Taiwan Today

Taiwan is actively developing its green energy sectors, particularly those of solar energy and power-saving lighting components.

As the world talks about the threats of oil depletion and global warming, a mega-trend is taking shape in Taiwan’s industrial sector. Green energy is taking center stage, attracting investments from one heavyweight enterprise after another. A recent example is Taiwan Semiconductor Manufacturing Co. (TSMC) striking a deal with Motech Industries Inc. this past winter to acquire 20 percent of the prominent solar cell producer for NT$6.2 billion (US$194 million). The deal makes TSMC, the world’s largest contract integrated circuit (IC) chipmaker, the biggest shareholder of the solar cell company based in Tainan, southern Taiwan. “This indicates TSMC’s confidence in us. It’s a shot in the arm,” says Dylan Wong, deputy manager of Motech’s finance department.

The IC giant also drew attention from industry analysts when its board of directors approved an investment of US$64 million in the light-emitting diode (LED) sector around the same time as the Motech deal, part of which will be spent on the construction of a research center for LED lighting in Hsinchu, northern Taiwan. Hon Hai Precision Industry Co., a world-class manufacturer of electronics and computer components, soon followed suit, announcing in February that the enterprise would spend NT$10 billion (US$312 million) on the construction of a plant to manufacture solar cells and solar panels in Miaoli, northern Taiwan.

It is not only forward-looking businesses in Taiwan, but also the public sector that is behind the push to develop green energy. According to the Bureau of Energy (BOE) under the Ministry of Economic Affairs (MOEA), Taiwan currently has a capacity of around 3.2 gigawatts of energy from renewable sources, including hydroelectricity, biomass, wind and solar power, or 8 percent of Taiwan’s total capacity of 40 gigawatts. The bureau estimates that figure will increase to 15 percent by 2025, with wind power and solar power dominating the growth.

The 2009 National Energy Conference organized by the MOEA in April last year concluded with calls for Taiwan to promote seven renewable energy or power-saving sectors in the green energy industry. Special emphasis was placed on the continued development of the photovoltaic (PV) and LED lighting sectors, given that these sectors already have established a solid foundation for further growth.

The majority of Taiwanese enterprises in the PV sector have entered the field since 2000. That was the year Motech Industries Inc., a company that had focused on the design and manufacturing of measuring instruments since its founding in 1981, formally started its solar business. Currently the leading player in Taiwan’s PV industry and the world’s eighth-largest solar cell manufacturer in 2008, Motech’s solar cell production sector now creates 97 percent of the enterprise’s revenue.

To a great extent, the development of the solar power sector worldwide owes much to plans made by the governments in Japan, Germany and the United States, among others, to subsidize the use of renewable energy sources. According to the BOE, the production value generated by Taiwan’s solar power industry reached NT$101 billion (US$3.16 billion) in 2009, 70 percent of which came from the manufacture of solar cells, a mid-stream step in the sector’s production chain where Taiwan already plays a major global role.

Ups and Downs

The road has not always been smooth for Motech and other players in the field, however. The sector showed impressive growth from 2004 to 2005 when demand for silicon wafers—on which solar cells are built—surpassed that from the semiconductor manufacturing sector. The phenomenon continued until the third quarter of 2008 and the start of the global financial crisis. With the subsequent drop in the price of oil from its peak of US$145 a barrel, many governments chose to adopt a conservative attitude toward subsidizing the use of solar power. “The over-demand issue in the sector then gave way to the problem of oversupply,” says Dylan Wong, adding that the sector did not bounce back until the third quarter of 2009.

The resulting shakeup was a turning point for the industry, Wong says. “Having experienced the panic of the first half of 2009, all those companies that needed to pull out of the sector or find partners have already done so,” he says. “In the future, newcomers might enter the competition, but the players that are already big will become even bigger.” Motech’s move to partner with TSMC exemplifies Wong’s point. Motech also acquired a plant producing solar panels from GE Energy in Delaware in the United States early this year, in a step that allowed the company to expand into downstream production in the sector and gain a solid footing in that country, one of the major solar energy markets in the world.

“With capital and technical backup from large enterprises like TSMC, the PV sector is receiving a major boost,” says Arthur Hsu, research manager of Trendforce.com, a consultancy company specializing in reports on the high-tech industry.

So despite the temporary slowdown caused by the global recession, as the economic recovery takes hold and governments around the world are again looking to invest in green energy, the PV sector seems poised to take off once more. In anticipation of this recovery, for example, Motech plans to increase its production capacity to a record high of 1,000 megawatts by the end of this year.

By contrast, Taiwan’s LED sector, which reached NT$59 billion (US$1.84 billion) in production value last year, has been growing steadily over the past 10 years, mostly thanks to the emergence of new applications for its components during the period.

LEDs are applied mainly in two areas: as a light source for lamps and a backlight source for liquid crystal displays. In fact, the sector’s development has had much to do with the use of LEDs as a backlight source for cellphones since around 2001, as well as notebook computers since 2004. Today, all cellphones and more than half of all notebook computers worldwide have switched to LEDs as a backlight source.

Now, LED TVs are creating new demand for the technology. “The growth of the sector last year is largely owing to the launch of LED TVs,” says Jou Ming-jiunn, president of Epistar Corp., Taiwan’s largest maker of LED wafers and chips. At the end of 2008, Samsung Electronics first succeeded in marketing TVs with LED displays and created another huge wave of demand for the components in place of the conventional backlighting source, namely the cold cathode fluorescent lamp (CCFL). According to Jou, Epistar generated NT$12.7 billion (US$397 million) in revenue last year, a jump of more than 20 percent compared with 2008.

“The sector saw growth last year. That’s not easy when most other sectors were experiencing a decline,” says Lin Chih-hsun, director of energy research at the Industrial Economics and Knowledge Center of the government-funded Industrial Technology Research Institute (ITRI). Projected growth for LED makers is even more encouraging. The penetration rate for LED TVs was 3 percent worldwide in 2009, but that figure is expected to rise to 15 percent this year as the devices, which are more expensive, but thinner and more energy efficient—LED TVs use 30 percent less power than those with CCFL backlighting—increase in popularity. “The US government is encouraging the use of power-saving TVs by accrediting the products [as energy-saving devices]. This greatly accelerates the time analysts estimate LED TVs will take to become the choice of the majority of consumers,” Lin says. The ITRI director also believes the market share will continue to grow, reaching more than 50 percent 
by 2012.

There are even more lucrative business opportunities in using LEDs for regular lighting, a worldwide market that amounts to some US$100 billion annually. With an estimated 3 to 5 percent penetration rate today, LED lights could dominate the consumer market as soon as 2014. Government policies are certainly helping to popularize LED lights with Taiwan, for example, deciding to impose strict energy efficiency requirements on lighting by 2012, effectively banning incandescent light bulbs. Major economies such as the European Union, the United States and Canada will bring similar rules into effect around the same time. This is seen as a boon to LED products, which use as little as 20 percent of the energy needed for incandescent bulbs.

In January this year, Taiwan’s LED sector received a major boost with the birth of the LED Street Lamp Industry Alliance. Led by ITRI, the alliance consists of more than 20 businesses in the sector and plans to target the markets on both sides of the Taiwan Strait before attempting to make inroads into the rest of the world. At the same time, it will push for the adoption of Taiwan’s standards for LED streetlamps by other countries, which would turn local businesses into strong competitors. The MOEA estimates there are as many as 180 million conventional streetlamps currently in need of replacement worldwide. With the penetration rate of LED streetlights likely to reach just 1.5 percent by the end of this year, there is a huge potential for growth in the sector.

In fact, this vast market potential has been attracting businesses to the LED sector in Taiwan since the 1990s, with more than 200 involved in every stage of production from upstream wafer and chip makers, to mid-stream assembly companies and finally production of LED applications by downstream manufacturers. An early player entering the market in 1996, Epistar has continued to grow by merging with its peers several times, including with United Epitaxy Co., which was set up in 1993, when it became Taiwan’s first LED wafer producer. “There’s a need for integration in this sector, but the process will take some time because new players keep coming in,” Jou says. Such moves toward integration can help to avoid price wars resulting from an overabundance of competitors in the field, Jou adds. Too many players could lead to an emphasis on low-margin products, which in turn could hinder investment in research.

Without a doubt, the twin stars of the PV and LED sectors will continue to shine in Taiwan’s green energy industry, but five other areas—electric vehicles, wind power, biofuel, hydrogen fuel cells, as well as energy information and communication technology (EICT)—also deserve attention. Selected at the 2009 National Energy Conference as potential growth sectors, these areas currently generate a comparatively low production value, some NT$13.2 billion (US$412 million) in total in 2009, and most are just at the initial stage of development. However, if wider application can be achieved along with technological breakthroughs to improve efficiency, the benefits of these power sources for the environment as well as the financial rewards they could generate are anticipated to match those of the PV and LED sectors.

Examples are the construction of a “smart grid,” or electricity monitoring and distribution system, and other similar systems for commercial use, which are the major applications of EICT. According to Wang Yunn-ming, deputy director-general of the BOE, the construction of a smart grid network by the state-run Taiwan Power Co. (Taipower) is underway. Other kinds of energy supervisory systems are already in use such as the one employed by 150 FamilyMart convenience stores across Taiwan, which saves the retail chain an average of 8 percent on annual electricity costs.

The initial goal of Taipower’s smart grid is to include high-voltage users like factories and schools, which together account for around 58 percent of Taiwan’s power usage, in the advanced infrastructure by 2011 before reaching households and other low-voltage consumers.

Currently, related industries such as digital meter manufacturing, the building of digital communications facilities and software designing generate around NT$8 billion (US$250 million) in production value annually. This figure is set to increase as the smart grid comes online and electricity monitoring systems gain wider acceptance with individual businesses and organizations.

Expanding Wind Power

Coming second in production value of the five developing sectors is wind power, which reached NT$3.5 billion (US$109 million) in Taiwan in 2009. Two hundred turbines had been installed along Taiwan’s west coast and in the Penghu Islands by the end of 2009, representing a capacity of 436 megawatts. As Taiwan’s land area is small in size, the BOE says future installations are likely to be placed offshore, estimating that total capacity could reach 2 gigawatts from offshore and 1 gigawatt from land-based facilities by 2030.

Of all the five prospective stars in the green energy industry, perhaps the success of the hydrogen fuel cell is the remotest for now. “The wide application of hydrogen energy is still unlikely in the near future,” says Ivan Lin, chief editor of Trendforce.com’s marketing division, “but it’s still worth researching because as an energy source it’s quite clean and efficient. Once it proves to be commercially viable, it will replace most other energy sources.”

Indeed, the future of Taiwan’s green energy industry is seen as hinging on research breakthroughs. “A shortage of key patents for Taiwan’s LED sector constitutes one major obstacle to its development,” says Roger Chu, research director of Trendforce.com. This partly explains why Taiwan’s LED manufacturing is second to none when it comes to quantity, but lags behind Japan in high-end manufacturing and production value.

Meanwhile, the trend toward mergers in the industry can also help utilize resources more efficiently with regard to patents, and research in general, Epistar’s Jou Ming-jiunn says. “Synergies gained from the mergers help enhance our strength in this respect and in developing a more complete network of patents,” he says. With a research division consisting of more than 120 staff members responsible for developing new patents, as well as searching for and acquiring existing key patents around the world, the company currently owns more than 500 patents, with some 400 more awaiting approval.

For its part, the government plans at least NT$20 billion (US$625 million) spread over five years for green energy research, according to the BOE. There are also high hopes for investment from the private sector. “The participation of major enterprises is a great boost to the sector’s development in Taiwan, because of their strength in research and ability to explore overseas markets,” the BOE’s Wang Yunn-ming says.

Years of research have enabled Motech to increase the conversion efficiency of its solar cells, for example, which is crucial to the product’s competitiveness. Through various means such as improving the coating method on its cells, the company hopes to reach the goal of converting 17 percent and 18 percent of absorbed sunlight into electrical power this year for its multi-crystalline and mono-crystalline solar cells respectively.

In addition to technical advances, it is important to have a firm legal foundation for development of the green energy sector. The passage of the Renewable Energy Development Act by Taiwan’s legislature in June 2009 provided that support. The act requires the central government to develop long-term strategies for promoting renewable energy sources, stipulating updates every two years for the next 20 years regarding the amount of power generated from them and the share of each type. It also includes mechanisms for encouraging operators, such as relaxing restrictions on land use for power-generating facilities and exempting them from import tax on necessary equipment unavailable in Taiwan. The act also refers to specific areas, such as biofuel, noting that those who grow crops for biomass on fallow or deserted farmland are eligible for special grants from the Agricultural Development Fund.

No less important is the stipulation that authorities formulate a mechanism for Taipower’s purchase of electricity generated from renewable sources at a rate higher than the cost of power from fossil fuels. The rule covers green energy from both industry and private households. After five conferences and three public hearings attended by government officials, experts and businesses, at the end of 2009 the BOE announced minimum prices that Taipower should pay for power from clean energy sources. All of the recommended rates are higher than the average cost of NT$2.06 (US$0.06) per kilowatt-hour from fossil fuels during the past five years. For instance, a rate of at least NT$11.12 (US$0.35) per kilowatt-hour is guaranteed for PV power, NT$2.0615 (US$0.064) for power from biomass and NT$2.38 (US$0.07) for wind power. The new rates went into effect in January this year, with the state-run power company responsible for purchasing electricity from renewable sources at such rates for 20 years. Prices will be reviewed annually for newcomers to the sector. Taipower is planning minor increases in power fees to offset the cost of providing electricity from renewable sources.

Facing a ‘Green’ Tax

Another device for stimulating the growth of green energy is a proposed energy tax on polluting energy sources, which would, however, also push power rates higher. The Taxation Agency under the Ministry of Finance says revenue from such a tax could be used to fund green energy research as well as the development of mass transportation systems. Implementing such a tax could prove challenging, however. “It’s not easy for Taiwan to wean itself from conventional power sources because the [retail] power rate of NT$2.7 (US$0.08) per kilowatt-hour is quite low,” the BOE’s Wang Yunn-ming says. In October 2009, the Executive Yuan’s Tax Reform Commission reached a consensus on pushing for an energy tax, which will be levied by 2011 at the earliest. Still, a hike in power rates is likely to meet with resistance from the public, although Wang notes that “nearly all developed countries have imposed such a tax.”

“There’s a need for an energy tax,” Wang says. “On the other hand, the government must weigh the effect it might have on the general public and take supplementary measures to cushion the impact.”

That said, Taiwan has to move forward and play a responsible role in the world. The job of developing green energy sources is urgent since Taiwan produces 1 percent of world carbon emissions, but has a population accounting for only 0.3 percent of the world’s total, ranking it 18th in the global tally of per capita carbon emissions. Republic of China President Ma Ying-jeou expressed his concerns over these figures during a meeting with three-time Pulitzer Prize winner Thomas Friedman in January this year, although the American author has said he is optimistic about Taiwan’s efforts to curtail greenhouse emissions because of its most valuable renewable resource, namely its people and their creativity. At the same time, the president has called for Taiwan to limit its emissions volume to 2005 levels by 2020.

In any case, there is no resisting the global mega-trend to work toward a greener world. For the sake of both commercial benefits and environmental protection, Taiwan seems set to consolidate its status as a green energy developer.

Write to Oscar Chung at oscar@mail.gio.gov.tw