1. Privatization and Liberalization of the Electric Power Industry in Taiwan Energy Commission Ministry of Economic Affairs October 5, 2001

2. Contents 1. Electricity Supply Industry Structure 2. Privatization of Taipower 3. IPP Programs 4. The Envisage of the Forth Round IPPs 5. Basic Structure of Liberalization 6. Energy Policy Requirements 7. Revise of Electricity Law

3. Electricity Supply Industry Structure 1. Electricity Supply Industry Structure IPPs 8 projects, 7,220 MW Transmission Power Generation 70 plants, 27,445 MW. Distribution Taiwan Power Company 25yrs PPA Avoided cost Customers Supply obligation self-use users Self-generation co-generation renewables For self-use Industry Structure

4. Thermal (17,818MW: coal 8100; oil 5404; gas 4314 MW) Extra High Voltage Substation 345 kV Transmission Line Peak Capacity: 29,124 MW Peak Load: 25,854 MW Rserve: 3,270 MW 12.6% Shenao 1st Nuclear 2nd Nuclear 3rd Nuclear N Linkou Tunghsiao Taichung Takuan Hydro Mingtan Pumped Storage Hsinta Nanpu Talin Penghu Mailiao IPP Hoping IPP Ever Power IPP Chiahui IPP Sunba IPP Kuokuang IPP Hsintao IPP Nuclear ( 5,144 MW) Starenergy IPP Power System (2000) Hydro ( 4,422 MW) IPP ( 2,250 MW) Hsiehho

5.   Timetable:The deadline for Taipower to finish privatization was set as June 2001 but has failed. / /Procedure: Taipower will be privatized by the program of “massive share offering to citizens” with keeping its original integrated business including generation, transmission and distribution. / /Preconditions: The Legislature requires that Taipower won’t proceed privatization until the legislation of new Electricity Law is approved. / /A tentative plan for Taipower to privatize is made. It suggests that the initial public offering will be completed in one year after the pass of Electricity Law and the government’s shares will be released down to no more than 50% in the next three years for privatization. It is likely that Taipower won’t be privatized by the end of 2005. 2. Privatization of Taipower

6. 3. IPP Programs Policy Objectives To meet power demand at reserve margin of 20% 1st & 2nd rounds (1995): 10,260 MW (1997-2002); 3rd round (1999): 2,840 MW (2003-2004) ‧ ‧ To balance regional supply and demand To prepare for power liberalization 1st & 2nd rounds: competitive bidding (base load, medium load) 3rd round: fixed price, first come first serve (gas fired, medium load) To follow clean energy policy

7. First Round IPP Projects First Round IPP Projects

8. Second Round IPP Projects Second Round IPP Projects

9. Third Round IPP Projects Third Round IPP Projects

10. Status of IPP Projects Status of IPP Projects

11. Rules on applications for a preparatory permit · ·Required capacity: 1. Year 2007: 1000 MW, gas fired and in the North only 2. Year 2008-2009: 3200 MW ( 1500 MW reserved for TPC) · ·Requisitions (Construction planning plus the following 6 documents): 1.Environment Impact Assessment 2.General agreement from local government 3.Agreement of fuel supply 4.Agreement of power interconnection 5.Agreement of land use 6.Letter of intent on financing 4. The Envisage of the Forth Round IPPs 4. The Envisage of the Forth Round IPPs

12. Rules on Power purchase Purchase prices: The Price will be decided by bidding process held by Taipower. Dispatch rules: 1. Year 2007, medium load 2. Year 2008-2009, base load Transmission constraints: Taipower should announce its transmission constraints in one month since this program is implemented.

13. Integrated Utility transmission Distribution Generators   1st, 2nd round IPPs   3rd round IPPs (Non-utility) Supply Obligation Generation   Existed Plants   Under-construction   Approved Projects   Future Projects Wholesale 5. Basic Structure of Liberalization After PPA terminated ISO Bilateral Contract Generators IPP's new units New IPPs (Non-utility) Self- generators Captive Customers (Unregulated tariff) (regulated tariff) Contestable Customers Direct Users (Unregulated tariff) Self-use Users Direct Supply

14. Captive Customers Contestable Customers Direct Users Self-use Users 6. Energy Policy Requirements Integrated Utility Generators   1st, 2nd round IPPs   3rd round IPPs (Non-utility) Supply Obligation Generation Bilateral Contract § Generators are required to have gas-fired and renewable capacity through ： 1.installation, 2.purchase by PPA, or 3.pay fund § required to install hydro and nuclear power. § require to have gas- fired and renewable capacity through ： 1.installation, or 2.PPA. ISO Generators IPP's new units New IPPs (Non-utility) Self- generators § Exempted from the obligation when its capacity less than the assigned Direct Supply Wholesale

15. –To allow Taipower to be vertically integrated and independent of the privatization process. –To allow new industries such as generation, transmission, and distribution to enter the market as soon as the law is passed. –To establish the Independent System Operator(ISO). –To allow electricity customers to choose their suppliers. –To require electricity industries to install certain percentage of clean energy capacity. –To require Integrated utility and distribution company have the obligation of guaranteed supply of electricity. –To allow generators to supply power directly to nearby users through private power lines. 7. Revise of Electricity Law

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