The optimal path for greater use of in WHITE PAPER ON POWER SYSTEM OPTIMISATION

The global energy market landscape is in transition, largely due to the rapidly decreasing cost of renewables. Major players are CONTENTS moving towards more flexible and sustainable energy systems with a rapidly increasing share of renewable energy, declining inflexible baseload generation and a wider application of flexible I. Market background ...... 2 II. Determining the optimal power generation and energy storage technologies. path for Taiwan...... 4 III. The modelling results . . . . . 5 In Taiwan the government’s planned power generation mix for 2025 is 20% renewables, 30% IV. Recommendations and and 50% , with all existing nuclear reactors retired before the end of 2025 as benefits ...... 9 part of the island’s “nuclear free homeland” vision. The target is to install 27 GW of renewables, V. Conclusion ...... 11 including 20 GW of solar PV and 6.7 GW of by 2025. In this study we used PLEXOS® energy simulation software to model the optimal investment path for meeting Taiwan’s goal of 20% renewable energy by 2025 while ensuring efficiency, reliability and a reduction in costs. The modelling demonstrates that Taiwan can cost-effectively increase the amount of renewables in the system well beyond 20%. Flexibility in the form of gas-powered engine power plants – which can be ramped up and down quickly to cope with fluctuating demand – is needed to cope with the intermittency of renewables. We will also show why investing in traditional thermal baseload today will restrict the country’s alternatives LEARN MORE: in the future, whereas a flexible system will keep the option open to achieve a high renewable https://www.wartsila.com/ power system in the future even faster. energy

White paper on power system optimisation | The optimal path for greater use of renewable | 2019 I. Market background

The Taiwanese Ministry of Economic Affairs (MOEA) and the integrated utility (TPC) have planned new installations of coal and combined cycle gas turbines (CCGT) from 2018 to 2025. They will retire all nuclear and oil steam power plants by 2025.

Generator type Coal LNG Dalin #5 (500) Oil Nuclear Tongxiao CC #4 (386) Tongxiao CC Xinda #5 (386) #3 (550) Xiehe Datan CC Xinda Xiehe GT #1 (500) #7-GT stop (600) #1 (500) #3 (500) #2 (70) Xiehe Taichung GT #1 Xinda Xiehe Taichung GT #2 (500) (70) #2 (500) #4 (500) #3 (70) NPP1 NPP1 NPP2 #1 Taichung GT #4 NPP2 NPP3 NPP3 Retirement #1 (636) #2 (636) (985) (70) #2 (985) #1 (951) #2 (951)

Year 2018 2019 2020 2021 2022 2023 2024 2025 Dalin New Dalin New Tongxiao New CC Datan CC Datan CC Taichung CC Taichung CC New installation #1 (800) #2 (800) #3 (893) #8 (1000) #9 (1000) #1 (1000) #2 (1000) Tongxiao New CC Linkou New Xinda New CC Datan CC Xiehe New CC #1 (893) #3 (800) #1 (1000) #7 (1000) #1 (1000) Datan CC Tongxiao New CC Xinda New CC New Northern CC #7 (600) #2 (893) #2 (1000) (500)

Note: The TPC thermal & nuclear units’ retirement and new installation plan between 2018 to 2025 are based on MOEA’s report “Review of the assessment in response to the referendum” on March 4, 2019.

The above table was published on the TPC website (as on March 4, 2019)

Power demand in Taiwan is expected to grow slowly at around 1-2% per year. The market is in the process of being liberalised to effectively end a 70–year monopoly on the sale of electricity and also to encourage green energy production. TPC will be restructured into two separate operations: one for power generation and the second for electricity transmission, distribution and sale. This means that other power suppliers will be able to sell electricity produced by renewable energy sources directly to consumers, in a change from the previous system in which private companies sold energy to TPC, which charged a transmission handling fee and then distributed it at the price it had set. As part of the plan to reach 20% renewable energy sources by 2025, a total of 5.5 GW of offshore wind power has been auctioned. There is also a plan to add 1 GW per year of new offshore wind capacity from 2026 to 2030.

2 White paper on power system optimisation | The optimal path for greater use of renewable energy in Taiwan | 2019 Installed capacity 2018 in the system

1.4% 1.3% 1.6% Gas 4.5% Coal 4.7% 25.5% IPP-gas

Nuclear 5.3% INSTALLED CAPACITY IPP-coal

Pumped hydro The current5.8% installed capacity ofTotal TPC, IPPs and renewables under feed-in tariffs is about 45 GW, with coal and gas accounting for the majority of the installed base, and renewablesSolar accounting for about 17% of installed capacity and 6% in the45.0 generation mix. Hydro 7.0% Oil Installed capacity 2018GW in the system Installed capacity in the system, 2018 Wind Co-gen

1.4% 1.3% Diesel (islands) 10.1% 22.5% 1.6% Gas 4.5% Coal 4.7% 10.4% 25.5% IPP-gas

Nuclear 5.3% IPP-coal

Pumped hydro 5.8% Total Solar 45.0 Hydro 7.0% Oil GW Wind

Co-gen

Diesel (islands) 10.1% 22.5%

10.4%

Source: TPC Generation mix 2018 Generation mix 2018, TWh

2.0% 1.5% 2.8% 4.9%

11.4% 38.7% Coal Gas Total Nuclear Renewables

Oil Generation mix 2018233.3 TWh Co-gen Pumped hydro

2.0% 1.5% 2.8% 38.6% 4.9% Source: TPC

11.4% 38.7% Coal Gas Total Nuclear Renewables 233.3 Oil TWh Co-gen White paper on power system optimisation | The optimal path for greater use of renewable energy in Taiwan | 2019 3 Pumped hydro

38.6% II. Determining the optimal path for Taiwan

Wärtsilä's analysis, carried out using PLEXOS, focused on the importance of flexible power generation to complement renewables, as the total amount of renewables may be curtailed by inflexible capacity. The goal was also to see if total operational costs and emissions can be reduced while still ensuring high reliability. The PLEXOS modelling is based on the operational cost and capital expenditure of different technologies. Renewable feed-in tariffs and market prices are not considered in this exercise. The system load profile in 2025 was projected based on the actual load profile of 2016.

SCENARIOS CONSIDERED

Scenario 1 (base case) – without flexible generation New coal plants, CCGTs and renewable energy capacity ABOUT PLEXOS® ENERGY are added to achieve the target of 20% renewable energy SIMULATION SOFTWARE sources, 30% coal and 50% gas. PLEXOS by Energy Exemplar is a proven energy simulation software Scenario 2 – with flexible generation used by the world’s leading New coal plants, CCGTs, renewable energy and flexible system operators, regulators and generation in the form of gas-powered engine power plants planners as well as utilities, traders, and battery storage are added to achieve the target of 20% consultants and manufacturers. renewable energy sources, 30% coal and 50% gas. Wärtsilä uses PLEXOS globally for Scenario 3 – high renewable power system modelling, both in MOEA target constraints are removed and PLEXOS optimises long-term capacity development the generation mix based on the best available choices and optimisation and short-term outcomes. dispatch optimisation. PLEXOS is built to find the most cost-optimal solution for each scenario based on The sources for this study are TPC’s 2017 long-term the applied constraints. expansion plan, TPC’s 2016 power generation data and the MOEA power generation mix target. This study was made as a long-term generation expansion model in PLEXOS. The planning horizon is 2020-2030 and the resolution time of the model is two hours.

4 White paper on power system optimisation | The optimal path for greater use of renewable energy in Taiwan | 2019 Scenario 1 (base case) – without flexible generation Scenario 1 (base case) – without flexible generation

100000 100000 90000 90000 80000 80000 70000 70000 60000 60000 50000 MW 50000 MW 40000 40000 30000 30000 20000 20000 10000 10000 0 0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Scenario 2 – with flexible generation Scenario 2 – with flexible generation 100000 100000 90000 III. The modelling90000 results 80000 80000 70000 70000 SCENARIO 1 (BASE CASE) – 60000WITHOUT FLEXIBLE GENERATION 60000 50000 MW In scenario50000 1, when the system has a large share of conventional thermal baseload, it is not able to adjust MW to the fluctuating generation of the40000 renewable energy sources, thereby inhibiting the adoption of renewable energy40000 sources. This means that only 11 GW of new solar power can be added to the system by 2025. 30000 The30000 modelling results are as follows: —— Coal plants are added until 2022,20000 with only gas plants added thereafter* 20000 —— No new solar power plants are10000 added from 2025-2030 because of a lack of flexible power generation —10000—A minimum reserve margin capacity of 15% is needed, including 30% solar and 20% wind as firm capacity 0 0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 * The base2020 case scenario 2021 is 2022 based on 2023the 2017 plan 2024 published 2025 on the 2026 TPC website 2027 2028 2029 2030

Scenario 1 (base case) – without flexible generation

System without flexible generation Scenario 3 – High renewables Scenario 3 – High renewables 100000 100000 90000 90000 80000 80000 70000 70000 60000 60000 50000 MW 50000

MW 50000 MW 40000 40000 30000 30000 20000 20000 10000 10000 0 0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Solar Wind Solar Wind Biomass Scenario 2 – with flexible generation ROR hydro Pumped storage Nuclear ROR hydro FlexibilityPumped (ICE)storage NuclearOil Open cycle gas turbine Flexibility (ICE)* Oil Open cycle gas turbine 100000 Combined cycle gas turbine Open cycle gas turbine new build Combined cycle gas turbine new build Combined cycle gas turbine STOpen Coal cycle gas turbine new build Combined ST Coal new cycle build gas turbine new build Energy battery 90000 ST Coal Power ST Coal battery new build EnergyPeak load battery * InternalPower combustion battery engine Peak load 80000

70000

60000

50000 MW

40000

30000

20000

10000

0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Scenario 3 – High renewables

100000

90000 White paper on power system optimisation | The optimal path for greater use of renewable energy in Taiwan | 2019 5 80000

70000

60000

50000 MW

40000

30000

20000

10000

0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Solar Wind Biomass ROR hydro Pumped storage Nuclear Flexibility (ICE) Oil Open cycle gas turbine Combined cycle gas turbine Open cycle gas turbine new build Combined cycle gas turbine new build ST Coal ST Coal new build Energy battery Power battery Peak load Scenario 1 (base case) – without flexible generation Scenario 1 (base case) – without flexible generation

100000 100000 90000 90000 80000 80000 70000 70000 60000 60000 50000 MW 50000 MW 40000 40000 30000 30000 20000 20000 10000 10000 0 0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Scenario 2 – with flexible generation Scenario 21 –(base with flexiblecase) – generationwithout flexible generation 100000 100000 90000 10000090000 80000 8000090000 70000 7000080000 60000 6000070000 50000 SCENARIO 2 – WITH FLEXIBLEMW GENERATION 5000060000 MW 40000 50000 InMW scenario40000 2, the target of 20 GW solar can be achieved by adding flexible generation in the form of gas- powered engine power plants and30000 battery energy storage to the grid. The modelling results are as follows: 3000040000 —— No new coal plants are added20000 30000 —20000— 1.5 GW CCGT and 7.5 GW internal combustion engine (ICE) power plants are added by 2025, 10000 increasing to 5.1 GW CCGT and 8.3 GW ICE power plants by 2030 1000020000 —— 4.3 GW wind is added by 2025, 0with more wind installations from 2026 to 2030 100000 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

System with flexible generation Scenario 3 – High renewables Scenario 32 – Highwith flexible renewables generation 100000 100000 90000 90000 80000 80000 70000 70000 60000 60000 50000 MW 50000 MW 50000 MW 40000 40000 30000 30000 20000 20000 10000 10000 0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Solar Wind Biomass Solar RORWind hydro PumpedBiomass storage Nuclear ROR hydro FlexibilityPumped (ICE)storage OilNuclear Open cycle gas turbine ScenarioFlexibility 3 – High renewables(ICE) CombinedOil cycle gas turbine Open cycle gas turbine new build Combined cycle gas turbine new build Combined cycle gas turbine STOpen Coal cycle gas turbine new build CombinedST Coal new cycle build gas turbine new build Energy battery 100000 ST Coal Power ST Coal battery new build PeakEnergy load battery Power battery Peak load 90000

80000

70000

60000

50000 MW

40000

30000

20000

10000

0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Solar Wind Biomass ROR hydro Pumped storage Nuclear Flexibility (ICE) Oil Open cycle gas turbine Combined cycle gas turbine Open cycle gas turbine new build Combined cycle gas turbine new build ST Coal ST Coal new build Energy battery Power battery Peak load

6 White paper on power system optimisation | The optimal path for greater use of renewable energy in Taiwan | 2019 Scenario 1 (base case) – without flexible generation Scenario 1 (base case) – without flexible generation

100000

90000

80000

70000

60000

50000 MW 50000 MW

40000

30000

20000

10000

0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Scenario 2 – with flexible generation Scenario 2 – with flexible generation

100000

90000

80000

70000

60000 SCENARIO 3 – THE HIGH RENEWABLE OPTION 50000 MW 50000 MW

In scenario40000 3, the optimal mix is not constrained by the target of 20% renewable energy, 30% coal and 50% gas. There are no constraints such as installation space or grid connections in the model. The modelling 30000 results30000 are as follows: —20000— No new coal plants or CCGTs are built – only new ICE power plants, battery storage and renewable energy are added 10000 —— 24 GW of is added by 2025, rising to a total of 30 GW by 2030, while 22.3 GW of wind power is also added by 2030 0 • Batteries2020 2021are economical 2022 after 2023 2027, 2024 with 2.1 2025 GW of 2026 batteries 2027 added 2028between 2029 2027 and 2030 2030

System with high renewables Scenario 3 – High renewables Scenario 3 – High renewables

100000

90000

80000

70000

60000

50000 MW 50000 MW

40000

30000

20000

10000

0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Solar Wind Biomass ROR hydro Pumped storage Nuclear Flexibility (ICE) Oil Open cycle gas turbine Combined cycle gas turbine Open cycle gas turbine new build Combined cycle gas turbine new build ST Coal ST Coal new build ST Coal ST Coal new build Energy battery Power battery Peak load

White paper on power system optimisation | The optimal path for greater use of renewable energy in Taiwan | 2019 7 Dispatch - 13_base_Gas50%RE20% - year 2030

40000 Dispatch - 13_base_Gas50%RE20% - year 2030

40000

DISPATCHDispatch GRAPHS - 13_base_Gas50%RE20% FOR - 2025year 2030 30000 40000 Dispatch - 13_base_Gas50%RE20% - year 2030 Scenario30000 1 (base case) – without flexible generation 40000

20000 MW 30000

20000 MW 30000

10000 20000 MW 10000 20000 MW

0 10000 Mon Tue Wed Thu Fri Sat Sun

0 10000 Mon Tue Wed Thu Fri Sat Sun Dispatch - 20_base_Gas50%RE20%_ICE+Batt in - year 2030

0 40000 DispatchMon - 20_base_Gas50%RE20%_ICE+BattTue Wed in - year 2030 Thu Fri Sat Sun

0 40000 Mon Tue Wed Thu Fri Sat Sun Dispatch - 20_base_Gas50%RE20%_ICE+Batt in - year 2030

Scenario30000 2 – with flexible generation 40000 Dispatch - 20_base_Gas50%RE20%_ICE+Batt in - year 2030

30000 40000 20000 MW 30000

20000 MW 30000 10000 20000 MW 10000 20000 MW 0 Mon Tue Wed Thu Fri Sat Sun 10000

0 10000DispatchMon - 20_base_Gas50%RE20%_ICE+BattTue inWed - year 2030 Thu Fri Sat Sun

0 40000DispatchMon - 20_base_Gas50%RE20%_ICE+BattTue Wed in - year 2030 Thu Fri Sat Sun

Scenario0 3 – the high renewable option Mon Tue Wed Thu Fri Sat Sun 40000Dispatch - 20_base_Gas50%RE20%_ICE+Batt in - year 2030

30000 Dispatch - 20_base_Gas50%RE20%_ICE+Batt in - year 2030 40000

30000 40000 20000 MW

30000

20000 MW 1000030000

20000 MW 10000 20000 MW 0 Mon Tue Wed Thu Fri Sat Sun 10000

0 10000 Mon Tue Wed Thu Fri Sat Sun

Solar Wind Biomass 0 ROR hydro Pumped storage Flexibility (ICE) Mon Tue Wed Thu Fri Sat Sun Oil Open cycle gas turbine Combined cycle gas turbine new build 0 Combined cycle gas turbine Open cycle gas turbine NB ST Coal Solar Wind Biomass STMon Coal NB Tue Wed DemandThu Fri Sat Sun ROR hydro Pumped storage Flexibility (ICE) 8 White paper on powerOil system optimisation | The optimalOpen path cyclefor greater gas turbine use of renewable energyCombined in Taiwan cycle |gas 2019 turbine new build CombinedSolar cycle gas turbine OpenWind cycle gas turbine NB STBiomass Coal RORST Coal hydro NB PumpedDemand storage Flexibility (ICE) OilSolar OpenWind cycle gas turbine CombinedBiomass cycle gas turbine new build CombinedROR hydro cycle gas turbine PumpedOpen cycle storage gas turbine NB STFlexibility Coal (ICE) OilST Coal NB OpenDemand cycle gas turbine Combined cycle gas turbine new build Combined cycle gas turbine Open cycle gas turbine NB ST Coal ST Coal NB Demand IV. Recommendations and benefits

In order to meet the government’s target of 20 GW of solar energy production, flexible capacity in the form of gas-powered engine power plants is needed. However, the 20 GW target for solar energy production is not the most cost-optimal way forward. The share of renewable energy generation can increase from 23% to 36% by 2025,RE targets and 202548% 2030 by 2030, in the high renewable scenario. In this scenario, PLEXOS proposes to only build renewables and flexible ICE power plants, rather than relying on new coal plants and CCGTs.

Recommended generation mix by 2025 and 2030

300000 2025 generation 2030 generation

250000 23% 30% 20% 20% 36% 200000 48%

150000 GWh

100000

50000

0 Scenario 1: Scenario 2: Scenario 3: Scenario 1: Scenario 2: Scenario 3: Without flexible With flexible High Without flexible With flexible High generation generation renewables generation generation renewables

Battery Solar Wind BiomassSystem level costs Hydro Gas Coal

18000 The benefits of adding flexible capacity while keeping the 20/30/50 target are cumulative savings of 6.5 billion USD in total system cost* from 2020-2030. If the fixed targets for generation are removed, cumulative savings from 2020-2030 are 12.5 billion USD in total system costs. This corresponds to a 12% system level saving. 16000 *Total system cost = operational expenditures (OPEX) + fixed operation & maintenance (FOM) + capital expenditures (CAPEX)

System level costsSystem level costs 14000

18000 Million USD

12000

16000

10000 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 14000 Scenario 1: Without flexible generation Million USD Scenario 2: With flexible generation Scenario 3: High renewables 12000

10000 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Scenario 1: Without flexible generation Scenario 2: With flexible generation White paper on power system optimisation | The optimal path for greater use of renewable energy in Taiwan | 2019 9 Scenario 3: High renewables Fuel (Coal & LNG) Import cost in 2030

15000

12000

9000

13151 Million USD 6000 10735 10231

7194 3000

0 2017 Scenario 1: Scenario 2: Scenario 3: Without flexible With flexible High generation generation renewables

In addition to the cost savings, there will be a reduction in fuel consumption and CO emissions by 2030. Fuel (Coal & LNG) Import cost in 2030 + CO2 2 In the high renewable scenario, this amounts to a 33% fuel import savings and a CO2 emission reduction of 17%.

Fuel (coal & LNG) import cost and CO2 emission intensity in 2030

15000 500

12000 400

9000 300 g/KWh

474.2 13151 Million USD 412.8 6000 391.9 200 10735 10231

7194 3000 100

0 0 2017 Scenario 1: Scenario 2: Scenario 3: Without flexible With flexible High generation generation renewables

Fuel import cost CO2 emission intensity

THE BENEFITS

17% REDUCTION IN FUEL IMPORT USD 12.5 BILLION

CO2 INTENSITY SAVINGS OF 33% SAVINGS IN TOTAL SYSTEM COST

10 White paper on power system optimisation | The optimal path for greater use of renewable energy in Taiwan | 2019 V. Conclusion

This study explored alternatives to Taiwan’s 2017 power system expansion plans. Using rigorous analysis and complex system modelling software, this paper reveals how Taiwan can plan the most flexible, economical and environmentally friendly power system possible. If there is no flexible power generation added to the grid (the base case), baseload capacity will hinder renewables deployment as the total amount of solar energy that can be added to the grid is limited to 15 GW. If flexible power generation in the form of gas-powered engine power plants and battery storage is added, the target of 20 GW of solar power can be achieved. This approach also reduces thermal power operational costs when compared to using CCGTs, and no new coal plants are needed. In the high renewableInstalled capacity scenario, 2025 Taiwan can further improve its renewable energy generation from 20% to 36% by 2025 and 48% by 2030, with wind and solar power becoming a primary source of electricity.

Installed capacity 2025

80000

70000

60000

50000

40000 MW

30000

20000

10000

0 Scenario 1: Scenario 2: Scenario 3: Without flexible With flexible High generation generation renewables

Solar Wind Combined cycle gas turbine

Open cycle gas turbine Flexibility (ICE) Pumped storage ROR hydro Biomass ST coal

Scenario 1 – without Scenario 2 – with flexible Scenario 3 – the high flexible generation (MW) generation (MW) renewable option (MW) Solar 14920 18501 23755 Wind 7197 4374 12262 Combined cycle gas turbine 20334 16961 15500 Open cycle gas turbine 1220 550 550 Flexibility (ICE) 0 7558 7158 Pumped Storage 2602 2602 2602 ROR Hydro 2089 2089 2089 Biomass 83 83 83 ST Coal 17068 12852 12852 Nuclear 0 0 0 ST Oil 0 0 0

White paper on power system optimisation | The optimal path for greater use of renewable energy in Taiwan | 2019 11 information containedherein. Thispublicationis intendedforinformation purposesonly. No liability, whether direct, indirect, special,incidental orconsequential, isassumedwith respect tothe information contained herein. Informationinthispublication issubjecttochangewithoutnotice. any otherWärtsilä Group Company, assumesanyresponsibility forthecorrectness, errors oromissionsof any representation or warranty (express or implied) in this publication and neither Wärtsilä FinlandOy, nor permission ofthecopyrightholder. NeitherWärtsilä Finland Oy, noranyotherWärtsilä Group Company, makes graphic, photocopying, recording, taping or other information retrieval systems) without the prior written No partofthispublicationmaybereproduced orcopiedinanyformbymeans(electronic, mechanical, © 2019Wärtsilä Corporation –Allrightsreserved. wartsila.com/energy 177 countriesaround theworld. 70 GWofinstalledpowerplantcapacityin and guaranteed performance. Wärtsilä has services thatenableincreased efficiency over thelifecycleoftheirinstallationswith solutions. We support our customers systems andstorageintegration solar power plants, energy management plants –includingliquidgassystemshybrid comprises engine-basedflexiblepower secure powersystemreliability. Ouroffering flexibility to integrate renewables and Wärtsilä’s solutionsprovide theneeded power systems for future generations. understand, design,buildandserveoptimal future. Asanenergysystem integrator, we transition towards a 100% renewable energy Wärtsilä EnergyBusinessisleadingthe About Wärtsilä EnergyBusiness

10.2019 / Tenfour