|4,000MW of mainly onshore wind projects in Vietnam are now at risk of missing the November deadline for the wind FiT. Photo: GIZ Vietnam |
Due to pandemic-related obstacles and delays, most onshore wind projects currently in the pipeline will not complete construction in time to meet the November 1, 2021 deadline for tariff access. Without a deadline postponement, these projects will be unable to progress, adversely impacting local economic growth and the wider renewable energy investment environment in Vietnam.
Over the last few years, Vietnam has emerged as a top market for wind and renewable energy investment in Asia, and particularly Southeast Asia. The ambitious targets proposed in the draft Power Development Plan 8 (PDP8) master energy plan have reflected the government’s commitment to the long-term decarbonisation of the energy system and strengthening Vietnam’s regional competitiveness. It is vital that policymakers act to prevent pandemic-related difficulties from reversing this progress.
The COVID-19 situation in Vietnam has created many hardships for the industry. This extends to supply chain bottlenecks for wind project components, workers prevented from reaching project sites for crucial inspections and activities, travel restrictions for foreign personnel, and other issues. As of August 2021, an industry survey conducted by GWEC estimates that 4,000MW of mainly onshore wind projects in Vietnam are severely challenged by these extenuating circumstances and are now at risk of missing the November deadline for the wind FiT.
Using standard industry calculations based on global and Vietnam averages, 4,000MW of wind projects translate to around $6.7 billion in investment that would significantly benefit local authorities and communities. This includes $6.51 billion in capital expenditures and an additional $151 million in operating expenditures per year across an average 25-year lifetime of projects.
Approximately 21,000 jobs could be created from these wind projects, sustaining coastal populations and supporting a blue economy in Vietnam. Much of this investment and workforce expansion would be locally focused at the province level, including in transport, installation, and operations and maintenance activities.
GWEC is calling on the government of Vietnam to implement a 6-month postponement of the FiT deadline to April 2022, to allow wind projects that have demonstrated clear progress and milestones but are facing uncontrollable COVID-19 related delays to complete construction safely and within the current procurement scheme. GWEC supports establishing clear criteria for eligibility for this deadline postponement, not a blanket extension.
This is in line with international relief measures around the world which have been implemented to support the wind sector from the impacts of the pandemic. For instance, in May 2020 the US provided one year of “safe harbour” for wind projects to complete and continue accessing a clean energy tax credit, while in June 2021, India issued a 2.5-month commissioning extension for renewable energy projects, in recognition of the lockdown measures which lasted from April to mid-June.
Vietnam has identified wind as a key sector for energy security and system decarbonisation in Resolution 55, the draft PDP and other documents. The wind FiT was introduced by Decision No.39/2018 and set at 8.5 US cents per kWh for all projects achieving commercial operations (COD) before November 1, 2021. This policy provided a clear route to market for onshore wind projects and resulted in an enormous investment pipeline of more than 140 wind projects signing Power Purchase Agreements with the state-owned grid operator, Electivity Vietnam, as of August 2021.
However, due to the massive challenges posed by the ongoing COVID-19 outbreak, most of these projects face uncontrollable delays in construction. GWEC’s survey found that more than 70 per cent of wind projects which had submitted grid connection requests by August 3, 2021 will not achieve COD by the deadline. Missing this deadline would leave these projects outside the FiT scheme, deteriorating their economics and raising the risk of becoming stranded assets.
Ben Backwell, CEO GWEC said, “Pandemic-related disruptions to travel, worker mobility and supply chains have reverberated across different countries over the last 1.5 years. In recognition of these disruptions, many countries like the US, UK, Germany, India, and Greece have implemented COVID-19 relief packages or deadline extensions for projects to reach their commissioning date. This support is crucial to ensuring investment and development in wind power can continue amid the harsh realities of the pandemic, which are beyond the control of individual project developers. In Vietnam, similar relief measures will be needed to support the nascent onshore wind industry which has been heavily impacted by COVID-19.”
Wind energy will make a strong contribution to Vietnam’s energy future, and action to support the renewables sector is needed to safeguard the country’s attractiveness as a foreign investment destination. Mark Hutchinson, chair of GWEC’s Southeast Asia Taskforce, said, “Vietnam is one of the most promising wind markets in Southeast Asia. But this is the make-or-break moment for onshore wind, which reached more than 500MW by the end of 2020. The government must introduce a FiT time postponement that will allow these 4,000MW of otherwise viable and economic wind projects to complete on a reasonable deadline. This is not just a marginal issue: Losing this volume of wind projects would strike a blow to the renewable energy investment environment, initiating a 'bust' cycle in Vietnam’s wind market which may take years to recover.”
A FiT deadline postponement will not only ensure the health of the onshore wind pipeline but also support future investment in the offshore wind sector. The first generation of offshore wind projects are undergoing different stage to close project finance right now. A similar group of international investors is anxiously watching the destination of the current onshore projects at risks. Thus, the project at risk now is not just 4,000MW projects and the investments behind it but a burgeoning offshore wind industry, which is positioned to become a sustainable, affordable, reliable, and indigenous energy solution for Vietnam.