Taiwan’s Energy Policy at Odds With Economic Needs

Executive Summary:

• Taiwan’s president Lai Ching-te could be open to restarting the island’s nuclear power program, with Premier Cho Jung-tai suggesting the Legislative Yuan could discuss the topic, and pro-nuclear business executive Tung Tzu-hsien being appointed to a newly established National Climate Change Committee.
• Taiwan’s manufacturing industry—its most economically and strategically important sector—is unusually energy intensive. Constantly increasing demand for electricity is set to force tradeoffs unless the island’s energy policy is reformed.
• Currently, nuclear power generation in Taiwan is set to fall to zero by the middle of 2025 without policy intervention, following the winding down of the island’s last remaining power plant as a result of the previous administration’s “nuclear-free homeland” policy.
• A lack of alternatives to nuclear are leading to problems with the island’s energy mix. On the one hand, an overreliance on fossil fuels has led to heavily polluted cities; on the other, the solar and wind sectors have undershot expectations and are increasingly not seen as viable, with several Japanese firms exiting the market last year.

On July 27, Taiwan shut down its second-to-last operational nuclear reactor, signaling the determination of the ruling Democratic Progressive Party (DPP) to press forward with its pledge to eliminate the use of atomic energy despite the policy’s economic risks (United Daily News [UDN], July 27). In 2023, nuclear power accounted for about 6.3 percent of the island’s energy use, down from 12 percent in 2016 at the beginning of former President Tsai Ing-wen’s (蔡英文) first term (Ministry of Economic Affairs, 2023). It is set to fall to zero with the scheduled closure of Taiwan’s last operational nuclear reactor, located in the southern county of Pingtung, in May 2025.

While Taiwan has a long history of anti-nuclear activism, 59 percent of voters in a November 2018 referendum rejected phasing out atomic energy. Min Lee (李敏), a nuclear engineering professor at Taiwan’s National Tsing Hua University, said at the time that the island democracy “cannot make it without nuclear power” because the alternative would be to rely more heavily on fossil fuels, which are both polluting and vulnerable to supply shocks. He questioned whether Taiwan had adequate land to install significant solar and wind energy capacity (Science.org, November 27, 2018).

The Tsai administration, however, ignored the results of the referendum and held another in late 2021. This time, voters aligned with the administration, rejecting the proposal to restart work on Taiwan’s fourth nuclear power plant by a margin of about 53 percent to 47 percent (The Taipei Times, December 19, 2021). At the same time, the Tsai administration doubled down on energy-intensive manufacturing. With the outbreak of the trade war between the United States and the People’s Republic of China (PRC) in 2018, Taiwan saw an opportunity to bring home manufacturers that had previously moved across the Strait to take advantage of lower labor costs and tax breaks but now sought to avoid the impact of US tariffs. This “reshoring” policy has generated nearly US$38 billion in investments (National Development Council, August 9) but has coincided with growing strain on Taiwan’s electricity grid. Northern Taiwan had an electricity shortfall of about 20 billion kilowatt (KW) hours in 2023 (TYE News, August 16). The grid will likely be tested further as Taiwan’s semiconductor industry ramps up production of power-hungry artificial intelligence (AI) chips.

President Lai Ching-te (賴清德), who served as Tsai’s vice president for four years (2016–2020), has promised to carry out her “nuclear-free homeland 2025 (2025非核家園)” policy but is governing without the majority she enjoyed in Taiwan’s parliament, the Legislative Yuan. The main opposition party, the Kuomintang (KMT), as well as the smaller Taiwan People’s Party (TPP), are both pressing Lai to change course on the nuclear-free goal (Central News Agency, June 30). While he has not yet changed course, it is unclear if Taiwan can phase out atomic energy without facing a substantial electricity shortage. Doing so might deal a blow to the island’s energy security, which faces significant challenges (see China Brief, March 29).

Renewable Energy Shortfall

Taiwan’s electric power situation has become increasingly precarious in part because the government set an extremely ambitious renewable energy target that it has not been able to meet. The Tsai administration pledged in 2016 that renewables would account for 20 percent of the energy mix by 2025, but the total only reached 9.5 percent at the end of 2023. By 2025, it is predicted instead to reach just 15.1 percent (Risk Society and Policy Research Center, March 25, 2023). Fossil fuels, meanwhile, made up an even larger portion of Taiwan’s total generation in 2023 than they had in 2016: 81.7 percent compared to 77.4 percent (Ministry of Economic Affairs, July 4). The American Chamber of Commerce in Taiwan, the largest foreign business association on the island, notes that “the rate at which power produced from renewables is growing is falling behind set goals,” in its 2024 White Paper (AmCham Taiwan, June 6).

Burdensome regulations for the offshore wind industry are a key part of the problem, given the fact that wind and solar power represent the main two viable clean energy alternatives in Taiwan. For instance, Taiwan currently requires offshore wind developers to procure 70 percent of their equipment from local manufacturers, which raises the cost of projects significantly. Taiwan’s CommonWealth Magazine cited a wind power industry consultant who estimated that Taiwan’s wind farms cost 2.5 times more than equivalent projects in Europe (CommonWealth Magazine, April 17). Purvin Patel, Asia-Pacific president for the Danish offshore wind turbine maker Vestas, told CommonWealth that such localization requirements would inflate electricity prices and consequently deter buyers, causing most of the island’s wind farms to be financially unviable. “Europe took nearly 30 years to naturally develop a global offshore wind supply chain, whereas Taiwan aims to catch up within a decade, with insufficient scale to reduce costs,” he said. In a pessimistic scenario, none of Taiwan’s planned Phase 3 offshore wind farms, totaling 6 gigawatts (GW) across 18 sites, may be realized (CommonWealth, April 17).

Amid these travails, several Japanese companies exited Taiwan’s offshore wind sector in 2023. Shikoku Electric Power Co. pulled out of the Yunlin Offshore Wind Project, citing delays threatening its profitability. Electricity generator JERA Co., meanwhile, completed the sale of its stake in Formosa 3, another Taiwanese offshore wind project, in June 2023. Japan’s Eneos Holdings has also cast doubt on its willingness to remain involved in the Yunlin project (UDN, November 17, 2023).

Taiwan’s progress in solar energy has been marginally better. As of November 2023, Taiwan had 12GW of solar capacity, which would require that it add about 4 GW per year to meet the 20GW goal by 2025. Market intelligence firm S&P Global estimates that the target is ambitious, however. Most of Taiwan’s rooftop capacities suitable for solar panel installation have already been developed, while solar photovoltaic (PV) projects often overlap with land resources used by Taiwan’s agricultural and fishery sectors (S&P Global, February 1). The lack of space is a difficult hurdle to overcome in what is one of the most densely populated countries in the world. However, there remains little direction from the top of government. A report from May 2022 lamented the lack of a white paper on spatial development that would provide direction to help deal with this problem (TWReporter, May 25, 2022).

Power Crunch

In recent years, Taiwan has struggled with periodic blackouts that highlight weaknesses in its electrical grid infrastructure. A March 2022 blackout caused 12 hours of power outages across the island, affecting 5.5 million households. The technology hardware, petrochemical, and steel sectors all suffered costly interruptions to their operations. A subsequent government investigation found that negligence on the part of state-run Taiwan Power Co (Taipower) workers caused the blackout (The Control Yuan, July 5, 2023).

In April 2024, Taipower president Wang Yao-ting (王耀庭) resigned from his position after the company suffered heavy criticism over a series of a power outages in the northern city of Taoyuan. However, Premier Chen Chien-jen (陳建仁) persuaded Wang to remain in his post. At a subsequent press conference, Wang said that Taipower had been used “as a political tool” and defended the company’s record, noting that the number of Taiwan’s annual power outages had fallen about 70 percent in the past decade (Central News Agency [CNA], April 22). However, Taipower has again come under fire following the government’s August 10 announcement that Taiwan has stopped approving data centers larger than 5MW north of Taoyuan due to inadequate power supply in the region. The Ministry of Economic Affairs emphasized in a Facebook post that if northern Taiwan “hopes to win over major manufacturers of AI chips, the best way is to support the construction of new power plants and grids” (Facebook/Ministry of Economic Affairs, August 10).

Taiwan’s Energy Administration estimates the island democracy’s electricity demand will grow by about 2.5 percent annually through 2028. A key driver of rising demand will be the power needs of AI technologies, which are expected to jump eightfold from 240 MW in 2023 to 2.24 GW in 2028 (World Journal, July 16). These estimates broadly align with an international consensus that AI will consume an increasingly large share of electricity resources. The investment bank Goldman Sachs estimates that data center power demand globally will grow 160 percent by 2030 as the use of AI applications rises. The bank notes that data centers currently consume 1–2 percent of overall power, but predicts that this will grow to 3–4 percent by the end of the decade, with AI accounting for nearly a fifth of data center power demand (Goldman Sachs, May 14).

Lai Open to Nuclear Option

There are signs that Lai may be more amenable to the idea of maintaining nuclear power than his predecessor, even if his administration has yet to reverse its stance on nuclear power. Lai is not personally tied to the policy in the same way Tsai Ing-wen was. Tsai campaigned on a promise to make Taiwan nuclear free by 2025. In contrast, during Lai’s campaign in October 2023, he said that if Taiwanese people’s concerns about nuclear safety and disposal of nuclear waste can be properly addressed, he believed that “society will accept nuclear energy” (CNA, October 19, 2023).

Lai appointed a pro-nuclear business executive, deputy Pegatron Group chairman Tung Tzu-hsien (童子賢; T.H. Tung) to be a deputy convener of a newly established National Climate Change Committee (Office of the President, July 6). Tung, whose company is one of Taiwan’s largest contract electronics manufacturers, advocates an energy mix in which both renewables and nuclear power each have a 30 percent share, in contrast to the Taiwanese government’s stated goal of clean energy accounting for 60–70 percent of energy use by 2050. In June, Tung noted that Taiwan’s nuclear power plants have performed well in their 40 years of operation, with strong safety records—including high rankings in international safety assessments—and low costs. He warned that, given the limitations Taiwan faces in terms of solar and wind capacity, eliminating atomic power would lead to greater fossil fuel use, which would both raise electricity costs and increase air pollution (Yahoo News Taiwan, July 12).

The Chinese National Federation of Industries (CNFI), a major business association in Taiwan, is also urging the government to rethink its nuclear-free goal. Its chairman, Pan Chun-jung (潘俊榮), noted in May that France, Japan, and South Korea all use nuclear power and that the G7 nations recognize it as a zero-emission, low-cost energy source (Commercial Times, May 8). South Korea, which is building three new reactors, estimates that by 2038 atomic energy could account for more than 35 percent of its total power generation (KEEi, May 31). Japan, meanwhile, reportedly plans to allow utilities to build new nuclear reactors on condition they decommission the same number of aging reactors elsewhere (Asahi Shimbun, June 16).

In the clearest sign yet Lai’s administration may be reconsidering its aversion to nuclear power, Premier Cho Jung-tai (卓榮泰) told The Liberty Times—Taiwan’s largest daily—on August 1 that the Legislative Yuan could discuss with Taiwanese society whether there was a place for nuclear power in the island’s future. He noted that the issue remains polarized, but if nuclear energy were safe and there were no problems with its waste, “everyone might have a new perspective” (The Liberty Times, August 1).

Conclusion

Taiwan’s ruling Democratic Progressive Party has long opposed nuclear energy and sought to completely replace it with solar and wind power. However, the renewable energy drive of the past eight years has fallen far short of expectations, with little prospects of scaling significantly in the coming years. The result has been greater use of both natural gas and coal, with negative implications for Taiwan’s environment and efforts to tackle climate change. The southwestern Taiwanese cities of Changhua, Tainan, Pingtung, Kaohsiung, and Chiayi were all named in March among the top 100 most polluted cities globally by Swiss air quality tracking company IQAir (Yahoo News Taiwan, March 20).

At the same time, Taiwan remains committed to an economic model heavily dependent on energy-intensive manufacturing. The manufacturing sector accounts for 38 percent of GDP, unusually high for an advanced economy (US International Trade Commission, May 30). In South Korea, that figure is 25.5 percent, and in Japan 19 percent (US International Trade Administration, December 5, 2023; World Bank Group, accessed August 16). Those manufacturers are now pressing the Lai administration to change course on nuclear power because they do not believe Taiwan’s current energy policy will ensure stable electricity supply for their business operations in the future. They can be reasonably sure of strong public support given the results of Taiwan’s two referenda on nuclear energy, though it is unclear if they will have the support of the majority. While Lai faces a political risk if he jettisons the nuclear-free policy Tsai Ing-wen championed, the cost of doubling down on what has become an unsuccessful energy policy could bode worse for both Taiwan’s economic well-being and his electoral prospects in 2028. For these reasons, an adjustment of the DPP’s “nuclear-free homeland” policy looks increasingly possible.