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Government Helps RE Developers Reduce Development Risks, Improve CPPA Matching Opportunities.

Writer: Mia CHENG, Rose LIAO

Social Media Team: Irina LIN

Since Taiwan's RE market has been liberalized, it has seen the emergence of the option of long-term power purchase agreements (PPAs), and in the future, green power will also move towards Corporate Power Purchase Agreements (CPPAs). Due to the very long term of CPPA contracts, developers are unable to convince the banks that the purchaser will be able to operate for such a long period of time, which has led to the fact that when it comes to re-financing, except for TSMC, which has a good credit rating, all other companies signing a CPPA are discouraged by the banks due to the fear that the company may close down, which is why many wind developers sign all their RE to megacorporation, leaving many companies who want to sign a CPPA unable to find a provider (Developer). However, there are many other international brands, SMEs, etc. in Taiwan that are facing mandatory and voluntary demand for RE usage can’t find the RE resources, and the government has seen this issue and has proposed a policy of " National Financing Guarantee Mechanism Promotion (NFGMP)", which is expected to be launched in September 2023.[1]

The NFGMP, which will be financed by the National Development Fund and banks, provides a double guarantee to developers. The National Credit Guarantee Administration (NCGA) will be responsible for this project, and the Exim bank will be the implementation unit of the National Financing Guarantee Mechanism and is expected to provide a financing guarantee energy of 10 times the total amount of the financing. If buyers face operational difficulties in the future and are unable to continue purchasing RE, the NFGMP will step in to provide support. The renewable energy industry, especially solar and offshore wind power, is highly capital intensive and requires significant funding. As early as in the past, European countries have put forward concepts like NFGMP. The European Investment Bank (EIB) has achieved remarkable results in its Project Bond Initiative (PBI), especially in the enhancement of the mechanism of RE project credit is worth introducing from our country[2].

The PBI was launched in Europe with the objective of inducing private sector institutional investors to invest in large capital-intensive infrastructure projects. Through the credit enhancement mechanism, it reduces the impact of highly risky factors during the project construction period and increases the confidence of external investors in the project. For example, in the case of the UK offshore wind project, the input of the EIB and the use of a credit enhancement mechanism for the project bonds have lowered the cost of project financing and attracted more external investors to participate in the project. Through such a mechanism, it is expected to help developers reduce certain risks in financing in the future, and at the same time, they will be more willing to sign the CPPA to enterprises other than megacorporation.

Overall, the NFGMP is an effective way to promote large-scale renewable energy infrastructure projects, and it will also give Taiwanese companies, whose demand for RE is growing, a better chance of signing up for RE, leading to smoother development of the RE projects.[3]

* National Financing Guarantee Mechanism Promotion (NFGMP) 國家融資保證機制推動方案

* The National Credit Guarantee Administration (NCGA) 國家融資保證中心

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