One-to-one deal touted for renewables

EVN are set to be bypassed if foreign investors in renewable power get their way Photo: Le Toan

At the bi-annual Vietnam Business Forum (VBF), held in Hanoi two weeks ago, foreign investors asked the Vietnamese government for permission to pilot a mechanism for wind, solar and biogas power projects where independent producers may sell directly to end-users through one-to-one power purchase agreements.

When required, these independent producers would pay distribution and transmission fees to the state-run Electricity of Vietnam (EVN). Such fees would have to be agreed upon as part of the competitive wholesale market, read a proposition prepared by the VBF’s Energy Working Group at the forum.

While Vietnam has the potential for renewable energy, private investment in the sector is very modest due to government policies not yet covering the potential risks.

The Vietnamese government is planning for renewable energy to make up at least 5 per cent of the nation’s total power supply by 2020, but this is becoming increasingly unrealistic as private investors are reluctant to enter the market.

Statistics from the New and Renewable Energy Department, under the General Department of Energy, show that total renewable energy connected to the national grid is approximately 1,500 megawatts, of which 1,466MW are generated from small hydro-power projects. There are also two wind power projects in Bac Lieu and Binh Thuan provinces. However, sources such as solar, biomass, biogas or municipal waste power remain untapped.

Foreign investors have been outspoken in their criticisms of EVN’s feed-in-tariff to independent power producers, which is currently at just below 8 US cents per kilowatt hour, as being too low to give investors profit  or guarantee bank loans.

“As EVN is incurring major losses, no private foreign investor or bank is likely to accept EVN’s plan to buy electricity from wind power plants unless guarantees are offered by the Vietnamese government,” the proposition indicated.

“Professional wind power producers that are reliable and have the necessary finance have had no opportunity to enter the Vietnamese market as of yet,” it added.

However, foreign investors believe that Vietnam’s renewable energy goals can be achieved if the direct power sale trials are successful without any guarantees from the government or any power price offset by EVN. They cited direct power sales as working well in other emerging markets such as India, Mexico and Brazil.

“A power purchase agreement directly signed between an independent wind power producer and an end-user such as a multi-national company could be used to access loans via international banks, and together with the producer’s financial resources, could ensure continued wind power investment in Vietnam in the future,” the proposition concluded.