Losing Your Wife and Troops: Whither the Benefits of Localizing Wind Power？
The Storm Media Editorial, July 30, 2024
The European Union (EU) has challenged Taiwan's wind power localization policy at the World Trade Organization (WTO), predicting a grim outcome for Taiwan. The scenario seems clear: Taiwan faces higher wind power costs, failed localization efforts, and the irony of its wind power sector becoming a joke as it is sued by the WTO with little chance of success. The only beneficiaries may be those with vested interests in localization.
On August 26, the EU argued that Taiwan's wind power localization policy violates WTO rules, demanding a solution within 60 days and the establishment of a consultation group. In response, the Ministry of Economic Affairs (MOEA) stated that Minister Wang Mei-hua has already called for a review and evaluation of the localization policy, with plans to move towards a more open approach in the future.
The EU's actions follow the standard WTO dispute resolution process. If negotiations fail, the WTO expert panel may be called upon to make a ruling, effectively bringing Taiwan's case to the WTO court. The MOEA’s vague response suggests that Taiwan will have to concede and accept the EU's demands, meaning the wind power localization policy will be scrapped as a failure. The Ministry is likely aware of the WTO violations involved.
Experts and industry leaders had warned from the start that the policy violated WTO rules and would likely be challenged, and that achieving localization goals was unrealistic. Despite these warnings, the Ministry continued to push the policy, leading to the current outcome.
When the MOEA launched the offshore wind farm bidding process, it offered "very attractive" prices. However, these prices were favorable to developers, not consumers. The government (i.e., the Taiwan Power Company) guaranteed an average purchase price of NT$5.8 (about US$0.17) per kWh for 20 years, which was significantly higher than the domestic average and more than other countries' rates—e.g., European wind farm bids were around NT$2.5 (about US$0.07) to NT$3 (about US$0.09) per kWh.
In response to criticism, the MOEA argued that higher prices were necessary to promote wind power localization and build a domestic industry. They claimed this would create a new industry and enhance local technology. Even former President Tsai Ing-wen supported the policy, asserting that wind power localization would generate a new industry for Taiwan.
After several years of this localization policy, it is no surprise that the EU has brought Taiwan to the WTO, with little chance of Taiwan winning the case. The wind power localization policy is unlikely to continue, as Taiwan cannot ignore WTO rulings like the U.S. does.
Another inevitable outcome is that localization has been a failure.
When pushing for wind power localization, several factors were clear: First, key advanced technologies were controlled by European companies, which were unlikely to share them with Taiwan. Second, Taiwan's market alone was too limited to sustain a large industry; thus, exporting was essential, as is the case with all prominent Taiwanese industries. Third, Taiwan's competitiveness for exports was questionable, particularly given that government involvement in offshore wind power procurement could put Taiwan at a disadvantage, and competing with China would be challenging.
The situation is now clearer, and many initial criticisms of the localization policy have proven accurate. After six years of the localization bidding process, has Taiwan acquired any core technologies from European firms? No, instead, Taiwan has been sued by the EU at the WTO. Does Taiwan’s wind power industry have any successful export cases or capabilities? Not apparent.
Looking ahead, can Taiwan compete with China in terms of technology and price? It’s unlikely. China’s vast market has nurtured globally competitive industries, with Chinese wind turbine patents now leading worldwide and prices for Chinese turbines being a third of those from other countries. In contrast, Taiwan lags in both technology and pricing. How can it compete?
After the EU's WTO lawsuit, Taiwan’s wind power localization policy not only comes to an end but also signifies a clear failure. However, the costs incurred and the need for accountability cannot be overlooked.
The wind power bidding process in April 2018 set a high purchase price of NT$5.8 per kWh. By June, a competitive bidding process resulted in an average price of NT$2.5 per kWh—more than 50 percent lower. Over the guaranteed 20-year period, this difference could mean an additional NT$900 billion (about US$27.5 billion) in electricity costs for Taiwan’s citizens. In other words, Taiwan’s people have paid NT$900 billion extra due to the failed localization policy.
At the time, the MOEA justified the high prices with promises of future technological advancements and lower costs. They claimed the higher prices were a necessary part of localization. However, the price difference within just two months proves that claims of technological progress and successful localization were misleading, making the NT$900 billion essentially wasted.
The key question now is: Who benefited? Clearly, the primary beneficiaries are the developers who won the bids. They received double the price they could have worked with. Additionally, with localization requirements, some in the supply chain and downstream contractors benefited by being mandated to use local suppliers, providing opportunities for official review and intervention. Identifying the individuals and companies benefiting from these requirements reveals where the profits have flowed.
Finally, accountability must be addressed. The localization policy has clearly failed to create a competitive wind power industry, costing Taiwanese citizens nearly NT$1 trillion (about US$30.5 billion) in extra electricity costs and resulting in a WTO lawsuit. Shouldn’t the officials responsible come forward and take responsibility?