The precarious finances of Taiwan’s sole electricity utility are threatening the island’s clean energy ambitions, tarnishing its attractiveness as a manufacturing hub for the world’s biggest chipmakers, and even adding to its vulnerability in the event of a conflict with China.

Taiwan Power Co is forecasting another massive loss in 2023 and does not see much of an improvement this year. The state-owned company, known as Taipower, has been unable to fully pass on higher costs for gas and coal to customers due to political pressure to keep power prices low. It has also made a bet on offshore wind, a renewable technology that is facing difficulties across the world as costs and delays increase.

If Taipower cannot make sufficient progress on clean-energy generation, the island could potentially lose some of its allure as a destination for chip manufacturing. Taiwan Semiconductor Manufacturing Co, the world’s largest chipmaker that supplies the likes of Apple and Nvidia, has a target of using 100 per cent renewables by 2040.

Taiwan’s heavy reliance on imported fossil fuels, around 80 per cent of its electricity came from gas, coal and oil in 2022, also leaves it vulnerable in the event of an attack or even a naval blockade by China. The government wants green power to make up 20 per cent of the mix by 2025, from around 8 per cent in 2022 – a challenging target given that it is also aiming to phase out nuclear generation.

“Renewable energy is in need more than ever to fill the absence of nuclear power,” said Uran-Ulzii Batbayar, an analyst at research firm Rystad Energy. Adding more green generation requires substantial capital, and Taipower’s financial situation raises concerns about potential power disruptions affecting major chip manufacturers, she said.

Taipower is forecasting a loss of NT$198.5 billion (S$8.5 billion) for 2023, following an even worse result in the previous year. The utility sees another loss, of NT$188.7 billion, this year.

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The company is conducting an internal financial review and will report the results to the Ministry of Economic Affairs, it said in a statement last week, in which it also said it has no current plans to raise electricity prices this year.

“Taipower plays the role of a shock absorber on the frontlines, absorbing the impact brought by imported inflation,” it said in response to Bloomberg questions, adding that it has been exploring new sources of income and reducing costs to improve its financial position. 

The utility did raise prices by an average of 11 per cent last year and 8.4 per cent in 2022, though the adjustments mainly affected industrial consumers, according to a report in the Taipei Times.

Political pressure

But the increases paled in comparison to the jump in its fuel costs over the period, which were partly driven by a global energy crunch that followed Russia’s invasion of Ukraine. Asian benchmark prices for power-station coal surged almost 160 per cent in 2022, and while they gave up much of those gains last year, they are still well above where they were in 2019 and 2020. It is a similar story for natural gas. 

“Taipower is a state monopoly utility, so it’s under political pressure to ensure low electricity prices, regardless which party is in power,” said Robert Liew, Wood Mackenzie’s director of Apac power and renewables research.

The island is not alone in having its green ambitions threatened by a utility with threadbare finances. Others in the region, such as state-owned Korea Electric Power Co, which supplies about 70 per cent of South Korea’s electricity, are in a similar bind.

For now, the island’s government is still hoping much of the increase in renewables will come from offshore wind, even if many of these projects are in trouble due to rising costs and worsening delays. Requirements that developers buy equipment from Taiwanese equipment manufacturers have added to the industrywide troubles. BLOOMBERG