Invest in TaiwanDepartment of Investment Services, MOEA
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The energy sector plays an especially critical role in Taiwan's economic development, given the fact that Taiwan has very limited domestic energy resources and relies on imports for most of its energy requirements. As of Q1 2007, Taiwan's energy mix was primarily comprised of oil (50.9 percent) and coal (32.3 percent), followed by natural gas (8.1 percent), nuclear power (7.3 percent) and hydroelectric power (1.4 percent). In terms of consumption for the same period, the industrial and transportation sectors accounted for the greatest total energy demand at 58.7 percent and 15.5 percent respectively; residential use accounted for 11.1 percent; commercial use stood at 5.6 percent; and agriculture demand only accounts for 1.0 percent.
Oil remains the most important energy source. Taiwan had reduced its dependence on oil by following an energy diversification policy in the wake of the oil crises of the 1970s, but the accompanying effort to diversify foreign sources has, despite its earlier success, proved less effective as market liberalization in 2001 saw a shift back to the Middle East for supply. The result was a sharp increase in that region's share of Taiwan's crude oil purchases from 60 percent in 1999 to 77 percent in 2004. Oil is refined by three refineries belonging to the state-run China Petroleum Corporation and the privately operated Formosa Petroleum Corporation (FPC), a subsidiary of the Formosa Plastics Group. Industry and transportation account for about 80 percent of oil consumption.
For coal, Taiwan is completely dependent on imports, having closed its last mine in 2001. In 2004, it imported 61 million metric tons of coal, mainly from Australia, China, and Indonesia. Power generation accounted for 75 percent of the coal used in Taiwan, as well as three-quarters of the natural gas. Taiwan imported 92 percent of the 9.78 billion cubic meters of natural gas it used in 2004, with Indonesia and Malaysia its major suppliers of liquefied natural gas (LNG).
Demand for power supply has risen with industrial and commercial growth. Electricity generation climbed 4.4 percent from 2003 to total 218.4 TWh (terawatt-hours) in 2004. The state-run Taiwan Power Company (Taipower) is supplemented by private corporations that have developed cogeneration systems and sell surplus electricity to Taipower. To maintain a stable power supply, the MOEA has opened the market to independent power producers and allows 100 percent foreign investment in such operations. As of 2004, Taipower had 69 power plants, including three nuclear power stations housing six units that produced 18.08 percent of Taiwan's total electrical power in 2004. New hydro projects, Kukuan Power Plant Rehabilitation Project and Bihai Power Project, were slated for operation in 2007 while the Sibao Power Project is expected to go online by 2009.
Prior to the construction of the Mailiao refinery, Taiwan imported refined petroleum products in significant quantities. Currently, Taiwan's refining capacity exceeds its domestic consumption, making Taiwan a net exporter of petroleum products. According to CPC and FPC figures 2006 figures, Taiwan had a total refining capacity of 1.2 million barrels per day (Mmbbl/d) at four facilities: CPC's Kaohsiung (270,000 bbl/d), Ta-Lin (300,000 bbl/d), and Tau-Yuan (200,000 bbl/d) plants as well as FPC's Mailiao refinery (450,000 bbl/d). In August 2006, FPC completed an upgrade at its Mailiao facility, bringing the refinery's capacity to 520,000 bbl/d. Both CPC and FPC are considering building additional new refineries or expanding upon existing plants.
The Bureau of Energy (BOE), under the Ministry of Economic Affairs (MOEA), is Taiwan's government authority responsible for developing and implementing energy policy. Formulated to encourage energy resource diversification and reduce dependence on foreign energy, the current energy policy has three primary objectives:
In line with these objectives, the BOE has launched several renewable energy development initiatives. Research programs into fuel cells, solar cells, bio-diesel, and wind power have been awarded to top energy-related research institutes such as the Industrial Technology Research Institute (ITRI) and the Institute of Nuclear Energy (INER).
In late June 2005, the following resolutions were put forth at Taiwan's National Energy Conference:
Although Taiwan is not a signatory of the Kyoto protocol, the government is working to reduce carbon dioxide emissions. In June 2005, the Ministry of Economic Affairs (MOEA) announced plans to cut carbon dioxide emissions by 170-million metric tons per year as of 2025. The MOEA plans to impose restrictions on emissions from Taiwan's top 200 energy consumption enterprises, initially requiring enterprises to establish voluntary reduction volumes and then requiring them to decrease the density of their carbon dioxide emissions by 10 percent and 16 percent in the medium term (2008-2015) and long term (2016-2025).
Taiwan's energy market is almost fully open to foreign investment. Wholesale gasoline and diesel fuel markets were liberalized in June 2001, while imports of all petroleum products were permitted at the end of 2001. In January 2002, foreign investors were permitted to hold 100 percent of the stock of Independent Power Producers (IPPs). At present, the two state-owned enterprises, Chinese Petroleum Corporation (CPC) and Taiwan Power Company (TPC) are still the main suppliers of oil products and electricity in Taiwan. As state-owned companies, TPC and CPC procure materials, equipment, engineering services, and construction services according to the Government Procurement Law (GPL, also referred to as the Government Procurement Act, GPA).
Taiwan aims to increase efficiency in the energy sector by utilizing the most advanced oil refining, power generation and power consumption technologies. The following areas provide a summary of business and investment opportunities related to Taiwan's energy sector.
International companies have long been active in engineering and construction work on CPC's and FPC's oil-refining projects. Other international companies with competitive advantages in process engineering, instrumentation, and systems integration, have also played an important role in these projects.
International companies are key suppliers for CPC, TPC and FPC power generation projects, especially turbines and generator sets used in hydro power generation, major equipment for fossil fuel-fired power generation, and most equipment used in nuclear power plants.
The Taiwan government encourages the use of renewable energy sources, including wind power, solar energy and biomass. It expects these sources to account for 10 percent of the country's generation capacity by 2010. Moreover, the Bureau of Energy has identified the following seven green energy industries as priorities for further market development: photovoltaic, solar water heating systems, wind power, biodiesel, hydrogen energy and fuel cells, light emitting diodes (LEDs) and energy-saving refrigeration and air conditioning. With the support of the Ministry of Economic Affairs, the value of Taiwan's green energy market could reach an estimated $5.8 billion by 2010. The following offers a snap shot of renewable energy areas with development and investment potential in Taiwan:
Taiwan's position within the global semiconductor and flat panel display sectors, along with its significant pool of talent in these areas, provides unique opportunities to leverage existing capabilities to develop solar energy technologies. Taiwan is already excelling in the production of solar batteries, ranking among the world's top-ten suppliers. E-ton Solar Tech, one of Taiwan's major solar cell makers, announced in late February 2007 that it had signed a technical cooperation agreement with the University of New South Wales (UNSW) in Australia to develop and manufacture high-efficiency solar cells. Dupont also recently formed a solar cell laboratory in Taoyuan, and counts Motech and E-ton, as its clients. These solar energy developments have not gone unnoticed by semiconductor giants UMC and Mosel Vitalic and display panel leader AU Optronics, all of which have investment plans for the solar energy area. While the production value for the solar energy industry totaled just NT$30 billion in 2006, the sector is quickly growing and slated to become a key performer. Thus, Taiwan's first "Solar City" at the Southern Taiwan Science Park (STSP) is expected to receive government approval as a national-level plan this year (2007), with construction starting soon thereafter.
Since 2001, Taipower has installed eight wind-powered generators on Penghu, and in 2004 the main island's first commercial wind farm — located in Shihmen Township, Taipei County, and built by Taipower — went online. New plants in Hengchun and Taoyuan County are operational and expected to contribute one quarter of the nation's wind-powered energy capacity by 2010. In April 2006, German company InfraVest Wind Power Group's 25 wind turbines began operation in Houlung and Chunan Townships, Miaoli County. With a total capacity of 49.8 megawatts, the largest in Asia, the wind farms are able to power 50,000 households. Wind-powered plants in Taichung and Changpin Industrial Park in Changhua are slated to be operational in two years. Two other wind-power investment projects, UK company Asia Wind Power's investment in the Luwei Wind Power Generation Company and the Dutch-invested Guoguang Power in Guansii were approved in late 2006.
Taiwan is still examining the benefits of bio-ethanol and bio-diesel. More efforts are likely to be focused on bio-ethanol, however, which may be more suitable for Taiwan because of its climate for growing crops such as sugar cane. More research needs to be conducted to improve crop yields, however. Research is also being conducted into converting rice straw, a by-product of Taiwan's rice harvests, into bio-ethanol. As these technologies mature, other challenges will be to develop effective collection systems to ensure that they do not negate the benefits of developing biofuels. In line with this thinking, Taiwan's Environmental Protection Administration in conjunction with local bureaus has started collecting kitchen grease to be converted into bio-diesel for the trucks used in Taiwan's well-known recycling system. Another largely untapped resource for renewable energy is methane gas extraction from the manure of Taiwan's 10 million pigs. While Taiwan is developing technology for processing manure, international companies have expertise and working models of the technology, which could be used in Taiwan.
As fuel cell technology continues to develop and mature, local companies are interested in the OEM and ODM markets for fuel cell adopters. Taiwanese firms are increasingly seeking co-operative ventures with international firms. Based on Taiwan's production strengths and the characteristics of its market, fuel cell firms may find opportunities for cooperation in a number of fields, such as electric scooters, portable electronic devices with fuel cell power packs and fuel cell power generation units.
According to CommonWealth Magazine, Taiwan currently leads the world in LED production volume, having accomplished this on the strength of its tightly vertically integrated industry chain. Taiwanese industry is thus shifting its focus to LED, with companies such as HonHai, Chi Mei Optoelectronics, AU Optronics, and UMC entering the LED field through reinvestment projects.
Sources: MOEA: Bureau of Energy, and Department of Investment Services; EPA, GIO: 2005-2006 Taiwan Yearbook and National Review, Taipei Times, CommonWealth Magazine, ECCT, Encyclopedia of Earth - Taiwan Energy Profile
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