, the seabed could rapidly transform in quicksand, sucking in wind turbine foundations.
Political and economic issues
On top of that, as exports account for two thirds of Taiwan’s trade-reliant economy, it is also highly vulnerable to protectionist policies from the US and increasing competition from Chinese manufacturers.
Lack of infrastructure
Finally, French insurance company Compagnie Française d'Assurance pour le Commerce Extérieur has argued that Taiwan lacks infrastructure compared to other advanced Asian economies, and is increasingly isolated on the international diplomatic scene. These are among the major barriers facing investors in Taiwan.