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Taiwan's energy industry investment analysis and key stock outlook
2025/02
In July 2024, I took EVA Air flight BR8 from Taipei (TPE) to San Francisco (SFO) at 10:15 a.m. The flight took 11 hours and 45 minutes. I chose EVA Air's business class, the Royal Laurel Class, and tried the latest meal launched in July this year, the Michelin one-star Lao Kanbei A5 Japanese Miyazaki Wagyu Set Meal.
Energy Industry Chain
Taiwan's renewable energy industry chain can be divided into three main axes:
1. Energy creation system: solar photovoltaic modules, offshore wind turbine components, geothermal exploration technology, etc. The cumulative installed capacity of solar photovoltaic will reach 14.2GW in 2024, and the offshore wind power will complete the installation of 270 wind turbines with a total installed capacity of 2.12GW, which is expected to reach 5.6GW in 2025.
2. Energy storage and grid management: including energy storage systems (ESS), smart meters, transformers and gas insulated switches (GIS). Taipower's "Resilient Grid Project" plans to invest NT$564.5 billion over 10 years, focusing on strengthening the 345kV ultra-high voltage transmission network and distributed grid architecture.
3. Energy services and aggregators: Companies such as Hongde Energy integrate private power generation equipment through power trading platforms and develop virtual power plant (VPP) technology. The proportion of overseas revenue is expected to increase to 58% in 2025.
Taiwan and International Policy
The energy industry is highly dependent on government policies and regulations, so we must understand policy changes. Taiwan's energy policy includes the following:
1. Solar and photovoltaic composite utilization: Promote the fishery and electricity symbiosis area to 20,905 hectares, require the construction of new integrated photovoltaic facilities, and aim to reach 30GW of installed capacity by 2030.
2. Offshore wind power block development: 1.5GW of capacity will be released each year after 2025, reaching 15GW in total by 2035, driving the local supply chain such as China Steel Xingda Offshore Power and Century Wind Power.
3. Breakthrough in geothermal exploration: 4,000-meter-deep geothermal wells were drilled in Macao, Datun Mountain, and Ruisui, Hualien. It is expected that geothermal power generation will reach 200MW by 2030.
The international community, especially the EU, attaches great importance to environmental protection energy issues. The EU CBAM has been officially implemented. If Taiwan's export products fail to reduce carbon content, they will face tariffs of up to 20%. RE100 member companies require the supply chain to use 100% green electricity by 2030. The double pressure forces companies to accelerate green power procurement. This trend has boosted the demand for corporate power purchase agreements (CPPAs). In 2024, the volume of private green power transactions will increase by 47% year-on-year. Companies such as Hongde Energy and Senwei Energy have signed long-term contracts for more than 800MW.
Solar Photovoltaic Industry Ecosystem
Taiwan's solar photovoltaic industry chain has formed a complete cluster from upstream silicon wafers (Universal Wafers, Taiwan Semiconductor), midstream battery cells (Yuanjing, United Renewables), to downstream system integration (Chongxing Power, Senwei Energy). The government has promoted the "tariff exemption for module materials" policy, prompting Motech, AUO and others to expand module production capacity, and the local module self-sufficiency rate will increase to 65% in 2024. The key challenge lies in land acquisition and feeder capacity. The Ministry of Economic Affairs has matched 2.23GW of sites through the "common booster station" policy, and plans to reach 500MW of energy storage in 2025 to alleviate intermittent problems.
Offshore wind power localization progress
The superior wind farm conditions in the Taiwan Strait have attracted international developers such as Orsted and CIP. Local companies such as Huacheng provide 66kV transformers and Century Steel supply underwater foundations. The localization ratio of the supply chain has reached 60%. The first phase of the third phase block development contract price fell below NT$3 per kilowatt-hour, prompting developers to turn to large-scale wind turbines (above 15MW) and floating technology. It is estimated that local production of wind turbine blades will start in 2026, driving material business opportunities for Shanghai Wei Investment Holding and Yongguan-KY.
Energy storage system and power grid upgrade
Taipower's "AFC frequency regulation backup" demand has driven the construction of energy storage systems. By 2024, 103.57MW has been deployed, and the goal is to reach 1.5GW by 2030. The 2MW/4MWh energy storage cabinet developed by TECO has won the bid from Taipower, while Chunghwa Electric focuses on 345kV GIS equipment, with a market share of over 70%14. The deployment of smart meters is ahead of schedule, with a cumulative installation of 2.8 million in 2024. Manufacturers such as Tatung and Kangshu have benefited from the demand for AMI system integration.
Related stocks
Heavy electrical equipment:
Huacheng (1519 TT): A pioneer in the internationalization of heavy electrical equipment
As a leading manufacturer of high-voltage transformers in Taiwan with a market share of over 50%, Huacheng's technical strength has been internationally recognized. Its products comply with American standards such as IEEE C57.12.00, and its market share in the United States is 70-80%. The company focuses on the manufacture of ultra-high voltage transformers above 500kV, and its technical threshold is higher than that of competitors such as Shidian and Zhongxing Electric. In 2024, the proportion of overseas revenue will exceed 75%, and the main orders come from the demand for North American power grid upgrades. The US Department of Energy estimates that the transformer gap in the United States will reach 30% in 2025.
EPS is expected to reach a record high of 14.9 yuan in 2024, and EPS is expected to grow in 2025 thanks to the extension of the tax credit under the U.S. Inflation Reduction Act. The latest FactSet survey shows that although the median analyst target price has been lowered from 760 yuan to 714 yuan, it still reflects the market's recognition of its technological advantages and order visibility. The key risks lie in the fluctuation of copper prices (raw material costs account for 35%) and the progress of domestic capacity expansion in the United States. If Westinghouse's production increase rate exceeds expectations, gross profit margins may be compressed.
Zhongxing Telecom (1513 TT): A core supplier of power grid upgrades
Chunghwa Electric has an absolute leading position in the 345kV gas insulated switch (GIS) market, with a market share of over 70%. This product is a key component of the ultra-high voltage transmission system, and its technical specifications are deeply tied to Taipower's strong grid plan. The company holds Taipower's tenders worth more than NT$20 billion, including orders for energy storage systems and offshore wind power booster stations. It is estimated that new orders will reach NT$20 billion in 2025, of which the contribution of the Japanese and Vietnamese markets can be increased to 15%.
In addition to the traditional heavy electrical business, Chunghwa Electric has actively laid out the hydrogen energy industry chain, has developed 5MW alkaline electrolyzer technology, and cooperated with CPC on the Kaohsiung Intercontinental Terminal Hydrogen Refueling Station Demonstration Project. Brokerage firms estimate that the hydrogen energy business will begin to contribute to revenue in 2026, and it is expected to replicate the successful model of GIS equipment in the long term. In terms of finance, the gross profit margin will increase to 28.7% in 2024, mainly due to the optimization of the GIS product shipment structure, but attention should be paid to the working capital pressure that may be caused by the extension of Taipower's payment cycle.
Renewable Energy Service Providers:
Hongde Energy (6873 TT): International smart power aggregator
Breakthrough development in overseas markets Hongde expands with the four-engine strategy of "power wholesale + retail + equipment + engineering". In 2024, it established a joint venture company HeLM Aggregation with Mitsubishi Electric of Japan, won a 73MW energy storage capacity market tender, and locked in a 1.4GW solar storage project through the Australian ZEBRE platform. This cross-border aggregator model has increased its overseas revenue share from <1% to an estimated 8% in 2025, with a goal of reaching 50% in 2030.
Technology Integration and Profit Structure The company's independently developed "Smart Green Power System TITAN" integrates AI prediction algorithms, which can control the green power transfer matching error within 3%, which is better than the industry average of 15%. In the first three quarters of 2024, the shipment volume of energy storage cabinets reached 320MWh, driving the gross profit margin to 22.5%. It is expected that the proportion of equipment sales will increase from 20% to 35% in 2025, improving the revenue structure that is overly dependent on power plant development.
Senwei Energy (6806 TT): Offshore Wind Power EPCI Leader
Localized Engineering Achievements Fuwei Energy, a subsidiary of Senwei, is the EPCI general contractor for Taipower's Phase II offshore wind farm, completing the manufacturing of 31 casing-type underwater foundations and 124 foundation piles, with a localization rate of 65%. The company's self-built 4,000-ton "Giant" installation vessel will be put into operation in 2025, which can reduce offshore engineering costs by 30%, a key advantage in bidding for the Phase 3-2 600MW wind farm.
The extended value chain of operation and maintenance services has been deployed in the Southeast Asian wind farm operation and maintenance market through its Vietnamese subsidiary, and has obtained 20-year operation and maintenance contracts for two 500MW wind farms. The gross profit margin of this business is 45%, much higher than EPCI's 18%, and it is estimated that the proportion of operation and maintenance revenue will increase from 5% to 15% in 20256. It is necessary to pay attention to supply chain risks. Delays in delivery of Century Wind Power may result in fines (the daily delay fine in the Taipower contract is 0.1% of the contract amount).
Traditional energy transformation:
Delta Electronics (2308 TT): Hidden Champion in Energy Management Systems
Global layout of inverter technology Delta ranks fifth in the global photovoltaic inverter market, with shipments increasing by 40% year-on-year to 15GW in 2024, of which the US market share increased to 35%. The newly launched 1500V string inverter has a conversion efficiency of 99% and has successfully entered the supply chain of large US IPPs such as NextEra Energy.
The vehicle energy integration solution combines electric vehicle charging piles with energy storage systems to develop "V2G (vehicle to grid)" bidirectional charging and discharging equipment, which has received an order from European energy company Vattenfall. This technology allows electric vehicles to reverse power supply when the grid is at peak load, and each vehicle can generate approximately 500 euros in revenue per year, creating a new business model.
TECO (1504 TT): Smart grid integration expert
Innovation in the business model of virtual power plants TECO has integrated energy storage systems (it has obtained Taipower's 50MW AFC bid), smart meters and demand response systems through the "TECO Energy Cloud" platform to create Taiwan's first commercial virtual power plant (VPP). This model can aggregate the flexible loads of industrial and commercial electricity users and provide frequency regulation and backup services on the power trading platform. The contracted capacity has reached 80MW in 2024, and it is expected to contribute 1.2 billion yuan in revenue in 2025.
Cross-domain technology synergy The company combines its motor manufacturing advantages (fifth in global market share) to develop an "integrated photovoltaic storage and charging" system that integrates energy storage and charging piles, and has received orders from Volta Charging, a US charging operator. In the automotive field, TECO's 200kW permanent magnet motor has passed the European Tier 1 manufacturer certification, and the proportion of electric vehicle-related revenue will increase from 5% to 15% in 20254. The risk is that the VPP market is still in its infancy, and it is necessary to observe whether the liquidity of Taipower's power trading platform can support the expansion of the business model.
Risks and Outlook
Short-term risks
Taipower's financial difficulties may delay the release of tenders, and the speed of heavy electrical equipment delivery in 2025 may slow down; the financing cost of the third phase of offshore wind power has risen, and some developers are facing the double pressure of interest rates and exchange rates; the price war of solar photovoltaic modules has intensified, and Chinese manufacturers' low-price orders may squeeze the gross profit of local companies.
Long-term growth momentum
The government plans to have gas-fired power generation account for 50% by 2030, requiring the addition of 29 gas-fired units, which will drive GE and Mitsubishi Heavy Industries to cooperate with the local supply chain; hydrogen-energy co-firing technology has entered the trial stage, and Formosa Plastics and CPC have started the construction of ammonia cracking hydrogen production facilities; geothermal power generation is expected to be commercialized in 50MW projects in 2026 thanks to the technological breakthrough of the Industrial Technology Research Institute.