VZCZCXRO6143
PP RUEHCN RUEHDH RUEHGH RUEHHM RUEHPB RUEHSL RUEHTRO
DE RUEHIN #0205/01 0570926
ZNY CCCCC ZZH
P 260926Z FEB 10  ZDK UR SVC MSG 1805
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC PRIORITY 3407
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE PRIORITY
RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUEHKO/AMEMBASSY TOKYO PRIORITY 1038
RUEHUL/AMEMBASSY SEOUL PRIORITY 0500
RUEHRL/AMEMBASSY BERLIN PRIORITY 0187
RHMFISS/HQ EPA OIA WASHINGTON DC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
RHEFDIA/DIA WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RHHJJAA/JICPAC HONOLULU HI PRIORITY
RHHMUNA/USPACOM HONOLULU HI PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEKJCS/SECDEF WASHINGTON DC PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 05 TAIPEI 000205 
 
SIPDIS 
 
STATE FOR EAP/TC, IO, OES/EGC, OES/ENV, OES/PCI, OES/STC, 
EPA FOR KASMAN, TROCHE AND HARRIS, DOE FOR INTERNATIONAL, 
COMMERCE FOR 4431/ITA/MAC/AP/OPB/TAIWAN 
 
E.O. 12958: DECL: 02/25/2020 
TAGS: SENV ECON ENRG EINV TRGY PREL TSPL TW XE
SUBJECT: HAS TAIWAN PRICED ITSELF OUT OF THE ALTERNATIVE 
ENERGY MARKET? 
 
REF: A. 09 TAIPEI 1243 
     ¶B. 09 TAIPEI 1383 
     ¶C. TAIPEI 0147 
 
TAIPEI 00000205  001.2 OF 005 
 
 
Classified By: Economic Chief Hanscom Smith for reasons 1.4 (b) and (d) 
. 
 
¶1. (SBU)  SUMMARY:  As part of a multi-pronged strategy to 
meet the Ma administration's greenhouse gas (GHG) reduction 
targets, Taiwan authorities plan to increase the island's 
alternative/renewable energy installed capacity from the 
current 8 percent to 15 percent by 2025.  To achieve this 
goal, Taiwan has mandated that Taipower, the island's 
state-owned energy supplier, purchase renewable energy at 
fixed wholesale prices from producers.  In January, the 
authorities announced a list of wholesale prices for 
renewable energy.  The list quickly came under fire from 
energy experts, academics, and renewable energy producers, 
who charged that the rates were not high enough to make 
renewable energy investment profitable.  Although the 
authorities continued to express public optimism that the 
rates would attract investment, there have been no public 
announcements of new renewable energy projects in Taiwan 
since the rates were published, and the largest wind power 
investor in Taiwan recently announced it would cease 
operations on the island.  Although the authorities are 
investing billions of U.S. dollars in developing Taiwan's 
green energy technologies industrial base, critics contend 
that low wholesale prices for renewable energy show that the 
authorities are more interested in the commercial potential 
of renewable energy technologies, rather than in their 
potential to reduce the island's own GHG emissions.  END 
SUMMARY. 
 
------------------ 
HITTING THE TARGET 
------------------ 
¶2. (SBU)  On a per capita basis, Taiwan ranks among the 
world's twenty largest emitters of greenhouse gases (GHG), 
ahead of South Korea, Japan, and the OECD average.  The 
majority of Taiwan's GHG emissions (65 percent) come from the 
energy sector, where fossil fuels are burned to supply over 
90 percent of the island's energy needs.  In order to hit GHG 
reduction targets set by the Ma administration, which aims to 
bring Taiwan's emissions to 2005 levels by 2020, to 2000 
levels by 2025, and to 50 percent of 2000 levels by 2050, 
Taiwan must increase energy efficiency across the board, 
decouple GDP growth from energy demand growth, and, in 
particular, reduce its dependence on fossil fuels. 
 
----------------- 
GOING ALTERNATIVE 
----------------- 
¶3. (SBU) Among the strategies proposed to achieve GHG 
reduction targets, officials and industry have focused their 
attention on proposals to promote alternative/renewable 
energy development.  In part, their attention has been drawn 
by the authorities' much-publicized plan to invest USD 1.5 
billion in developing Taiwan's "green technologies" 
industries (refs).  This plan is expected to attract an 
additional USD 6.25 billion in domestic and foreign 
investment over the next five years and create 110,000 new 
jobs.  The Taiwan Environmental Protection Administration 
(TEPA) has worked to leverage widespread support for this 
industrial development plan into support for policies that 
would increase the installed capacity of renewable energy 
resources in Taiwan.  TEPA's efforts, the Ma administration's 
directive to executive-level agencies to develop plans for 
reducing GHG emissions, and a large, powerful group of Taiwan 
corporations that have bought into the "green zeitgeist" all 
work to give the impression that Taiwan is moving 
 
TAIPEI 00000205  002.2 OF 005 
 
 
aggressively and successfully toward building a "low-carbon 
society" underpinned by the extensive use of renewable 
energy. 
 
¶4. (SBU)  Indeed, the Bureau of Energy has published 
renewable energy targets for 2015 and 2025 which aim for at 
least 15 percent of all installed capacity to consist of 
renewable sources.  Most experts argue, however, that, even 
under ideal conditions, less than 40 percent of the installed 
megawatt (MW) capacity could actually be produced, meaning 
that far less than 15 percent of Taiwan's energy supply would 
come from renewable sources, even if the targets were met. 
Currently, hydropower, wind, biomass, solar, geothermal, and 
ocean energy represent about 8 percent of all installed 
capacity in Taiwan, equal to 3,073 MW, but actually supply 
less than 0.5 percent of Taiwan's energy.  BOE's installed 
capacity targets for 2015 and 2025 are: 
 
Year 2015 
 
Hydro:      5.1 percent 
Wind:       3.4 percent 
Biomass:    1.9 percent 
Solar:      0.7 percent 
Geothermal: 0.0 percent 
Ocean:      0.0 percent 
 
Total:      11.2 percent (4,972 MW) 
 
Year 2025 
 
Hydro:      4.4 percent 
Wind:       5.3 percent 
Biomass:    2.5 percent 
Solar:      1.8 percent 
Geothermal: 0.3 percent 
Ocean:      0.4 percent 
 
Total:      14.7 percent (8,450 MW) 
 
¶5. (SBU)  In order to meet these targets, the authorities 
have employed strategies, including subsidizing private 
individuals to purchase and install solar panels, directing 
the Industrial Technology Research Institute (ITRI) to focus 
R&D on increasing the efficiency of green energy 
technologies, encouraging official entities such as the 
Institute of Nuclear Energy Research (INER) and Taipower, the 
state-owned energy supplier, to set up renewable energy 
demonstration projects, and passing legislation to expand 
domestic use of renewable energy.  Of these strategies, TEPA 
Minister Stephen Shen has said the single most important tool 
for increasing renewable energy development and use in Taiwan 
is the Renewable Energy Development Act (REDA), which passed 
the Legislative Yuan in July 2009. 
 
----------------- 
REDA GOES TO WORK 
----------------- 
¶6. (SBU)  REDA's stated goals are to "promote the utilization 
of renewable energy, increase energy diversification, improve 
environmental quality, energize related industries, and 
enhance national sustainable development."  The means for 
achieving these goals, per the language in REDA, are: 1) 
Mandating that Taipower purchase alternative energy; and 2) 
Creating a Renewable Energy Development Fund, which will 
receive financial contributions from power utilities using 
fossil and nuclear fuels, and these contributions will be 
used to subsidize both the wholesale price of renewable 
energy and the purchase of renewable energy equipment. 
(Note: A schematic showing how funding would flow into and 
out of the Renewable Energy Development Fund is available on 
 
TAIPEI 00000205  003.2 OF 005 
 
 
the Department of State Communities "Made in Taiwan" blog, in 
the ESTH section.  End Note.) 
 
¶7. (SBU)  From July-December 2009, a committee of 19 experts 
from ministries and academia, organized through BOE, met a 
total of five times to discuss wholesale pricing for 
renewable energy, and also held a series of public hearings. 
On January 25, 2010, the committee announced its "2010 
feed-in tariffs for renewable energy," and revealed its 
pricing calculation formula.  The "feed-in tariff" (FiT) is 
the wholesale price that Taipower would pay to renewable 
energy producers.  The committee explained that rates would 
be reviewed annually and could be adjusted, and that any 
project built in a given year would have that year's FiT rate 
locked in for 20 years. 
 
¶8. (SBU)  The rates announced for 2009-2010 (converted into 
USD at a rate of 32:1) were: 
 
- Solar Energy: Between USD 0.35 and USD 0.41 per kilowatt 
hour (kWh), depending on the amount of electricity the device 
can produce under ideal conditions, i.e., peak output; 
 
- Wind Power: Between USD 0.07 and USD 0.23 per kWh, 
depending on whether the system is on- or off-shore and peak 
output.  Most wind power devices would fall into the USD 0.07 
per kWh category; 
 
- Geothermal: USD 0.16 per kWh; 
 
- Waste Power: USD 0.07 per kWh; 
 
- Hydropower, Biomass, all others: USD 0.06 per kWh. 
 
¶9. (SBU)  Officials at BOE noted that if the costs of the 
feed-in tariff are passed on to consumers, this would lead to 
a rise in electricity rates of about USD 0.11 per household 
per month.  A poll conducted last year by Shih Hsin 
University showed that 90 percent of respondents island-wide 
were willing to pay higher electricity prices to support 
developing renewable energy. 
 
¶10. (SBU)  Under the provisions of REDA, Taiwan will use the 
FiT mechanism to subsidize renewable energy up to an 
installed capacity of 10,000 MW.  Official estimates claim 
the FiT will lead to installation of at least 6,500 MW of 
renewable capacity by 2030, which would reduce CO2 emissions 
by over 125 million metric tons over the next 30 years. 
 
----------------------- 
PRICES NOT HIGH ENOUGH? 
----------------------- 
¶11. (C)  Contacts in renewable energy industries, including 
solar cell and wind power component manufacturers, told us 
throughout the summer and fall of 2009 that the FiT rates the 
BOE committee was contemplating were too low, and would not 
only discourage new investment in the renewable energy 
sector, but could also cause current investors to pull out. 
Most blamed the influence of Taipower, which, contacts 
claimed, had little to gain from expanding renewable energy. 
Taipower, they argued, would rather see the expansion of 
liquefied natural gas, traditional fossil fuels, and nuclear 
energy, because Taipower directly owns and operates plants 
using these energy sources.  A number of renewable energy 
producers added that low FiT rates reflected BOE's desire to 
sacrifice development of renewable energy for increasing 
nuclear power, which is produced and distributed by Taipower, 
and which the Taiwan authorities consider to be a form of 
alternative energy.  Chen Tian-jy, who served as chairman of 
the Council for Economic Planning and Development (CEPD) in 
2008-2009, told us he believed Taipower was discouraging the 
 
TAIPEI 00000205  004.4 OF 005 
 
 
development of alternative energy in a bid to maintain its 
monopoly on power provision, and the utility's financial ties 
to politicians helped support this policy.  Meanwhile, Taiwan 
EPA Minister Stephen Shen, the island's leading high-level 
supporter of the FiT mechanism for promoting renewable 
energy, has complained to us on multiple occasions that 
Taipower's sclerotic bureaucracy and political clout are the 
largest obstacles Taiwan faces in increasing renewable energy 
production. 
 
¶12. (SBU)  When the FiT prices were announced, wind power 
suppliers in particular complained they were too low.  Groups 
led by Germany's InfraVest Wind Power, which has invested 
more than USD 310 million in Taiwan over the last nine years, 
protested outside the Executive Yuan, claiming that Taiwan 
was essentially saying "no" to renewable energy.  InfraVest's 
local vice general manager, Wang Yun-i, noted that Taiwan's 
feed-in tariff rate for wind power was well below the global 
average, and lower even than rates in the PRC.  On February 
25, InfraVest announced it would pull out of Taiwan and shift 
its business to Fujian, PRC. 
 
¶13. (C)  BOE Director General Yeh Huey-ching responded to 
criticism from industry, academia, and the NGO community, 
arguing that Taiwan's pricing formula was fair, and offered a 
generous rate of return for energy producers.  For solar 
energy, according to BOE figures, Taiwan's current FiT would 
allow producers to achieve investment payback in 10-15 years, 
depending on location and variability in sunlight.  Yeh 
emphasized that the FiT rates will be revisited annually and 
could be adjusted upward, a given year's rate is fixed for 20 
years, and mathematical models used by the BOE commission 
show that Taiwan's FiT compares favorably to FiT rates around 
the world.  Yeh added that following the announcement of 
Taiwan's FiT rates, foreign firms began expressing interest 
in making renewable energy investments in Taiwan. 
 
¶14. (C)  Shortly after the FiT rates were announced, TEPA 
invited a group of German experts as keynote speakers to the 
February 9 "International Symposium on Renewable Energy 
Development and its Implications for Building a Low-Carbon 
Society in Taiwan."  TEPA Minister Shen told us he hopes the 
German experts can provide long-term "consulting" services to 
Taiwan as the island moves to implement and "improve" its 
feed-in tariff system.  In private conversations with us, the 
German experts noted that Taiwan officials seemed overly 
concerned with building a complex pricing system for 
renewable energy, and should have instead focused more 
closely on getting the prices right.  Dr. Volker Oschmann of 
the German Federal Ministry for Environment, Nature 
Conservation, and Nuclear Safety opined that Taiwan 
authorities should have created a basic and transparent 
mechanism that guaranteed potential investors would be able 
to operate profitably.  Oschmann and his colleagues told us 
they were not convinced that the current FiT rates would 
allow renewable energy companies to pass the "profitability 
threshold" in Taiwan. 
 
¶15. (C)  Meanwhile, a visiting expert from the U.S. 
Department of Energy's Brookhaven National Laboratory 
commented that Taiwan's focus on setting prices for renewable 
energy was misplaced.  He argued that Taiwan should instead 
work to "overhaul its entire energy pricing system," which he 
described as irrational and inefficient.  Daigee Shaw, 
president of the influential Chung-Hua Institution for 
Economic Research (CIER), agreed, telling us that a feed-in 
tariff system was only a "third-best policy" for promoting 
renewable energy in Taiwan, behind energy taxes and 
competitive bidding for renewable energy projects.  Shaw 
argued that feed-in tariffs would simply encourage 
low-efficiency firms to enter the market, and would 
 
TAIPEI 00000205  005.2 OF 005 
 
 
discourage innovation by protecting chosen technologies. 
 
-------------------------- 
COMMENT: SAVING THE WORLD? 
-------------------------- 
¶16. (SBU)  In the ongoing debate over Taiwan's FiT rates, one 
could point to the old adage that actions speak louder than 
words.  If the tariff was high enough to offer a reasonable 
rate of return, and the funding mechanism was correctly 
structured, then business investment should follow.  So far, 
however, the largest wind power investor in Taiwan has pulled 
out, and no new renewable energy producers have announced 
they are planning to produce for the Taiwan market.  Critics 
of the FiT rates say the "proof is in the pudding," and 
supporters of the current rates have been hard pressed to 
make an effective counter-argument.  Although there is a 
mechanism in place to adjust rates upward one year from now, 
mounting pressure from foreign experts, local academics, 
Taiwan EPA, and especially potential investors could push BOE 
officials to revisit the pricing formula earlier. 
 
¶17. (C)  In an interesting side-bar, Minister without 
Portfolio and energy expert Liang Chi-yuan recently noted 
that there are several "limiting factors" to Taiwan's 
domestic use of alternative energy, including geography, 
climate, and residential housing patterns, and renewable 
energy could only ever make a small dent in Taiwan's GHG 
emissions.  Liang said that in light of this fact, Taiwan's 
aggressive promotion of renewable energy is aimed not so much 
at increasing domestic use of solar, wind, and other 
renewables, but instead at stimulating Taiwan's photovoltaic 
(PV) and other "green energy" industries.  Indeed, major 
Taiwan companies such as TSMC, AU Optronics, and Hon Hai have 
all recently announced investments in PV cell and module 
manufacturing, with the stated goal of grabbing market share 
overseas.  Liang, perhaps noting that his comments could be 
read as downplaying the importance of environmental issues 
vis-a-vis economic development, quickly added that even if 
Taiwan doesn't expand its own use of renewable energy by very 
much, increasing production and export of green energy goods 
could help Taiwan "save the world." 
STANTON