November 2023
Elva Chuang and Sally Yang
On September 27, 2023, the Bureau of Energy (hereinafter, the “BOE”) under the Ministry of Economic Affairs (hereinafter, the “MOEA”) conducted an explanation meeting for the Phase II (Phase 3-2) Offshore Wind Energy Zonal Development, and proposed the draft regulations for contractor selection mechanisms. In addition to the two-stage contractor selection process of “contractual review before price competition,”[1] developers will choose items and quantities for local-industry linkage plans, provided that they have to achieve a score of at least 70 to enter the competitive phase. In the competitive ranking, allocation rankings will be determined by prices. For developers with identical prices, they will be ranked according to the industry-linkage scores.
I. Regulations on shareholding changes
Previously, offshore wind energy administrative contracts merely stipulated vaguely that developers shall not transfer or assign contractual rights and obligations without the written approval of the MOEA, but did not provide any specific guidelines that should be followed to obtain the approval of share transfers, which has triggered controversies. According to the draft zonal development contract released by the BOE, the provision on the “change and transfer of the contract” is added to Article 12 of the draft administrative contract. Under this article, developers are required to obtain prior approval of the Ministry of Economic Affairs for matters involving the following “shareholding changes”:
1. Addition of new promotors or shareholders
2. Transfer by promoters or shareholders of their direct or indirect shareholdings, totaling 20% or more
3. Transfer by the promoter’s shareholders of their direct or indirect shareholdings, totaling 20% or more
4. Change of 20% or more of the original promoter’s or shareholders’ direct or indirect shareholdings due to capital increase or other actions
5. Other shareholding changes or other actions determined by the MOEA to involve factors affecting performance conditions such as technical capabilities, financial capabilities, or completion periods
In addition, if developers are unable to implement industry-linkage implementation plans due to force majeure or reasons not attributable to the developers, they are also required to submit supporting materials and apply to the Industrial Development Bureau of the MOEA for contract amendments and obtain its approval.
II. Regulations on capacity changes
Developers seeking to “reduce installation capacity” must also obtain prior approval from the MOEA. Article 14 of the draft administrative contract additionally stipulates the obligations and duties of developers concerning “change (reduction) of installed capacity.”
The main obligations that developers need to fulfill when MOEA agrees to reduce installed capacity include:
1. Developers must pay a punitive default penalty for breach of contract calculated by NT$2 million for every 1,000 megawatts (MW) of reduced installed capacity. Such a punitive damage is doubled for circumstances where a developer intentionally fails to fully implement the number or percentage that should be carried out in the industry linkage implementation plan or to provide the required vessels for construction, or there are other circumstances deemed material by the MOEA.
2. The MOEA will absolutely not refund the difference in performance bonds for developers reducing capacity.
Points to note
1. In cases where developers intentionally fail to fully carry out the number or percentage in industry-linkage implementation plans or to provide the required vessels for construction, or there are other circumstances deemed material by the MOEA, if the developers apply to reduce installed capacity, the developers shall pay the MOEA a punitive damage calculated by NT$4 million for every 1,000 MW of reduced installed capacity.
2. According to the draft administrative contract, if the change of shareholdings transferred by the promotor or (its) shareholders does not reach 20%, it seems that developers only need to report to MOEA for “recordation.” However, even if the percentage change is less than 20%, if it is related to circumstances “that the MOEA believes may affect the terms of performance” or “other changes to important matters deemed by Party A (i.e. MOEA),” it seems that developers may still be required to obtain prior approval from the MOEA. Therefore, developers should be aware that there is a certain level of uncertainty in the share transfer process of individual cases.
Although the draft administrative contract adds the “Contract Amendment and Assignment” provision, which is relatively more specific, it still lacks clear regulations concerning the MOEA’s principles and requirements for reviewing and approving cases, as well as the specific supporting documentation developers need to provide for share transfers. It remains to be seen whether the current rules are sufficient for the compliance of operators.
[1] For the released capacity, handling phases, and contract selection process concerning zonal development, please refer to the new legal knowledge article released by the Firm and titled Highlights of the Draft Offshore Wind Energy Zonal Development Plan (Taiwan).
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