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Fishery solar plant projects could benefit farmers and investors, but complexities from this new initiative could drain the pond

Since 2016, the Taiwan government has committed to phasing out three active nuclear power plants by 2025, while diligently promoting development of new forms of sustainable energy, in particular wind and solar photovoltaic (PV) technologies.

Compared to wind power projects, which require longer development and construction periods as well as significant financial resources, solar-power projects are less demanding from a construction perspective and may even serve in a transitional capacity during wind power construction.

Acknowledging this advantage, the government has set a goal of procuring 20GW of solar PV installation by 2025. Taiwan Power Company, the state utility company, aims to complete 2.5% of this target, with the remainder from private developers.

Among these projects, the government has proactively allocated certain zones for fishery solar PV projects, optimising land use to allow power generation and fish farming simultaneously and hoping to foster a win-win situation for rural areas by stimulating the economy and bringing stable green-energy supply.

It is expected that the fishery solar PV projects will be attractive to developers, bringing new opportunities to undertake large-scale solar PV projects with the attractive feed-in tariff.

This article introduces important features of fishery solar PV projects and highlights key risks for prospective investors.

TYPES OF PROJECTS

Developers may choose to install rooftop solar PV systems on facilities housing indoor fish farms or install ground-mounted solar PV systems above outdoor fish farms. Outdoor projects generally involve floating solar PV systems, systems with pillars affixed to the bottom of retention ponds, or with pillars affixed to the bottom, or dike, of fishponds.

DEVELOPMENT PROCESS

Billy MC Chen
Billy MC Chen
Partner at K&L Gates in Taipei
Tel: +886 2 2326 5171
Email: billy.chen@klgates.com

Fishery solar PV projects are a combination of solar PV project and fish farm, so the general development process that applies to them needs to be supplemented by additional processes due to their characteristics as a fish farm.

Like any other solar PV project (except small projects with capacity under 2MW), the general process required for developing a fishery project includes: obtaining approval from the local government; obtaining approval from other authorities if located in an environmentally sensitive area; obtaining an establishment and construction permit from the central government; entering into a power purchase-grid connection agreement with Taiwan Power Company; and registering as an electricity enterprise.

For outdoor-type projects, the required documents are:

• Environmental and social inspection document (article 3, paragraph 1, item 1 of the Regulations on Registration of Electricity Industry). Three levels of zones are stipulated for fishery solar PV projects, namely, advanced zone, priority zone, and attention and mitigation zone. Within an advanced zone or priority zone, an environmental and socially friendly self-assessment form should be prepared. Within attention and mitigation zones, a more complex document – countermeasures for environmental and social issues – should be prepared. Therefore, in site selection, developers tend to prefer acquiring a site within advanced or priority zones.

• Agriculture land use permit (article 4, item 2, paragraph 1, and article 29 of the Regulations for Examining Applications for Structuring Farming Facilities on Agricultural Land). This permit is required for installing ground-mounted solar systems above outdoor fish farms on agricultural land, but the area occupied by the solar system cannot exceed 40% of the total size of such agricultural land (40% restriction).

Indoor-type projects need to acquire an agriculture land use permit (article 4, item 2, paragraph 1, and article 28 of the Regulations for Examining Applications for Structuring Farming Facilities on Agricultural Land). This is required for installing rooftop solar systems (as green power generation facilities) above the rooftop of indoor fish farms.

The process for indoor-type projects seems more straightforward than for outdoor ones, because neither the environmental and social inspection document is required, and the 40% restriction does not apply. However, if there are no existing indoor fish farms on the project site, a developer needs to build the farm before starting work on power generating facilities. In this case, developers may face increased risks due to the requirement for additional approvals (including construction and agriculture land use permits), as well as increased construction and financing risks, including security package.

CAVEATS FOR INVESTORS

Lillian Chen
Lillian Chen
Associate at K&L Gates in Taipei
Tel: +886 2 2326 5176
Email: lillian.chen@klgates.com

Fish farmer management. Fish farmers hold an important role in fishery solar PV projects due to the evident requirements of fish farming operations such as traceability of fishery products, international certification, aquaculture feed stock reports and fishery product transactions. Failure to provide relevant documentary evidence may result in termination of permits.

The management structure of fish farms differs according to whether the project site is private or state-owned. On private land, farmers are either landlords or engaged by landlords to conduct fish farming. When a farmer continues activities after the site is leased to a project company, the company generally manages the farmer through the landlord under the lease agreement.

On state-owned land, a fish farmer is engaged by the government. When an existing farmer continues his activities on the project site where the developer is granted the right to install solar PV systems, as a mixed-use project, the authority will not manage the farmer so the developer must sign a separate contract with the farmer.

Since fish farming expertise is necessary, most project companies will engage fishery management companies to handle such functions during development and operation phases. This normally includes assisting with feedstock reports, managing output and selling fishery products. However, certain fish farming activities may overlap with engineering activities, procurement, construction (EPC) contractors, and/or operation and maintenance (O&M) service providers.

Holding agricultural land use permit. Applicants for agricultural land use permits should be fishermen, aquaculture groups or companies registered with specific business scope, as prescribed by the authority. However, such businesses are subject to foreign investment restrictions, where 50% or more of the applicant’s shares must be directly or indirectly owned by local entities. Therefore, for foreign investors, an alternative project structure needs to be considered.

EPC Work. During development phase, the EPC contractor will build the solar PV system on the fish farm. However, for outdoor-type projects, if the systems will be affixed to the bottom of the retention pond, fishpond or dike, the contractor and fish farmer will likely need to liaise and work in tandem. For example, the contractor may need to strengthen the fishpond before installing a solar PV system, and the fish farmer may need to install certain farming equipment.

Therefore, the EPC contractor, fish farmer and/or the fishery management company’s obligations and liabilities should be clearly allocated in the relevant agreements, since the service scope of the fishery management company not only covers the development phase but also extends to the operation phase.

O&M Work. During the operational phase, the O&M service provider is responsible for the operation and maintenance of the solar PV system. However, for outdoor-type projects, management responsibilities of the fishery management company and O&M service provider may overlap. For example, both may be responsible for managing the entrance into project site or fishponds. If the directions issued to the O&M service provider and fishery management company on managing the entry way differ, this could lead to a dispute.

Therefore, relevant agreements should clearly stipulate the scope of management responsibilities of the O&M service provider and fishery management company vis-à-vis one another, as well as provide how they should work together on an ongoing basis.

Use of substations. The area where the fishery solar PV system is located generally needs to follow the shared substation rules (such as shared substation establishment and capacity allocation guidelines) and any other rules and regulations that are subsequently announced. This means the developer cannot freely decide to build a self-owned substation. Rather, they must obtain approval to build a substation. If the developer has been granted such approvals, it can (and should) build a substation with additional capacity to share with other developers.

However, doing so will create additional costs that the developer may not have projected, such as expanded capacity beyond the needs of its own project.

If the developer is not granted this construction right, it will need to use another project owner’s substation for grid connection. This means that the timeframe to reach commercial operation date cannot be fully controlled, which may adversely affect project financing.

Zhong Lun law Firm

K&L GATES
30/F, 95 Dun Hua S. Road, Sec. 2
Taipei, 106 Taiwan
Tel: +886 2 2326 5188

www.klgates.com

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