Not Another Blackout?! Power Shortages in Taiwan

In Kaohsiung, factories in the industrial district begin spewing out smoke of a strange color. In office buildings in the city's commercial district, air conditioning units large and small come to a halt. It becomes impossible for more than 300,000 households in the Kaohsiung-Pingtung area to generate the enticing smells of food being cooked.... No, there's been no typhoon, nor earthquake. Instead, there's been a problem with the cables at a power plant in southern Taiwan. Because the margin reserve (the amount of power that can be produced by generator sets kept in reserve) is limited, there is no power available to fill the gap.

Here it is only May, still well before the period of peak electricity demand in the summer, and already there's a widespread blackout. Another warning signal that Taiwan may not have enough power.

Who would buy a lamp in the middle of the night? When everyone else is in dreamland, lighting fixture stores still are blazing.

Power-hungry island

Today Taiwan is far more industrialized than it was way back when. When a power shutdown hits today, its impact is correspondingly greater.

Beginning in 1991, there have been rotating power shutoffs and rationing for industrial and urban districts. Though in no year has power rationing been used on more than 20 occasions, already makers of emergency diesel generators have made a fortune.

Inside the Hsinchu Science-Based Industrial Park are concentrated the hope of Taiwan's future: high value-added electronics makers. On April 19 there was a completely unanticipated blackout which shut down production lines. Seven manufacturers lost nearly NT$400 million. Suddenly high-tech industries began threatening to leave Taiwan just as labor-intensive factories have done, though not to seek lower labor costs. Instead, say the high-tech manufacturers, if there are more unannounced blackouts like this and rotating power rationing in summer continues, they will have no choice but to consider moving elsewhere.

Electric power is what gives life to industry. The amended Taiwan Energy Policy, produced by the Energy Commission of the Ministry of Economic Affairs (MOEA), estimates that by the year 2010 electricity will be the form of power most in demand in the Taiwan area, even surpassing dependence on petroleum. If the electricity drought is not ended, the impact on economic development will worsen and the situation could get out of control.

After the May power outage, the president came forward personally to request that the Council for Economic Planning and Development (CEPD) and relevant agencies develop countermeasures for supplying electrical power in emergencies.

Besides reaffirming that Taiwan needs the fourth nuclear power plant, which is currently facing intense controversy during budget hearings in the Legislative Yuan, Taipower also plans to increase the number of generator sets in existing power plants. Also, the Energy Commission is also anxious to begin permitting applications for privately run power plants. (Taipower is a state-run corporation.)

"Oppose nuclear power and save Taiwan." Radiation and nuclear waste have created fear at the local level, putting many obstacles in the path of nuclear power plant construction.

Non-stop overdrafts

But is a shortage of output the real cause of power rationing and power cutoffs?

In fact, the real cause of power rationing and blackouts can be seen from even a superficial glance: Because of rapid economic growth with a corresponding increase in national wealth, commercial and industrial demand for electricity has risen while consumer electric products have become common. On top of these, Taipower has run into land-acquisition problems and local resistance for plants it planned to develop, so these plants have not been able to come on line in a timely manner.

Over a thirty year period Taipower steadily developed new power plants until by 1986, it had accumulated a margin reserve of 50% (well above the normal level of 20%). Taipower was constantly running deficits, and at that point was criticized by the MOEA for wasteful investment. The margin reserve then began to decline as demand increased, until it reached only 4.7% during peak-demand hours last summer. At this level, should any generator shut down or there be an especially dry spell, there would simply not be enough reserve power to make up the difference, so the only thing to do is implement rotating power rationing.

High energy-consuming industries like concrete, steel, and paper are major causes of the low efficiency of energy use in Taiwan. （photo by Vincent Chang）

The wonder years

If you want to go a step further and assess the root cause of recent power outages, although Taipower has long been criticized for management shortcomings, the fact is that over the last ten years demand for electricity in Taiwan has increased at a rate of 8% per year, virtually the highest in the world. Once-abundant reserves have been eroded, so Taipower is now running itself ragged trying to increase power output, and is not able to simultaneously figure out how to get current facilities to operate at maximum efficiency or get to the root of internal management problems.

Because newly industrializing countries are rushing forward with economic development, they often use proportionately more electricity than advanced post-industrial economies. Taiwan is now in its electricity-devouring prime.

But for a country which relies entirely on imported resources, the rate at which demand for electric power has increased has always maintained a roughly 10:11 ratio with economic growth. "That's definitely too high," says Liang Chi-yuan, a research fellow at the Academia Sinica's institute of Economics. He feels Taiwan should depress the rate of growth in demand for electric power. In Japan, which also relies on imported energy, they have maintained a high economic growth rate even while bringing the electric power growth rate down to zero.

Though it is true that Taiwan's industrial structure and level of technology are different than Japan, even judged by less exalted standards the use of electric power in Taiwan is highly inefficient.

A recent report by the Taiwan Institute of Economic Research (not yet available to the public) points out that if Taiwan could achieve the same level of productive efficiency as Japan had 15 years ago (when its per capita income was the same as Taiwan's is today), by the year 2000 there would be no shortage of energy.

The most important reason why the productive efficiency of power is so low in Taiwan is connected to failures in industrial policy in recent years. The most frequently cited examples are petrochemicals, steel, concrete, and paper manufacturing. These four high energy-consuming industries eat up 31% of Taipower's output, but they account for only an 8% share of the total value of industrial production. Of the 20 largest consumers of power, 12 are steel plants and 6 are concrete manufacturers.

Without power, urban civilization gets destroyed in an instant. How can we not treat our electricity as a precious resource?

High-consuming industries

There has been a consensus on the need for industrial upgrading for well over a decade now. And everybody can talk about the Industrial Development Bureau's policy to "develop high value-added, low polluting, and low energy-consuming industries." But last year the CEPD noted that in fact over the last decade Taiwan's industry has continued to develop in the energy-intensive direction.

The MOEA position is essentially the same as that of most economists: Since the goal is to minimize government interference with industry, if high-energy consuming industries reflect their real social costs, then the government has no reason to restrain such industries. But these industries do not yet reflect their real social costs: There is no environmental impact assessment of those social costs, environmental laws are not strict, and industrial investment in pollution control is inadequate. It has been suggested that recently a contradiction has developed between policies governing industry and those governing energy.

Because of low willingness to invest in Taiwan and the outflow of labor-intensive industries, two years ago the MOEA proposed an economic stimulus plan. It stipulated that tax breaks and incentives would be offered to anyone making an investment in excess of NT$200 million. In the end, two-thirds of the beneficiaries were steel and petrochemical projects, running directly contrary to the government's industrial policy.

High-tech enterprises are also in a state of high anxiety. Because "sunset" industries are long-established here, most have agreements with Taipower exempting them from power rationing, so they are not at risk when power runs short. But many electronics makers who want to build Taiwan into a major electronics center have had their energy requests slashed by Taipower to 70% of what they wanted because of the tight power situation. And when power cuts go into effect, these newly rising industries are the first targets.

Industrial adjustment carries costs. If consideration is not given to long-term development, but only to the current low willingness to invest, and thought is only given to keeping the economy from shrinking in the short term, naturally there will be no determination to make the transformation.

The lack of coordination between industrial and energy policies means that the productive efficiency of investment in energy in Taiwan is only 40% of that in countries like France, Japan, and Germany.

The countless glass-enclosed skyscrapers in Taiwan's cities are a main reason why demand for electricity to power air conditioning has risen so dramatically in recent years.

Don't ask for too much

Former Minister of Economic Affairs Chao Yao-tung has suggested that Taiwan address the problem of the inefficient use of energy through energy pricing policies. He has argued that increased costs would spur people to be more efficient.

Unfortunately, even as other prices have been rising precipitously, over the last ten years just about the only "necessity" that hasn't increased in price has been electricity.

When former Premier Y.S. Sun was struggling to revive Taiwan's power industry after World War II, the government adopted a low-price policy. Pricing policy was oriented toward maintaining industrial competitiveness, and toward helping specified users and industries get a leg up. So even when all other prices rose, the cost of electricity was not allowed to increase.

This is especially the case for industrial electricity. Although the price has been adjusted several times, manufacturers (who consume 70% of all electricity in Taiwan) are still charged only seven-tenths of what commercial and household users are assessed.

Although Taiwan is not the only country with a low-cost energy policy, the offering of preferential rates to encourage industrial development also distorts resource distribution. It becomes a subsidy to industries that consume huge amounts of energy and encourages abnormal growth in such industries.

A highly charged issue

Today the real costs of electricity are far above what we can calculate. For example, Taipower has always claimed that the costs of nuclear power are low. But as yet there is no way to finally dispose of nuclear waste, and it will impose enormous costs on the next generation. The maximum for compensation in the event of an accident at a nuclear power plant has been set at NT$1.4 billion, and the law says that anything over that amount will be paid by the government, thus artificially lowering the calculated costs of nuclear power immensely.

Moreover, plant decommissioning costs, safe storage of nuclear fuels, and the costs from delays due to opposition from local citizens' groups should all be calculated into the price of electricity from nuclear plants. "Taipower has always said that nuclear power is cheap. That's strange, because to me it has always been very expensive," says Liang Chi-yuan, who is also a member of the MOEA's Energy Commission. Only when the costs of air pollution from power plants and other social costs are integrated into the price of energy can there be any improvement in the current price imbalance. And only then will there be an improvement in the efficiency of energy use.

In May, the Legislative Yuan approved the collection of air pollution prevention fees, indicating that the idea of external costs is finally becoming widely accepted. Taipower's coal and heavy oil burning power plants alone will have to cough up NT$3 billion in air pollution prevention costs per year. Inevitably, these costs will then be reflected in the price of energy.

Even more importantly, energy pricing should be decoupled from other policy objectives. "Energy pricing policy should only try to achieve goals related to energy, such as reducing energy consumption or improving efficiency of energy use," argues Wang To-far, chairman of the Institute of Economics at National Chunghsing University.

You can't just raise your hand

But to really reduce waste and raise efficiency, even more important is to make deep savings in energy use.

Almost all government officials or scholars who have anything to do with electric power say the same thing: "We have a huge amount of room for energy savings."

But most of those actually working to reduce energy consumption say pessimistically that we now live in an open society, and consumption cannot be forcibly repressed. It will be very difficult to try to slow the development of electrical power through reducing consumption.

In fact, it is not necessary for people to return to some primitive existence to save electricity. The reason why previous efforts at saving energy all failed was that they stopped at reliance on slogans like "just lift up your hand and turn off the light," which was simply not enough.

Countries that implement serious energy-saving policies focus on efficiency of use. For example, construction regulations require energy-saving materials for doors and windows. Yet the Energy Commission and the Construction and Planning Administration of the Ministry of the Interior have yet to adopt any methods to oversee energy-saving construction. The construction industry has simply imported the northern European style of buildings with large plate-glass windows; these buildings require huge amounts of air conditioning when temperatures rise and so are simply unsuitable for sub-tropical climates. Yet they have sprouted like mushrooms in Taiwan's urban areas, making electricity consumption for air conditioning more than 30% higher than it otherwise could be.

Whenever energy supplies get tight, the old energy-saving cliches are dragged out again. For example, after blackouts in April and May of this year, the CEPD proposed a study on the possibility of encouraging and subsidizing consumers to use energy-saving light bulbs. The problem is, the Energy Commission and Taipower have already "studied" the problem, but nobody actually is doing anything about it.

Overpowered

Today, the cost of reducing energy consumption is only one-fourth to one-seventh the cost of developing energy sources. This has already become an important incentive for various countries to develop energy-saving technology.

Energy-saving products are one of the biggest business opportunities of the future. Industries in developed countries are competing with each other to produce new products using energy-saving technology.

Meanwhile, Taiwan is still debating over whether or not to offer incentives to factories to use energy-saving equipment. Even as automation and pollution prevention equipment have long been included in industrial incentives, the Ministry of Finance is still considering whether or not to give a 10% tax break for energy-saving equipment.

Hong Ting, the executive secretary of the Energy Commission, who has been pushing for a 15% tax reduction for energy-saving equipment, says that he feels very frustrated. This is because the Energy Commission is only a subordinate unit of the MOEA. Therefore, he says, not mincing words, when there's a clash between industrial and energy policies within the ministry, "which side do you think the MOEA will give priority to? Industry, of course." He notes that tax and other policy tools are not in the hands of the Energy Commission, so that "everybody is always talking about saving energy but in fact energy is not given equal treatment."

Today, energy demand in the United States and Japan is about what it was at the time of the first energy crisis in 1973-1974 because they have successfully brought energy-saving policies into play.

According to statistics provided by Wang To-far, between 1983 and 1989, energy development accounted for 92% of all energy-related R&D expenditures. Only 8% was devoted to energy-saving technology.

Thus energy creation has always been given priority over energy saving. Since energy policy is oriented toward making a greater supply available, naturally there has been little success with efforts to reduce demand.

No need for large reserves

In recent years, with reference to both sudden blackouts and planned rotating brown-outs, Taiwan Power Company has always emphasized that the problem is that there is not enough output and there is too little margin reserve capacity. Thus there is not enough power to compensate in the event of generator problems or shutdowns.

Just as people sometimes fall ill, it is perfectly normal for machines to have mechanical problems and shutdowns. That's why it is necessary to have reserve electric power. But many scholars believe that Taiwan has always had adequate electrical power capacity. The problem lies in management shortcomings at Taipower. For example, poor maintenance and an excessive shutdown rate lower electrical supply, creating a situation in which actual supply cannot meet the demands of users, thus creating the need for occasional rationing.

Economists indicate that upgrading management and efficiency could create a situation like that in Japan, where reserve power has long been under 13% but they have not had power shortages.

This is why recently the government and academics have been actively pushing to open management of power plants to the private sector. Although privately run plants would inevitably have problems of their own, they would have the advantage of private-sector responsiveness, flexibility, and efficiency, which are precisely the things Taiwan's power generating industry lacks today.

A moment of decision

Beginning in the 1980s, Western countries' energy policies changed dramatically to emphasizing management of the demand side and upgrading efficiency.

Today, many countries understand that not only does an excessive emphasis on developing energy sources lead to waste and misuse of resources, the countries are highly vulnerable to sudden energy crises, while the power plants destroy the ozone layer and contribute to the greenhouse effect, so that in the end it becomes necessary to spend even more money to repair the damage.

Some scholars argue that we must first resolve the conceptual problem so that solutions to energy shortages move in the direction of reduced consumption.

The conceptual transformation we need is not just something for advanced nations. Thailand, struggling to develop, has already made a major breakthrough in energy policy. It is working with the International Energy Saving Center of the US to develop energy-saving products, has passed energy-saving control legislation, and has begun a complete reassessment of all energy prices. Economists conclude that such measures will reduce the pressure for development of new energy sources in Thailand's process of economic growth.

The fundamental viewpoint for managing energy should no longer be to encourage consumption. Zheng Chinlong says that the government should require Taipower to produce a plan for reducing demand, create incentives for power companies to undertake energy conservation, and create conditions so that companies get a better return from generating one less unit of electricity than they get from selling one more unit. Energy conservation costs could even in part be reflected in prices charged to consumers.

Even if we cannot moderate the growth of electrical power in the short term, Taipower general engineer Lin Ching-chi suggests that we should at least stipulate a power saturation point plan. The earlier such a plan is made, the less pointless wasteful investment there will be.

Learn from the US?

Although there are those who feel that demand for electricity will level off after reaching a certain point, others point to the example of the United States. But do we have to follow the same path as the US? According to the United Nations, the US accounts for only 5% of the world's population, but it consumes more than one-fourth of the world's energy. Per capita energy consumption in Germany and Sweden is only 60% of what it is in the States, but their standard of living is by no means lower.

In fact, because of an excessive investment in electric power, after American economic growth moderated, it had no choice in recent years but to close down nearly 200 power plants.

Will Taiwan adopt policies as early as possible to improve efficiency in energy use? Or will we simply wait till demand levels off and power output catches up? Today, the hidden message in the shortfall in electricity is that we should seriously rethink our relationship with energy.

[Picture Caption]

p.75

Are we really short of electricity? For thirty years power plants were built one after another. Should we take a look back and see how we've used them?

p.76

Who would buy a lamp in the middle of the night? When everyone else is in dreamland, lighting fixture stores still are blazing.

p.77

"Oppose nuclear power and save Taiwan." Radiation and nuclear waste have created fear at the local level, putting many obstacles in the path of nuclear power plant construction.

p.78

Highenergy-consuming industries like concrete, steel, and paper are major causes of the low efficiency of energy use in Taiwan. (photo by Vincent Chang)

p.80

Without power, urban civilization gets destroyed in an instant. How can we not treat our electricity as a precious resource?

p.82

The countless glass-enclosed skyscrapers in Taiwan's cities are a main reason why demand for electricity to power air conditioning has risen so dramatically in recent years.