Scott Hsu, Head of Taiwan and the Philippines at K2 Management, provides insights into the development of the offshore wind industry in both regions.
As the project director for Formosa 1 - the first offshore wind project in Taiwan - Scott has witnessed the industry’s evolution from its inception.
He discusses recent developments in Taiwan, including the shift to Corporate PPAs, the relaxation of localization requirements, and the challenges the sector has faced in recent years. Additionally, he highlights the rapid growth of the offshore wind industry in the Philippines, where numerous developers are actively investing in the sector.
Benjamin: [00:00:00] Hello everyone. I'm Ben.
Yiou: Welcome to Sustainable Energy Asia Podcast. So Ben, who's the guest today?
Benjamin: I received Scott Chu, head of Taiwan in the Philippines for K two Management. We discuss about the state of the offshore wind sector in Taiwan in the Philippines. Scott work on the first of offshore wind project in Taiwan and witness the development of the sector up to today. Today, you couldn't join this episode, and hopefully you join the next one.
Yiou: Yes, hopefully, as always, grateful if you could take the time to rate and comment on the show. It helps listeners to find us.
Benjamin: Thanks and on with the show.
audioBenjamin(Jie)Pan21795523658: welcome to the show. Scott could you maybe introduce yourself, K2 management and tell us a bit more about how you became the country head of Taiwan and Philippines for K2 management.
audioBenjamin(Jie)Pan21795523658: Thanks, Ben. It's my pleasure to come into this podcast. So just quickly introduce myself. My name is Scott. I've been in the K2 management for last seven years. [00:01:00] as a country head of Taiwan and Philippines. My journey basically in wind energy starts from 2004 as a field engineer of GE Wind, which GE was newly acquired and run as the assets to start the wind energy.
audioBenjamin(Jie)Pan21795523658: So now let's be the, what's the first utility project in Taiwan for onshore wind. So starting from that, I've been having my own. small consultancy firms not in Taiwan, because there was no wind business. So I've been focusing in Europe and North America for, for about seven years, until I was invited by the owner of Swancor. To be the executive VP for formosa one. The project director for, formosa one. And that's my engagement with K two management. 'cause was the own engineer. For the project starting from 2014 which that was also an interesting moment for offshore wind because there was no regulations. There's [00:02:00] a demo project. So we are kind of maneuver. During the developments together with the supply chain with the authorities with the government. So that was an interesting moment. But after that, I actually joined Vestas as a head of Taiwan operations for three years. So that was mainly for onshore wind only because offshore wind sector was a joint venture of Vestas, was nam Vestas MHI offshore wind. So that was a service managers to to the local government state owned utility company for three years. And then I'll join K2 seven years ago. But just to supplement that K2 management was now acquired by Rambo. Since November last year on so we are going to be a combined experts that it's focusing on renewable projects, but especially for offshore wind sector. In global with 35 countries, but we are still mainly focusing from my own perspective.
audioBenjamin(Jie)Pan21795523658: [00:03:00] I didn't know that you were a project director at Formosa One. So , that's really interesting background. So you've seen the birth of the industry in Taiwan. That's quite a unique experience. So today I'm really happy to have you on the show because we'll be speaking about.
audioBenjamin(Jie)Pan21795523658: Two country in Asia where offshore wind is quite at a mature stage or gaining a very momentum. It's so it's Taiwan and the Philippines. We'll start maybe with Taiwan where, you know, The industry more mature, there's been a couple of rounds of tenders. If you could describe a bit the offshore wind sector in Taiwan and basically its role in the energy mix in the country.
audioScottHsu11795523658: Yeah, of course. So, so offshore wind was introduced to Taiwan actually a while ago. So when I was in GE back in 2004, that was the beginning feasibility from the government, but also carried out by the state utility to understand what it's the condition, what was European progress in [00:04:00] offshore wind. So that actually took some years, maybe a decade until the government launching the demonstration projects options in 2012, which was only that was a couple of local developers that bidding for the demonstration projects. And at the end, there was three projects were selected.
audioScottHsu11795523658: I think one is TGC. With full high projects on the next one is for most of one by one call and also PPC phase one projects. Those three projects. As we can see, that was the moments that government wanted to try the technologies. and grid connections, and also understanding the site condition and regulation, all different perspective. I think at the end, formosa one was the most successful among the projects. Finalizing that a little bit later and like today on the completions, but it was actually demonstrate that Taiwan does has a [00:05:00] strong grid connections, a very reliable utility also a very good wind and monopile was successful piling into the sea beds. And also at the meantime, Coal developed the regulations together with the government. So at the end, that has their own electrical business license that using feed in tariff. That was mainly the the drive that in attracting all these European major developers coming to Taiwan while European was actually having a bit going down a bit of the investment.
audioScottHsu11795523658: So major developers coming in for example, like Orsted and Macquarie actually acquired majority of the share of Formosa One. And bringing all the major developers having more than 10 gigawatt of project in the pipeline for preparation for run two. So based on the, the experience of run one so round two was originally launching only for three gigawatts but with all [00:06:00] this that the government increased the target to 5.
audioScottHsu11795523658: 5 gigawatts. And that was all the capacity that have been awarded to the developers with three different phase. So the first phase is like a fast track phases awarded to FOMOSA2 and yunlin projects. That was unfortunately during COVID, they're having supply chain and all the human resources logistic having a very, very challenging moments, but eventually they all get into completion of construction now like 2021, 22. 23. So that I think even Yunlin complete it now last year. So that was also quite encouraging. In round two, but also moving into phase two of round two have starting to introduce localizations but also still on the feeding tariff schemes and then round three with with an auction introducing the corporate PPAs.
audioScottHsu11795523658: I think that it's for Haidong and Orsted, which they are also under construction right [00:07:00] now.
audioBenjamin(Jie)Pan21795523658: You highlighted it quite well taiwan has very strong , advantages to develop offshore wind with song read and the world class wind speeds. I think on the seabed, we can come back to Yunlin, but there's been some challenges on this front.
audioBenjamin(Jie)Pan21795523658: In the recent years, , the sector has been, I think, facing some challenges. You mentioned about it, they were COVID of course, which the related , stress on the supply chains, increasing costs, increase in the interest rates then like the end of the FIT regime with the start of the corporate PPA and also the really strong Localization requirements, especially for round 3.
audioBenjamin(Jie)Pan21795523658: 1 and, some projects facing some difficulties could you go back and explain a bit further on those challenges and maybe share your perspective on where the current state of the industry in Taiwan is,
audioScottHsu11795523658: Sure. Offshore wind basically in Europe, that was further development. On the basis of oil [00:08:00] and gas industry. So the seabed investigation was a very I would say matured skills that has been fully heavily developing in European countries. However, in Taiwan we never had such an industry and seabed investigation normally just having like university research programs within a very small scales. So normally we don't really have that detailed investigation data in the past nor capable investigation contractors in Taiwan. So this really give us the offshore developers a bit challenges at the beginning is that securing all the supply chain and skill and also human resources. But this ground risk is the basis of the offshore projects, which that exposed into some increasing of cost compared to to Europe, but also needs to have a bit of long waiting time.
audioScottHsu11795523658: For securing qualified contractor until there are some local contractor that's been developed [00:09:00] with, with that skills level. But also I think supply chain issues mainly because of the regional geopolitical concerns, like a Chinese supply chain is
audioScottHsu11795523658: having some restrictions to import Taiwan. So we will have to either import it from Europe or regional market countries. But the localization was. Also introduced to actually having some kind of security of the supply. But it's, also having the challenges that the reason of the localization that increased the cost of that. At the short term that doesn't have. Much capacity that could fulfill these massive round two and round three developments.
audioBenjamin(Jie)Pan21795523658: could, Could you explain. What is the localization requirement, and give an example of how this is applied just for the listeners
audioScottHsu11795523658: Yeah. So localization in terms of that the government wanted to have wind manufacturers to have a local assembly plants for Inviting international suppliers like Vestas and Siemens [00:10:00] Gamesa to secure their planned investment here in Taiwan, but also for the other components like Jet Kit Foundation fabricators that was also the major components of Offshore Wind. That to establish the local fabricators partners with international experienced contractors to do that. And the other thing very important is the vessel, like a construction vessel. Operators that we are introducing or encouraging contractors to have local partners or local vessels or a local flag vessels just to secure the supply of the vessel to be working in Taiwan water. But on the other side, the government is also introducing engineering services to have international and local partnerships on designing and. foundations offshore substation and cables. So it's actually covers quite wide range of the components of offshore wind to be the more, the better of the localization and whoever commit for a higher [00:11:00] percentage of localization who actually have higher chances to, to be awarded for the projects.
audioBenjamin(Jie)Pan21795523658: and very recently about this localization requirement, there were kind of like an arbitration and ruling at the WTO. Can you come back to, how those localization requirement has shaped the industry and how now they are evolving with the new somehow relaxation of the requirements.
audioScottHsu11795523658: So that was actually having WTO initiated some dispute consultation for the cases of Taiwan offshore which is mainly focused on the discrimination of international suppliers. So just many on the other side, Taiwan treat that as a localization requirements. That was taking a bit the survey and Taiwan government also sent out some trading officers to also involving with the discussion on the relief of that is ended up with the government. It's agree with releasing localization [00:12:00] for the future. Run three options that potentially will the localization requirements. We haven't seen next auction guidelines, but I believe that it's basically the direction the run 3.
audioScottHsu11795523658: 1 Will still remain with localization and 3. 2 might be in between having some flexibilities that would depending on each individual developer to submitted their localization plan. That could also be negotiate with the government.
audioBenjamin(Jie)Pan21795523658: There's also another point which think quite interesting in Taiwan is , the evolution of the off tech side from round 3. 1, there has been kind of like a major shift, I think, from the FIT, which the off taker is the local utility type over towards a corporate CPPA markets essentially with companies like TSMC, Google, et cetera, buying the green election from the projects.
audioBenjamin(Jie)Pan21795523658: Could you explain how this is change has impacted this market and who are the offtaker and what [00:13:00] are the incentives that they have to purchase green electrons?
audioScottHsu11795523658: Sure. I mean, this is one of very, I would say aggressive approach that the government wanted to introduce in corporate PPA in Taiwan. Even since Taiwan is not really a free electricity market so also with one single state owned utilities. By introducing corporate PPAs like the state utility need to play some different roles by being like a wheeling position, but also being the balancing position just to fulfill this, the corporate PPA still consider as a green energy using the same grid. After that was been pretty much taken care of. And then I think the Taiwan traditionally was an exporting market and especially in IT semiconductor sector. And majority of the IT assembly factories are Mindy outside of Taiwan in China or some other regions. So the major potential off-takers is the semiconductor [00:14:00] manufacturers. And also the flat panel, like LCD panel manufacturers also the, these international companies that has the data center or utilize data center locally here. I think the drive of them is they want it to be full, like 100 percent renewables that's.
audioScottHsu11795523658: It's been strongly driven by the major IT giants like Google, Facebook, Apple, which have their local partners around in Taiwan. So the local supply chain needs to have some kind of timelines to fulfill all these commitments to go 100 percent renewables. And that was the reason why they started the offshore wind having this much bigger scales. supporting them to fulfill their timelines.
audioBenjamin(Jie)Pan21795523658: And maybe just come back now down on the, most recent rounds. So round 3. 1, where, you know, some of the projects are going for financial close and round 3. 2, which is the latest one where think It was interesting who has been [00:15:00] allocated.
audioBenjamin(Jie)Pan21795523658: So you look at those two rounds, what lesson are you taking from those latest round in Taiwan for this market?
audioScottHsu11795523658: Yep. so moving from round two to round three the biggest differences is it's actually a price competitions. And also the only revenue stream is coming from corporate PPAs. That's one thing. And the other thing is round three unfortunately is getting a bit of increasing of the cost from supply chain but also having inflations and higher interests that actually put together the whole development cost and the whole construction costs is much higher than the original expectation from run two. The, corporate PPA offtaker also having unexpectedly need to need to spend more on the corporate PPA compared to round two. So it's actually having multiple stakeholders having different challenges changing their existing or established models in round two, and they need to start discussing [00:16:00] a new solution for round 3. 1 and further. For the developer side is still need to actually consider all the solutions, how to reduce the cost and then bring down a little bit of the tariff they wanted to engage with the. Corporate offtaker, but on the other side for the offtakers, they also need to consider if they could have the budget or changing their overall business plan because they need to raise the price to the clients because of higher higher price they purchase from renewables. But that it's mainly the challenges that the industrial electricity price in Taiwan much cheaper than the original or international. Countries. So that's the overall challenges. In the a power market in Taiwan that also impacting offshore wind as well.
audioBenjamin(Jie)Pan21795523658: What is interesting is think the cost of the brown electricity has also increased, At the end of the day, for a lot of the offtakers who signed this PPA actually there might be some cost saving in the longterm because the essentially the price of electricity has [00:17:00] been also going up Taiwan had the plan to launch Pilot's program for floating offshore wind projects.
audioBenjamin(Jie)Pan21795523658: you maybe present the latest developments on this side? I understand the tender has been delayed a little bit. But just to discuss whether you see there's a potential for floating technologies in Taiwan.
audioScottHsu11795523658: Sure. So we've been hearing this pilot auction for floating demonstrations since early. 2020 because of the successful auction for run to so government wanted to also take the leading position in a pack regions wanted to launch in the successful fixed button demos back into 2012 so 10 years later, I think that it's something what the government wanted to expect having another demonstration projects that starting to attract new developers for 14 offshore wind in Taiwan. Unfortunately that. Takes a bit different years. Even until now, the auction is not really officially launched, [00:18:00] even since there were a few public hearings with the developers who identify which was actually required. I think this auction is still under some challenges because the cost of floating offshore is still high. So the developer are expecting to have feeding tariff from the government but Fitting tariff. If that it's more than the fixed bottom, that's also could have some political pressure from the government to introduce even higher tariff for floating wind, but on the other side, the infrastructure. Of the floating harbor. It's also under development that still takes a bit. actually Time to complete. So, but that it's actually a chicken and egg things. Do you need to have an option first or do you have the infrastructure first so that Taking a step back that I would say the government is focusing on getting from 3. 2 moving forward. And then I believe the ministry is also [00:19:00] busy with the potential our tariff with that it exporting to U.S.. I think in 2025, I would say it's might be a But it might be possible updates. From the government before the launching of the auction.
audioScottHsu11795523658: it might still need some time for floating demo to be officially announced.
audioBenjamin(Jie)Pan21795523658: that's very interesting. So I think it covered a lot of ground on Taiwan. I'd like maybe to move on to the Philippines, which is a very interesting market in Southeast Asia It's one of the few that have like a fully liberalized market with no nodal pricing and you have like three main region, Luzon, Visayas, and Mindanao, Not all of them are interconnected.
audioBenjamin(Jie)Pan21795523658: And so there's a lot of interesting dynamics in the market. And actually, today offshore wind is also in the picture in the Philippines, it's at more earlier stage today, because there's no operating projects [00:20:00] yet, but they are tender ongoing and a lot of developers are developing offshore wind in this market.
audioBenjamin(Jie)Pan21795523658: Would be interesting if you can just give a general introduction on the current stage of the offshore wind sector in the Philippines.
audioScottHsu11795523658: for sure. Philippine is actually a very interesting market like you just mentioned. It's actually a free market with different provinces and different utilities. And that ends up High electricity price. So introducing renewables is actually a very competitive solution in the energy mix in the Philippines. On the other side, since the new government, I think they're introducing this offshore service contracts. We started to supporting some clients in the Philippines since 2020. So until now, I believe that is more than 60 gigawatts. Of offshore projects. It's already granted to the developers. And then the government is expecting to introduce G up for offshore [00:21:00] specifically in Q3 this year.
audioScottHsu11795523658: However, that is really depending on if they launch the guideline by the end of last year. Somehow it was Having the strong commitment from DOE, but the guideline has been pushed back even until now. We still haven't received that yet. but strongly they are expecting a 2028 COD for the first offshore projects, which is challenging from the experience in Taiwan.
audioScottHsu11795523658: Having also supply chain is not really existed in the Philippines yet then grid transmission is also a big concern. But however, I think this is an interesting markets that the government is really focusing on introducing renewables, but offshore wind does really requires multiple different Disciplines of experts to be existed.
audioScottHsu11795523658: But I think for an open a bit loosen investment limitations that the international developer could have 100 percent owned the energy projects. I think that it's a good starting point [00:22:00] for bringing initial stage of development of offshore wind.
audioBenjamin(Jie)Pan21795523658: And you mentioned the Philippines will launch what they call the Green Energy Auction Round 5 in Q3 2025, I believe. What is your expectation for this tender and who are the players or the type of players that you would expect to participate in this round?
audioScottHsu11795523658: this one, I think DOE wanted to introduce a bit of incentives that could attract the developers to step into the first pilot projects for the Philippines. But I think among all these 60 gigawatt of developers we could see still the international developers are most aggressive to aiming for the auctions. I believe the local local developers are in the wait and see moment. Because as, as long as you are granted as a service contracts. You still have five years of timeline that you need to fulfill your commitment, including the measurements. Soil [00:23:00] investigation and also other required by the government. So among all these developers, I would say CIP. is still by far one of the most aggressive developers and then they've been done a lot to be ready for the auctions. We see some other like semi locals like Triconti. Also European energies. I think that it's part of all these major developers that showing the high interest to attend. The auction. We also see some Southeast Asian joint ventures that it's also coming to Philippine. But we might be expecting the biggest rival of the local developers like AC energies. That could also be putting partners or one stakeholders for the auction as well.
audioBenjamin(Jie)Pan21795523658: Yeah, that's interesting because I feel like the offshore wind space is a bit difficult to be a new entrant because it's so technical and there's so much risk if you don't have the experience I feel is always interesting to see the first round and who will be bidding because in reality, maybe a lot of [00:24:00] the local player who doesn't have the experience might be bidding quite low, we've seen that in in Japan it can end up with, just a large write off on the pilot project.
audioBenjamin(Jie)Pan21795523658: So that's kind of like a risk that also needs to be looked at. Maybe just conclusion for both Taiwan and the Philippines, how do you see these offshore wind industry evolving in the next five years?
audioScottHsu11795523658: Sure. Next five years I think for the industry evolutions five years already very long. But for five years in Taiwan that it's until 2030 if rung 3. 1 and 3. 2 all reach out to financial close, I think we have been expecting for the next five years for executing these projects with Carrying out constructions with the experience of run two.
audioScottHsu11795523658: I think that it's pretty much what we see until 2030. But again, with the limited seawater areas in Taiwan, I think we might go into the level of situations. We might see the decline of of the development potentially [00:25:00] in Taiwan. On the other side, that might be the beginning of Philippines. For offshore wind development, because like what we just mentioned, service contracts requires a five year commitment to fulfill different categories. So if we do have auction this year, we can consider that as an . round one in Taiwan. If that it's a three project has been awarded for having some kind of efforts. Collaborating with authorities to establish all the relevant regulations, the ports. supply chains, human resources and especially transmission. I think that in the next five years could be interesting for Philippines. Maybe all these people who has been working in Middle East or the specialists in infrastructure might be very happy to see there is definitely A major infrastructure construction in the Philippines. So I think the best point for Philippine is they do have ADB headquarters in the Philippines.
audioScottHsu11795523658: I think this is actually the biggest differences compared to Taiwan. I think the [00:26:00] banking industry in the Philippine does has some international connections. That is, that is very good. But on the other side that the regulation is mainly written in English and most of the people in the Philippines does, has the English capabilities. So that it's a very good basis of international collaborations to begin with. But however, I think, the infrastructure challenges and also the transmission investments that is coming really mainly from the governments that. Does require some efforts to push forward. So if these couple of factors that could jointly moving forward after the first auction, I think that really could bring Philippines as the thousands of islands combinations of territories. I think that could have Set up some kind of local knowledges with submarine cables.
audioScottHsu11795523658: If that it's something could be established, but that I could connect it all these different islands with different possibilities that could be a good benefits to the local industry [00:27:00] throughout the investment of showing
audioBenjamin(Jie)Pan21795523658: Yeah, I'm definitely looking forward to doing another episode in a couple of years to catch up on that. thanks a lot. It was fantastic to have you on the show, Scott.