How Can Taiwan Avoid an Energy Crisis?

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(AmCham Taiwan｜Contributing Writer: Angelica Oung) Last September, an article in Taiwan Business TOPICS posed the question of whether Taiwan is facing a looming power crunch. Just half a year later, the question has changed to “is Taiwan’s power crunch already here?” Indeed, the authorities have also rephrased their assurances from future tense (“Taiwan will not run short of electricity”) to present tense (“Taiwan isn’t short of electricity”). Despite the reassurances, repeated outages, pressure to curb consumption, and government projections all show that the adequacy of Taiwan’s power supply is becoming increasingly precarious.

A major blackout in early March added to the list of recent major outages, which also included two island-wide rolling blackouts that occurred within a week in May last year. Even before the March incident, however, AmCham’s 2022 Business Climate Survey found that energy security was a top-of-mind issue for members, with 61% asking the Tsai Ing-wen administration to prioritize energy even over COVID-19 pandemic control, cross-Strait relations, and trade agreements with the U.S. and other partners. A total of 78% of respondents expressed concern about power supply sufficiency, while 70.9% said they worried about the resiliency of Taiwan’s grid.

The three major blackouts, now known as 513, 517, and 303 for the dates on which they occurred, have been joined by a series of minor outages that have become a staple of media coverage.

“Power outages don’t mean we have a power shortage,” said Minister of Economic Affairs Wang Mei-hua in a recent television appearance. “Rather, we need to improve on aspects of our power delivery.” Operator errors, a fragile grid, and animal disturbance of electrical equipment are to blame, said the minister – not insufficiency of power generation.

Yeh Tsung-kuang, a professor at National Tsing Hua University’s Department of Engineering and System Science, disagrees. “Accidents have always happened, but now they have an outsized impact because we no longer have enough spare power capacity in our system to act as a buffer,” he says. As long as the government remains “in denial” about Taiwan’s “escalating power shortfall,” Taiwan’s power woes will only worsen, he adds. “As it is, it’s already too late for Taiwan to avert a crisis.”

To back up his assertion, Yeh points to a report on Taiwan’s electricity supply and demand published by the Bureau of Energy last May. Specifically, he points to a graph showing power-producing facilities that are slated to either go offline or be added to Taiwan’s grid through 2027.

Six more natural gas plants totaling 7.23GW should be completed according to the schedule. But Yeh warns that there is unlikely to be enough fuel to keep them running. “In a way, it doesn’t matter how many new natural gas generators we build,” he says. “Until 2025, we won’t be able to import enough gas to satisfy more than our existing generators.”

The use of natural gas for power generation is a crucial part of President Tsai’s energy policy. When she came into office in 2016, Tsai announced that nuclear power, which then accounted for 12% of Taiwan’s power mix, would be phased out by 2025. The use of dirty, polluting coal would decrease from around 45% to 30%. The proportion reserved for gas, which burns cleanly and releases only around half the greenhouse gas that coal does, would be raised from about 31% to 50%. The remaining 20% would consist of renewable energy sources.

For this “50/30/20 by 2025” plan to work, Taiwan will need to “step on the gas.” But every single molecule of natural gas coming to Taiwan will have to be in the form of liquefied natural gas (LNG), and the infrastructure to receive those shipments is already stretched thin.

Taiwan receives about 300 LNG shipments a year, according to a major energy executive who wishes to remain anonymous. “We can’t afford to miss a single one,” he says.

There are currently only two LNG receiving terminals in Taiwan, both operating at above 100% of their registered capacity. Together, they can hold around a 14-day supply of gas in the winter, and seven days in the summer, when demand is higher. It is impossible to safely reduce that reserve, the executive says. And at the earliest, relief will not come until 2025 when construction of the third LNG terminal, in Taoyuan’s Datan, is due to be completed.

Will a third terminal solve Taiwan’s gas shortage problem? Not completely. Ideally, six terminals would be required to accommodate the amount of natural gas Taiwan aspires to burn, while allowing a one-month supply of LNG to be kept in reserve. But the fourth and fifth receiving terminals have not yet emerged from the Environmental Impact Assessment planning stage, and the location of the sixth remains a question mark.

The problem has been years in the making. It seems that nobody in Taiwan wants to live near any kind of power infrastructure. Local NIMBY (“not in my backyard”) opposition and environmental concerns have been a potent combination that has stalled the construction of everything from LNG terminals to wind farms. It takes at least 48 months to build an LNG receiving terminal after all the permissions have been obtained, estimates the executive.

Delayed renewables

At the start of the Tsai administration, renewable energy was held out as the solution to the power production gap that would be left by the phaseout of nuclear energy. However, Minister Wang told the legislature in March that Taiwan would miss its target of renewable energy accounting for 20% of power generation by 2025; she subsequently lowered the expected proportion to 15%. “The goal for installed capacity remains unchanged,” said Wang. “The denominator just got bigger.”

In other words, Taiwan is projected to use a lot more electricity in 2025 than initially anticipated. The government has taken advantage of the U.S.-China trade dispute to welcome home manufacturers pulling up stakes from China or reducing the amount of production there. Amid a global chip shortage, Taiwan Semiconductor Manufacturing Co. (TSMC) and other semiconductor manufacturers also moved to expand production in Taiwan. Chipmaking is an especially energy-consuming industry.

In terms of solar energy, the government is retaining its goal of 20GW of installed capacity by 2025, and recently added a new goal of 30GW by 2030. These are ambitious targets that many in the solar industry consider unrealistic.

“Here we are in 2022 with around 8GWs, having already missed a number of previous goals,” says Lisa Cheng, head of Taiwan investment at Vena Energy, a renewable energy company with solar projects in Taiwan. “It’s not that government goals can’t be met, but we’re not going to do it under the current regulatory conditions.”

Developers of solar in Taiwan quickly discovered that it is almost impossible to build large-scale ground-mounted projects that are completed quickly and give the best returns. For example, the Council of Agriculture has blocked large solar projects that it believes encroach on its territory by taking up farmland, even if the land is not currently under cultivation. Instead, solar development in Taiwan has been relegated to initiating projects that are smaller and less controversial but also slower to install and less efficient, such as rooftop installations and aquavoltaics (solar panels placed above fish farms).

The situation never fully returned to normal after the 513 and 517 blackouts of 2021. Veteran energy reporter Liu Kwang-yin happened to be in the office of a petrochemical executive the day after the 303 blackout when an aide came in with a message from the Vice Premier: would the executive take a call from a manager at Taiwan’s state-owned energy utility, Taipower?

“Absolutely not!” said the executive unequivocally, “I won’t take calls from any of them!”

Liu, who wrote about the incident for Commonwealth Magazine, explains that Taipower was hoping to persuade the executive to cut production during peak hours, when demand on the grid is most likely to exceed supply.

There is already a “demand response” mechanism in place to tempt significant users to shift their power use to off-peak windows. Taipower offers a discount of up to NT$10 per kilowatt-hour (kWh), almost five times the usual commercial rate, for large users not to use power when the grid is likely to be stressed. But that is generally not enough of an incentive for industry, which loathes taking production offline.

“Each Taipower manager is responsible for negotiating with their own list of large users,” explains Liu. “They try to form relationships so that when push comes to shove, those large users are more inclined to help out.” The calls started around the time of the 2021 blackouts and have since become routine.

This is not the only extreme measure Taipower has taken to make electrical ends meet since the blackouts. If you live in Taiwan and notice your lights dimming slightly before returning to full strength, you are not imagining things. Taipower sometimes reduces the grid’s voltage as a last resort if the island is running low on power. Legally, it can drop the voltage by up to 3%.

“They are doing that more and more often, and it could harm appliances such as compressors for refrigerators,” says Yeh. “But what’s more serious is that it shows how tight the power supply already is right now.”

“What’s interesting is that the voltage reduction sometimes happens even while Taiwan’s grid is ‘green’ for adequate capacity,” says Liu. “Why is that?”

Electricity is a unique commodity that in practice must be produced just before it is consumed. (Although storage is a potential future option and battery technology for electric storage systems has advanced in recent years, such facilities are still too expensive and limited in capacity to have an impact at grid scale). Because of the disastrous consequences of demand outpacing supply, more electricity must always be produced than consumed. To ensure a surplus of energy, utilities such as Taipower maintain what is called an “operating reserve,” or the ability to generate power beyond the anticipated peak demand.

At an operating reserve of 10%, the grid is considered to be at a “green light.” When the operating reserve reaches 6-10%, the grid is at a “yellow light.” If it ever dips below 6%, that is grounds for an “amber light” and is considered an emergency. And yet, both the 513 and 303 blackouts happened during a “green light,” while only 517 occurred at a time of “yellow light.”

“The daily operating reserves are a sham,” says Yeh. “If you cannot ramp up a power-producing asset quickly, it shouldn’t be counted as operating reserves, but that is what Taipower does now as a matter of course.”

Power plants that are slow to ramp up and down, like coal or nuclear, are known as “baseload.” Plants like combined-cycle gas turbine facilities take a moderate amount of time to warm up and are considered “mid-load.” Finally, power sources that are quickly adjustable, such as hydroelectricity and open-cycle gas turbine generators, are considered “peak-load.” In order to maximize grid stability, operators generally rely chiefly on solidly-firing baseload generators, while leaving slack in the mid-load and peak-load for either unforeseen demand or an accident that unexpectedly interrupts power generation or transmission.

This scenario is not necessarily the norm in Taiwan, however. Because coal plants are so polluting and contribute to serious health complications for nearby residents, there is tremendous political pressure to burn as little coal as possible while vigorously turning to gas-fired plants to meet demand.

An unexpected surge in demand is the biggest challenge. If the source of the operating reserve is a combined-cycle gas plant, production can be ramped up in less than 30 minutes. But if the operating reserve comes from an inactive coal plant, it could take at least three to six hours before any electricity is produced – too long to prevent a blackout. Nevertheless, Taipower includes spare coal capacity in its daily operating reserves.

In the case of 513, even the hydroelectricity capacity in the operating reserve failed to come through. Taiwan was in the middle of a historic drought last spring, and Taipower was unable to use that reserve as nearly parched dams needed the water. Yeh estimates that if Taipower counted only capacity that could truly be dispatched in a timely manner in its calculation of the daily reserve, Taiwan’s operating reserve would be “under 6% most days.”

Taipower’s response

“I don’t think the media scrutiny is fair,” says Taipower Spokesman Chang Ting-shu. “If some bird strike causes a localized outage, that is seized upon as more proof that we’re out of power. The press magnifies every minor incident.”

The official Taipower response is that operator errors caused the 513 and 303 blackouts, while 517 was caused by “a faulty estimate of peak use” due to an unseasonably hot May last year. Basically, the utility denies that insufficient power supply was ever the issue for those events, though Chang confirms that Taipower does make calls to large users to request that they avoid using power at peak times.

“Demand response is a legitimate avenue of power management, something that advanced countries do and something Taiwan is trying to do more of,” he says. “It’s about shaving the peaks and filling in the valleys.”

As for voltage drops, Chang notes they have become less common this year, as the rainy 2022 Taiwan is enjoying allows for the liberal use of hydropower to bridge any last-minute gaps between supply and demand.

“It’s true that last year when it was very dry, we had a lot of difficulties,” says Chang. “Supply got tight, and we had to drop voltage quite a few times.” However, with the dams replete with water that can be used for hydroelectric generation almost instantaneously, he is cautiously optimistic. “I think we are going to be okay this summer,” he says.

To Liu of CommonWealth, it is not productive to dwell on whether Taiwan is indeed short on electricity. “If a household has to make calls every day to make sure they don’t default on their loans, we can argue whether that family is technically solvent, but obviously they are not in great financial shape,” she says. And just like a struggling household, the first order of business for Taiwan should be to implement some fiscal discipline. “There are so many things they should do, but the first must be to raise the price of electricity,” she maintains.

Tsing Hua’s Yeh, who is also a professor of nuclear engineering, has a different view. “The most obvious thing would be to not retire the power plants we plan to retire,” he says, suggesting Taiwan’s existing nuclear power plants could have their life extended by 20 years or more. “Many plants just like them have received such extensions in the U.S., but I’m afraid they’ll just extend the life of the coal plants instead.” Meanwhile, Vena’s Cheng posits that with greater political will from the government, renewable energy could be a more effective option. “Please give us the land and let us build,” she says. “We could be doing so much more, faster.”

(Source: https://topics.amcham.com.tw/2022/05/how-can-taiwan-avoid-an-energy-crisis/)