Thursday, 31 March 2011

Of Energy & Externalities

It's 4am and I can't sleep. Mosquitos - can't find that little jar of camphor ointment I bought the other day... so I just got out of bed, toddled off to the Family Mart to get another one (new one from Singapore: "Tiger Balm"... what happened to the "Mentholathum" with the little blue girl...?). Brain is still tick-tocking though, so I'd better write something...


In response to Wednesday's editorial concerning the future of industrial energy production in Taiwan, I want to offer some observations about externalities.

The most significant obstacle to Tsai Ing-wen's intention to replace the nuclear power industry in Taiwan by 2025, assuming she is elected to the Presidency next year, is the cost of land. Noting that the combined output of Taiwan's three operating nuclear power stations accounted for 41.5 TW hours in 2009, or 18.10% of Taiwan's total energy production, allow me to illustrate the problem with reference to everybody's favourite renewables: solar and wind.

Extrapolating from the numbers for the pilot solar power plant built in Lhuju, Kaohsiung County a few years ago (1 MW capacity, NT$246 million, two hectares), it is possible to clearly envisage the absurdity of constructing solar plants to this and larger scales in Taiwan. In order to reach the target of 41.5 TW hours over a year, and making the very generous and unrealistic assumption that such solar plants would generate their maximum power output 50% of the time, they would collectively need a power capacity of 10,400 MW to be built at a capital cost of NT$250 billion and requiring an enormous 180 square kilometres of land - an area substantially larger than Kaohsiung City.

Onshore wind farms are far cheaper and more powerful than offshore farms due to the increased size and power of the turbines, with one turbine alone capable of producing 7 MW at an approximate capital cost of NT$23 million. To be capable of producing 41.5 TW hours over a year, and assuming an average efficiency of 30%, such a wind farm would have to comprise 2014 such turbines at a capital cost of NT$46 billion - which, compared to the NT$250 billion for the solar plant, would be very cheap. An onshore wind farm on this scale would however, require an area of 323 square kilometres - which is significantly larger than Taipei City.

What each of these two back-of-an-envelope calculations show is the importance of land prices. Flat, open land is at a premium in Taiwan partly because of the island's geography but also partly because of ... an enormous externality: the State's protection of rice farmers from both foreign competition and the environmental externalities the farmers themselves create by over-consuming ground water. Unless a Tsai administration would be prepared to extricate the State from agriculture, thus allowing the effect of true market competition to induce some farmers to voluntarily sell up, then the artificially high price of farmland would leave a Tsai administration unable to afford its commitment to replacing nuclear power and increasing renewable energy.

That is... assuming a Tsai administration, along with its environmental supporters, would not favour removing such an "inconvenience" by means of land theft rebranded as "expropriation" - such as was visited upon farmers such as Chu Feng Min (who subsequently committed suicide) in Miaoli County last year.

That must never be allowed to happen again.

Yours freely,
Michael Fagan.

(Sent: Thursday 31st March 2011. Published in the Taipei Times, Friday April 1st 2011).

Note on edits: The terms "City" and "County" are clearer designations than e.g "Kaohsiung" and "Greater Kaohsiung". The alteration may confuse some readers, and I see no good reason why the TT eds must stipulate to the government's made-up names which nobody uses.


  1. I think you should stay up late more often. This is one of the most lucid letters you've ever written to the Taipei Times and I hope it gets published.

  2. Cheers Steve, but I wasn't entirely satisfied with it because there wasn't space within the 500 word limit to compare the cost of natural gas power plants or to mention the most likely consequence of Tsai attempting to implement her policy: either the laming of some smaller manufacturers through cost increases, or blackouts - both of which would likely be politically costly.


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