Nuclear Ghost Town Reveals Power Risk for Taiwan's Energy Shift

(Bloomberg) -- A map at the guard-house of the Lungmen Nuclear Power Plant in Taiwan shows what might have been: Classrooms, dormitories, a grocery store, a police station. It was supposed to be a self-contained city on the island’s northeast coast designed to meet growing demand for electricity in Asia’s seventh-largest economy.

Instead, the complex stands empty -- unfinished and never used -- a $10 billion casualty of growing public opposition to nuclear power. Since a disastrous 2011 reactor meltdown in Japan, more than 1,400 miles (2,250 kilometers) away, Taiwan has rewritten its energy plans. President Tsai Ing-wen ordered all of the country’s nuclear reactors to shut by 2025.

That’s set off a high-risk gamble to find alternatives to nuclear, which supplies 12 percent of the island’s electricity, while limiting an increase in carbon emissions. The island’s sprint reflects a drive across the region toward cleaner energy sources such as sunlight, wind and natural gas. Nations from Australia to South Korea and mainland China to India are seeking to meet rising demand without belching more emissions blamed for climate change and smog.

Taiwan’s solution: Wind turbines are planned in the blustery Taiwan Strait, solar panels are popping up on coastal salt flats, and terminals are being planned to import more liquefied natural gas. But new sources could take years to develop, making power rationing and blackouts a possibility as the gap narrows between demand and generating capacity.

“There are going to be concerns over the next few years about reserve margins and power supply reliability,” said Zhouwei Diao, an IHS Markit analyst in Beijing.

The government’s plan has several parts. First, all nuclear and most oil-fueled generators will be shut. Together, they supplied 16 percent of Taiwan’s electricity in 2016. The country will still have about the same amount of coal capacity by 2025 as now, but its share of total power generation will drop to 30 percent from about half as sources of alternative energy expand. Natural gas will see the biggest usage gain, accounting for half of supply by 2025, while renewables like wind and solar will more than triple to 20 percent.

As electricity demand grows over the next seven years, the government says it will boost generating capacity while limiting carbon emissions and ridding itself of a political headache.

Taiwan’s state-run nuclear industry already was unpopular after it built a controversial waste-storage site on Orchid Island, home to one of the country’s indigenous peoples. But sentiment turned even more negative after the disaster in Japan, which occurred after a giant earthquake and tsunami. The disaster prompted countries including Germany and South Korea to ditch their nuclear programs.

Taiwan Power Co. operates three nuclear plants and was building the fourth in Lungmen when the Fukushima meltdown occurred. In 2014, the government halted construction that was nearly complete, with uranium-fuel rods in place. In 2016, the Democratic Progressive Party won election on an anti-nuclear platform. Last month, workers removed the unused fuel rods and sold them to a buyer in the U.S.

Betting that the country can replace all that nuclear power in less than a decade -- and expand output to meet rising demand -- is “very ambitious,” said Robert Liew, an energy analyst with Wood Mackenzie Ltd. in Singapore. “The Taiwanese government is trying to prove the future is arriving faster than people thought. It’s been so far, so good, but let’s see what happens in three to four years. That’s the tricky part.”

The government’s decision puts the electricity grid in a precarious spot. Four years ago, Taiwan had enough capacity to produce 15 percent more power than peak demand, or more than enough to handle unexpected plant outages, according to Bloomberg NEF. That cushion fell to 10 percent in 2015 and as low as 1.7 percent in August 2017, when several nuclear reactors were temporarily offline for maintenance. The margin has remained above 6 percent for most of this summer.

Taipower warned of the country’s first power rationing since 2002. Last year, a mistake at a gas-fired power plant triggered a blackout that hit more than 6 million households and disrupted some semiconductor production. Industry groups, including the Chinese National Association of Industry and Commerce, called for the government to reverse course on its nuclear phase-out and to open Lungmen to avoid future curtailments.

The government has held firm to its plan. Part of the optimism comes from the plunging cost of building wind and solar projects around the world. There’s also expanding supplies of cheap liquefied natural gas available from the Middle East, Australia and the U.S.

But it will take years for Taiwan to build the additional gas plants and LNG import terminals it needs, and any delays could limit the country’s ability to expand electricity production, said Jonathan Luan, a Bloomberg NEF analyst in Beijing. And large-scale solar and offshore wind projects are facing their own hurdles in the country.

Vena Energy operates Taiwan’s largest solar-power installation, which can produce 5 megawatts from panels on four hectares near a rural town called Kouhu. Flat, sun-exposed land is hard to come by, in part because about two-thirds of the island is mountains. For its Kouhu project, Vena negotiated with more than 20 different landowners and had to lay out panels at odd angles to avoid farmland and, in one case, a family tomb. Most of the panels are mounted above former salt flats.

Singapore-based Vena has six more major solar projects lined up in Taiwan, though some have been slowed by delays in getting local permits. Work could speed up as officials become more familiar with utility-scale solar projects, which are new in the country, said Gavin Tan, the company’s Taiwan head.

“We’re extremely bullish, and we’re doing what we can to get more megawatts done,” Tan said.

Offshore wind is also new to Taiwan, but shows promise. The land masses of Taiwan and mainland China corral air flowing above the East China Sea and funnel it through the 110-mile wide Taiwan Strait, adding intensity to the gusts as it passes through to the South China Sea.

“This is one of the best offshore-wind resources in the world,” Bloomberg NEF’s Luan said.

In April, the government sought to encourage investment in the industry by offering to pay as much as $199 per megawatt-hour for 3.8 gigawatts of supply from offshore wind turbines. Companies jumped at the offer, submitting more bids than were requested. In June, the government auctioned off another 1.7 gigawatts, awarding bids at less than half of the previous rate.

Developing an offshore industry to expand supplies of cheap power also could kick-start a domestic industry with thousands of good-paying jobs making turbines, which could then compete for new projects elsewhere in Asia, including Vietnam and Japan.

At the Port of Taichung, the wind-power industry is beginning to take shape. Heaps of dirt and stones rise above the ground, cranes lower new pilings into the water and backhoes scoop slop from the seabed, all in an effort to strengthen wharves and deepen channels to build giant offshore wind turbines taller than the Met Life Tower.

Taichung has also set aside land and is building roads, plumbing and power lines to lure manufacturers of everything from turbine towers and blades to gears and rotors. It just finished building a training center known as the Academy of Maritime Development and is hosting a group of local college students this summer to promote career choices in the offshore wind industry.

“Young people have to leave Taichung to find work,” said Kuo-Ying Wang, the head of the training center. “This will give them the chance to build a good career without having to leave home.”

--With assistance from Adela Lin, Yu-Huay Sun and Adrian Leung.

To contact the reporters on this story: Dan Murtaugh in Singapore at dmurtaugh@bloomberg.net;Miaojung Lin in Taipei at mlin179@bloomberg.net;Samson Ellis in Taipei at sellis29@bloomberg.net

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Steve Stroth

©2018 Bloomberg L.P.