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Latest Taipower request a misguided one: analysts

A request by Taiwan Power Co (Taipower, 台電) for the government to halt approving the establishment of cogeneration plants by companies to supplement the nation's power supply is misguided, according to industry executives.

The request, which is currently being considered by the Ministry of Economic Affairs, would effectively freeze government approvals of any new cogenerators stemming from what Taipower asserts are significant losses.

Taipower says that the fixed price of NT$1.62 per kilowatt hour at which the company is legally obliged to buy power from cogenerators is too high -- often varying greatly from the production cost -- and is causing significant financial harm.

The ministry is expected to finalize a policy on the issue by next month.

Newly appointed Taipower Chairman Lin Wen-yuan (林文淵) was quoted in the Chinese-language media recently as saying that the NT$2.4 billion the company spends every year buying power from cogenerators and independent power producers will drag it into the red by 2004.

This can only be averted if the government stops encouraging private investment in cogeneration units or independent power producers.

Under a policy of boosting the nation's extremely low reserve power margin -- the amount of extra power available at maximum load -- the government in 1988 began encouraging companies to establish their own cogenerators.

A cogenerator is essentially a mini power plant that can be run by the excess energy generated by manufacturing lines in traditional industries or an independent fuel source such as natural gas or coal.

Cogenerators can sell excess or all of their electricity to the state utility at a fixed price of NT$1.62 per kilowatt hours regardless of the production costs.

Independent power producers, classified as bonafide electricity plants in their own right, are generally much larger and can sell to any integrated power company -- which for the time being means Taipower -- at a price negotiated between the two.

"Due to perceived losses Taipower simply doesn't want to be made to buy power from any more cogeneration plants," said an official from the ministry's Energy Commission.

Taipower's base average cost of production is NT$1.2 per kilowatt hours which it says is far lower than the price at which it must buy it, the official said.

Currently there are 58 cogenerators selling an estimated 1.8 million kilowatt hours to Taipower every year, said the official.

Additionally, when the cogenerator policy was devised Taiwan's power reserve margin was down around 3 percent to 5 percent, but has now risen to 13 percent with expectations to climb above 15 percent by year end, the official said.

But according to Ho Chun-jen (何存仁), vice president of Hsin Yu Energy Development Co (新宇汽電共生), a major cogenerator at Hsinchu Science-based Industrial Park (新竹科學園區), the policy is misguided.

Ho, whose company operates one 165-megawatt, gas-fired power plant in the park with another 232-megawatt plant in the planning stage, said Taipower's real problem with cogenerators is Formosa Plastic Group's (台塑集團) massive power plant in its Mailiao industrial complex.

"Taipower is affected mainly by the Formosa Plastic Corp (台塑) which has a giant cogeneration plant at Mailiao ... the main purpose for that plant is the fact the company can make a lot of money from Taipower," Ho said.

Currently Formosa has two 60-megawatt cogeneration units at its Mailiao complex as well as three 60-megawatt units classified as being provided by an independent power producer, according to Taipower.

While Taipower purchases all the power from the three IPP-classified units at a negotiated rate of NT$0.9 per kilowatt hour, the excess 40 megawatts from the two cogenerators are purchased at the set rate of NT$1.62, both well above the NT$0.5 production cost of the coal-fired plant.

By targeting all cogenerators for blame Taipower is being "misleading," said Ho, who said that its losses have resulted mainly from the excess purchase of the Mailiao plant.

Production costs of many cogenerators are extremely high due to the choice of natural gas as a fuel, Ho said. The cost of production is about the same as the government-set purchase price, he added. "We use natural gas as a fuel and we lose money."

One foreign business executive, who declined to be named, agreed, saying the government should have limited the amount of power it purchased from large cogenerators like Formosa, which claims it sells 53 percent of its total output to Taipower.

"That's a lotta juice ... they're making a lot of money," said the executive. "They should have limited it so that the total percentage of electricity a cogenerator can sell cannot exceed 30 to 40 percent unless specifically approved by the government," he added.

Taipei officials declined to name a specific cogenerator or independent power producer when stating its case for halting approvals of new suppliers, saying only that current conditions were unreasonable.
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