A transition toward renewable energy is necessary, but its success will require careful government management.

Taiwan has a clear need to diversify its energy portfolio and make concrete progress towards a more robust energy security policy. A full 98% of Taiwan’s energy is imported, costing the equivalent of nearly 15% of the entire Gross Domestic Product and threatening Taiwan’s energy security. Yet renewables as indigenous sources of power represent less than 2% of the total energy used in Taiwan.

Taiwan’s carbon emissions are also high, and the island has committed in law to reducing emissions dramatically over the next decade. Meanwhile, the Tsai Ing-Wen administration has committed to eliminating nuclear power from Taiwan, removing 14% of emissions-free power generation from the power mix, compounding the challenge.

If the Tsai administration intends to follow through on its commitment to eliminate nuclear power and reduce greenhouse-gas (GHG) emissions, both energy efficiency and renewable energy generation must be greatly enhanced so as not to affect overall energy capacity and consequently trade competitiveness.

The Tsai administration has committed to increase renewable-based electricity generation to 20% of total generation by 2025 with a target of installed capacity of 20 gigawatts (GW) of solar energy and 3 GW of offshore wind. The recent amendment to the Electricity Law creates a roadmap for independent power producers to sell “green” energy into the grid as well as directly to consumers.

Through these policy and legal efforts, the Tsai administration has laid the foundations for a clean energy transition, but the government will need to encourage new partnerships and implement additional reforms to ensure that Taiwan’s existing capabilities are fully leveraged to meet the island’s goals.

Taiwan is the second-largest solar-cell producer in the world, and companies like Motech, Gintech, Solartech, E-Ton, and TSEC are significant market players. Taiwanese companies ship more than 10 GW of solar cells each year. Yet as of 2016, less than a total of 1 GW of solar had been installed domestically. Domestic capacity building is a clear opportunity for these businesses.

To achieve this objective, a sustained investment strategy is needed. The government has budgeted an estimated NT$1.3 trillion (US$34 billion) for renewable-energy development – a huge sum of money for a government already struggling with budgetary issues. The cost of not building up renewable energy capacity, however, might be even higher.

Dependence on foreign sources

Cost perceptions are a major driver for the continued use of foreign fossil fuel, as that course appears cheaper than building renewable-energy capacity. But government, industry, and consumers alike underestimate the actual cost of continued reliance on fossil fuels.

The health costs of fossil fuels, especially coal, are enormous. Harmful emissions from burning bituminous coal – particulate matter, sulfur oxides, nitrogen oxides, and heavy metals such as lead and mercury – are strongly linked to respiratory diseases, which include allergic rhinitis, asthma, COPD, and rhinosinusitis. Taiwan generates over a third of its power needs from coal, and the pollution generated by these power plants is compounded by China’s vast industrial sector, with prevailing winds bringing China’s pollution to Taiwan.

A 2016 study by Dr. Lin Horng-chyuan at the Chang Gung College of Medicine found that 30% of people who had sought treatment for upper respiratory problems had asthma or other respiratory disease that is often linked to pollution. Lin estimates these illnesses cost roughly US$4,500 per patient per year in medical fees. If 10% of Taiwan’s population had a pollution-related illness, that would add up to roughly US$10 billion in medical bills.

Today, Taiwan spends approximately US$620 million on fossil-fuel subsidies every year. Fuel subsidies are equal to about 1% of Taiwan’s GDP or NT$810 (US$27) per capita per annum. In aggregate, taking Lin’s figure, the cost of health damages from fossil fuel is 17 times the cost of providing fuel subsidies.

Although confirmation of Lin’s exact findings may need to await further studies, clearly we must re-examine the assumptions and cost modeling used on Taiwan’s energy portfolio and national security calculus.

Implementation challenges

From a regulatory and technical perspective, the structure of Taiwan’s electricity production and transmission and distribution (T&D) grid makes it hard to diversify energy sources or upgrade the grid infrastructure. The introduction of renewables into the power mix requires the grid to be more resilient and decentralized. Regulations need to be updated at the local level, not just at the national level, and policymakers need to be clever on how to repurpose existing infrastructure to enable new generation capacity.

Feed-in-Tariff (FIT) programs are only part of the equation. To facilitate the diversification of fuel sources, FIT programs are used to expedite a shift in the power-generation mix. An FIT is generally paid by the government to a renewable-energy power provider at a higher rate to encourage investment in and deployment of renewable energy sources.

Germany, which receives far less sunshine than Taiwan but has four times the population, generates 7.5% of its electricity from solar energy. As the world’s largest installer of solar panels, its FIT has resulted in over 40 GW of installations in under 10 years. Similarly, Japan’s FIT program has created 35 GW of capacity, supplying power to 3.5% of the country’s 127 million population.

Taiwan currently offers a reasonably high FIT scheme, which has attracted a number of new players to invest in the market. Global players such as Canada’s Northland Power and Singapore’s Enterprize Energy have declared their intention to develop 1GW of wind power offshore in the Taiwan Strait.

However, integrating renewables into the grid is more complex than just building capacity. Solar and wind power is intermittent – that is, the amount of power fluctuates significantly according to weather conditions. Current electrical grids are not designed to handle significant surges or drops in power.

Thus, local energy storage will be critical to integrating renewables. In Japan, the government has allocated ¥81 billion (US$706 million) for businesses to implement local storage. Similarly, the German government is exploring power-to-heat and demand-side management solutions to balance the country’s grid.

As a result, any Taiwan FIT program must be paired with support for local storage systems and other smart grid technologies. Distributed local storage is also in line with ensuring critical national infrastructure resilience. Taiwan can leverage its technical and production know-how in the battery and electronics industries to create more scalable solutions.

Taiwan’s adoption of solar power has been slow, despite a relatively generous tariff rate. Not surprisingly, bureaucratic red tape and lack of regulatory coordination among local and national agencies have led to slow project approvals, typically requiring six months. Companies that have filed applications for solar development have described procedures as cumbersome. Government effort is needed to reduce red tape and bring more coordination and efficiency to the process.

Solar on land vs. rooftops

While the administration has declared its intention to convert 10,000 hectares of agricultural lands for ground-mounted solar plants, the reality is that a maximum of 6 GW of solar capacity is possible on that much area – far short of the government’s goals of 20 GW. The administration should broaden its focus to include residential and community-invested solar projects. By updating building codes to allow for rooftop installations, additional resources for solar generation can become available in dense urban areas like Taipei.

Schools, factories, and other large roof structures can be upgraded for solar or wind. Taiwan’s historical use of tiles in building exteriors could be replaced with solar tiles similar to those being commercialized by Solar City in the United States.

In aggregate, household systems and community structures can make up a community-scale renewable microgrid that generates, transmits, and distributes power independently of the national grid. With more household electricity customers in the United States and Japan exploring the possibility of going solar, new business models like community-invested solar installations are gaining popularity, further encouraging solar deployment.

Together with local energy storage, community-scale solar systems reduce electricity costs and provide relief from peak load pressures to the benefit of the utility. According to a team led by Ko Li, a researcher with the Metal Industries Research & Development Center in Kaohsiung, reliable power from rooftops could provide up to 15,424 gigawatt-hours (GWh) of energy, enough to supply up to one-third of the 45,000 GWh that the residential sector uses each year.

The global tech industry is aware that Taiwan has world-class engineering and production management capabilities. Taiwan’s mastery of silicon (critical to the production of solar cells, inverters and control systems) is a core capability needed to create a diversified smart grid.

The smart money has already arrived. In October 2016, Macquarie Capital of Australia announced its intentions to enter Taiwan’s green-energy market, pledging to invest NT$25 billion (US$790 million) over three years. The Taiwan government could further deepen this initiative by participating in the worldwide trend of clean-energy bonds. The Climate Bonds Initiative reported that US$46 billion of green bonds were issued worldwide in 2015 and US$56 billion in 2016.

A richer private equity and venture capital ecosystem will stimulate local investment and help stem the drain-off of engineering talent from the island.

The way forward

The Tsai administration has laid the foundations for a clean-energy transition, but the government will need to encourage new partnerships and enable reform to maintain renewable energy development . The FIT program and the recently approved amendment to the Electricity Act are just the first steps toward spurring local energy production. If the Taiwan government is to achieve its plans for integrating large amounts of renewable energy into the system, a fully deregulated electricity market will be needed, as well as a concerted effort to boost energy efficiency.

Taiwan’s moves toward creating a liberalized power grid should be tightly coupled with energy-technology development. The country is in many ways an excellent test-bed for combining solar PV, energy storage, microgrids, and other smart grid technologies. With their existing manufacturing infrastructure and deep reach into the global supply chain, Taiwanese companies can respond rapidly to the needs of the market. What is missing is a coordinated R&D effort in energy-technology innovation. Both domestic and international institutional barriers need to be addressed.

The Bureau of Energy under the Ministry of Economic Affairs (MOEA) has insufficient authority to implement energy policies effectively. The government’s plan to restructure MOEA into the Ministry of Economic and Energy Affairs is a welcome move. However, coordination with institutions like the National Security Bureau, Ministry of Foreign Affairs, Ministry of Health and Welfare, and Environmental Protection Administration will be needed to ensure a streamlined yet complete approach to energy policymaking. With Taiwan’s intention to cut GHG by 50% (equal to 428 million metric tons CO 2 equivalent) from the business-as-usual level by 2030, such coordination among ministries is crucial.

Observers have pointed out that Taiwan generally needs to boost its expertise in energy policymaking. Taiwan’s current lack of involvement in international energy cooperation present a significant barrier preventing bureaucrats from learning about the latest innovations in energy technology and policy. The country is politically and increasingly economically isolated due to political pressure from China. The Tsai administration’s recent moves to strengthen unofficial bilateral cooperation with Germany, the United States, and Japan will improves Taiwan’s capacity to make better policies and align with international trends.

Global trends in solar and wind technologies, as well as energy storage, suggest an inevitable transition towards renewable-energy generation and distribution systems. Economies like Japan, Germany, and the state of California have made significant headway in this transition. The sooner that Taiwan accelerates its own deployment of renewables and energy-technology innovation, the sooner it can become a leader in the emerging global clean-energy market.

Dr. Frank Hiroshi Ling is energy and climate policy analyst at Cypress River Advisors. He previously served as research fellow at the Institute for Global Environmental Strategies (IGES) and at Ibaraki University, and has advised the Asian Development Bank (ADB), as well as various green-tech startups and government agencies in the U.S. and Japan. He holds a Ph.D. in chemistry from the University of California at Berkeley and was a post-doctoral fellow at Lawrence Berkeley National Laboratory (LBNL) and the Energy and Resources Group at UC Berkeley.