"It looks like we'll have to rely on coal," Chan Wen-hong, an executive officer at the Bureau of Energy in Taipei, said. Taiwan Power spends 1.32 New Taiwan dollars, or 4 U.S. cents, to generate a kilowatt-hour of electricity by burning coal, less than half the 2.94 dollars involved in gas-fired production, according to the company's chief engineer, Tu Yueh-yuan.
Taiwan has invited bids to build power plants to stave off the threat of possible shortages, made worse by a ban on building new nuclear power plants. The island's reserve margin, or spare capacity at times of peak demand, dropped to 6.9 percent recently, less than half of a state target of 16 percent.
The government will issue permits to build 1,980 megawatts of capacity, enough to meet 5 percent of the island's peak summer electricity demand. Tenders will close on Dec. 5, and the government is likely to name two or three contract winners before the end of February next year, Chan, of the Energy Bureau, said.
Units of Formosa Plastics Group, CPC and Taiwan Cement are among the seven companies that have approached state-run Taiwan Power to connect their planned power stations to the utility's grid, Tu, the chief engineer, said.
"The choice of coal is pragmatic," Jeffrey Bor, economist at Taipei's Chung-hua Institution for Economic Research, said. "Coal is the only reliable fuel for power in Taiwan." Gas-fired power plants are less favored because of shortages of the fuel and the time needed to build pipelines, he said.
CPC, Taiwan's only natural gas importer, said in April that it planned to buy a record number of liquefied natural gas cargoes on short-term contracts or for immediate delivery to meet a supply shortfall. The island's demand for the fuel is forecast to rise 5 percent to 8 million metric tons this year and CPC has long-term agreements for only 5.6 million tons.
The government last awarded a permit to an independent thermal power plant, not built by Taiwan Power, in April 2005. The island has eight similar stations in operation, including those owned by units of Formosa Plastics, CPC and Taiwan Cement.
The island wants to add coal-fired capacity at a time when prices are near record levels. Prices for Australian thermal coal, an Asian benchmark for power station fuel, reached $70.88 a ton, the highest ever, at Newcastle in June as port and rail bottlenecks hampered miners' efforts to ship production. Demand from China, which became a net coal importer for the first time this year, is also forcing prices higher.