Energy & Infrastructure Insight - Issue 3

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The payment structure of the FIT also presents challenges to developers. Since the tariff sets prices in local currency, most of the financing must also be in local currency. Sponsors have to date been able to tap into the liquidity made available by private Taiwanese banks and international banks who are able to extend loans in Taiwanese dollar. However, local state-owned banks with significant funding capacity, have been hesitant to participate. Such banks have been generally unfamiliar with limited or non-recourse-based financing for large projects. They have also been discouraged by certain PPA-related impediments such as the risk of grid unavailability and curtailment of dispatch, which investors must bear. Given the amount of funding already committed by private Taiwanese banks and international banks to Taiwanese offshore wind projects that have reached financial close to date, there are growing concerns about sources of funding for the Taiwanese offshore wind pipeline. So far, developers have sought to tap into liquidity from less typical financiers, such as local insurance companies, but these are unlikely to become anchor lenders for future projects. State-owned bank participation in these financings is therefore increasingly important to the financing needs of these capital-intensive projects. To encourage the participation of local state- owned banks, one possibility could be for them to provide corporate-style long-term loans guaranteed by an international lender (with or without cover from export credit agencies (ECAs)), thereby exposing the state- owned banks to the credit risk of the international lender, and making it easier for them to advance a long-term loan. This was a solution used to allow for local financing participation on a major Brazilian project financing we advised on last year. Finally, local content requirements may impact development costs for offshore wind projects in Taiwan. Some developers have negotiated unique alternatives with the government such as the establishment of an industry development fund to finance local content requirements in future projects. However, such initiatives may be inadequate to meet the requirement for localization that is expected in future auction rounds. Increased localization is also likely to complicate the ability of international lenders to obtain credit insurance coverage from ECAs, which is often tied to the support of the export manufacturing sectors of the ECA's home jurisdictions. Some ECAs are able to provide cover based on sponsor equity ownership, which could be a solution, but this product is still limited to a minority of ECAs. 27 FOR MORE INFORMATION PLEASE CONTACT: THOUGHTS FOR THE FUTURE The offshore wind market in Taiwan has recorded impressive growth in a short period of time, demonstrating the potential for Taiwan to emerge as a gateway for foreign investment in offshore wind power in Asia. However, its continued success will depend on whether the challenges posed by the increased localization, reduced FIT rates and liquidity constraints can be successfully overcome in future projects. Ben Shorten Partner Singapore T +65 6230 8907 bshorten@ Jean-louis Neves Mandelli Partner Singapore T +65 6230 3834 jean-louis.nevesmandelli@ Etienne Gelencsér Partner Tokyo T +81 3 5251 0209 etienne.gelencser@ Ashiq Aziz Associate Singapore T +65 6230 3862 ashiq.aziz@ Taiwan Offshore Wind – Challenged by Headwinds? (cont.)

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