Market Series TAIWAN: 1Q2011 Changes to Taiwanese FiT creates new challenges and opportunities for PV market

Photograph: Gettys Images

Taiwan's Feed in Tariff was launched in 2009 to stimulate domestic demand and create a national PV market. However, major cuts to Taiwan's FiT announced in early 2011 have presented a whole new set of market challenges and opportunities.

Taiwan's PV market is dominated by upstream/midstream players with over 50 manufacturers of Ingots, Wafers, Cells and Modules exporting 98% of production, making Taiwan the second-largest global supplier after China (Taiwan Ministry Of Economic Affairs, 2011). The introduction of a generous FiT in 2009 was the catalyst for creation of a domestic PV market, but major cuts announced in early 2011 have dramatically altered the PV market landscape.

The Taiwanese FiT - Important Factors 

1. Major Cuts in FiT Rates for Solar PV
• Ground-Mounted rates (all sizes) slashed by 34% to US$ 0.252 per kWh
•  Roof-­Mounted (100-500 kW) rates cut to US$ 0.304 per kWh
• Rates will remain in place till at least December 31st, 2011 BUT FiT rate only applies from date of installation as opposed to date of contract signing
2. 2011 Quota for Solar PV is 70MW (10MW reserved for installations <10kW)
3. Power Purchase Agreement (PPA) is for 20 years with Taiwan Power (national utility)

(Above FiT Data is Compiled from Bloomberg & SolarServer.org, courtesy of MOEA)

 KEY CHALLENGES
Taiwanese Ministry of Economic Affairs (MOEA) has incorporated elements of a Competitive Bidding Process with some interesting provisos. I compiled the following data from a variety of sources including MOEA papers, Bloomberg, SolarServer.org and REcharge news.

  A.  Competitive Bidding Process 

o   For Solar PV Quota allocation, applicants bid a discounted rate (r) on prevailing FiT Rate (1)

o   Applications with highest discount win the Quota allocation

o   Thus, actual FiT Rate received is (1-r)

o   For applications with the same bid-discount rate (r), precedence is given to Roof-Mounted projects over Ground-Mounted.

B.   ‘Guarantee Deposit’

o   Open-bidders required to provide a “Guarantee Deposit” (GD) to ensure completion of allocated projects

o   GD equal to Proposed Installation Capacity (kWp) X NT$ 1000 (US$34.5) OR

o   Minimum of NT$ 1000 and Maximum of NT$ 1,000,000 (US$ 34,500) 

C.   Internal Rates of Return (IRR’s)

o   The Taiwanese Ministry of Economic Affairs (MOEA) has reduced FiT rates by about 30%, in line with falling module prices

o   MOEA has set a benchmark IRR of only 5.25% profit under revised scheme

D.  Competitive Landscape
           From my extensive research & analysis of the Taiwanese Solar PV industry I found that:

o   Majority of Taiwanese PV Companies are focused on upstream/midstream manufacturing, but there is an increasing trend towards vertical integration

o   Trend signals that local manufacturers are swiftly developing capacity in Planning & Design, EPC, Project Development & Financing and O&M 

Based on my significant previous experience in the Taiwanese market, I observed that: 

 

o  Taiwan is a price-sensitive market where local manufacturers will enjoy competitive cost-advantages over foreign manufacturers

ARISING OPPORTUNITIES 

Having completing an in-depth analysis of the Taiwan Solar PV market I firmly believe there to be interesting opportunities for specific market-segments particularly for downstream players. Tailoring strategy to fit the unique characteristics of the Taiwanese PV market (and arising opportunities) will be essential for successful market-entry, but finding the right local partners will be a key challenge.

      1.         Commercial & Industrial Rooftop market segment of 100kW – 499kW

o   FiT structure encourages Direct Ownership model- commercial & industrial rooftop customers can turn annual energy cost into a higher annual income

o   Value-proposition for customers involves using 5.25 % IRR (profit) on cash flows to offset current energy spend and develop a long-term revenue center after PV system costs are recouped within 8 – 10 years.

     2.         EPC / Planning & Design Contracts

o   Solar Companies with an EPC / Project Development Business Model (BM) will be most likely to succeed as the EPC BM allows for agility in responding to industry price shocks and greater freedom to source price-competitive modules for price-sensitive project bids.

o   As Taiwanese manufacturers move towards Vertical Integration, the domestic market is also developing at a good pace, with several 200- 500 kWp systems currently under construction across the country

o   For Solar PV EPC Companies there will be several opportunities to collaborate with local System Integrators, Project Developers, Investors and Manufacturers within Commercial/Industrial Rooftop segment

o   Key will be to forge partnerships with local players to add-value on PV System Planning & Design/ Engineering & Procurement/ Operations & Maintenance, however actual construction should be outsourced to a local third-party

            Based on my knowledge of Taiwan's geography and Industrial landscape, I have outlined several potential clients within the Commercial & Industrial sectors, including location-specific dispersion:
 

3.        Commercial/Industrial Rooftop Segment – Targeted Sectors

o   Industrial

-Warehouses (Taipei County)     - Factories & Manufacturing Facilities (Kaohsiung, Southern Taiwan)   -Industrial Parks (Hsinchu)  -Storage Facilities  (Taipei City)

o   Logistics

-Distribution Centers (COSCO)     -Export Clearing Centers   -Logistics Hubs (Kaohsiung Port)     - Transport Depots (MRT Stations/ Bus Interchanges)   -High-Speed Rail Stations (Taipei Main Station, TaoYuan Airport, Taichung, Tainan, Kaohsiung)

o   Agriculture (Taichung- Central Taiwan)

-Farms    -Grain Silos    -Food Processing Centers  

o   Universities 

- NTU    -Cheng Kung University  -Taichung University  -University Car-Parks (Solar Trees)

o   Government

  -Military Bases  -Army Barracks  -Naval Bases  -Government Tenders