|Vietnam has immense potential for developing biomass-based energy from sugar-cane Photo: Le Toan |
As is the case with other renewable energy projects in Vietnam, the current power purchase agreement (PPA) for biomass energy is considered by many investors, banks and developers as non-bankable. Several key issues related to the PPA include:
- Sole off-taker: Electricity of Vietnam (EVN) is the only buyer of electricity which would impact the PPA bankability given EVN’s low creditworthiness. This is a key issue for many international financiers because of the associated risks. Though domestic funders have a higher risk tolerance for EVN’s rating, it still results in higher costs.
- Dispute resolution: Lack of provision for international arbitration on a neutral forum. - Term: 20 years without extension rights.
- Grid connection: Electricity sellers to bear the risks and costs of connecting the power plants to the grid.
- Termination rights: Lacks details and specific terms on termination rights.
Adam Ward, country representative for Vietnam of the Global Green Growth Institute (GGGI), told VIR that GGGI and Germany’s GIZ are calling on the Vietnamese government to apply and increase the feed-in-tariff (FiT) for all biomass energy technologies to 9.35 US cents per kilowatt-hour (kWh) from the current 5.8 US cents per kWh. The current FiT at 5.8 US cents per kWh is insufficient to capture the potential 737 megawatts of biomass energy capacity in the sugar industry, according to Ward. At this rate, no further capacity is estimated to be economically viable to be added to the existing 352MW of installed capacity. “Compared with neighbouring countries in the region, the FiT levels for biomass energy in Vietnam are considerably lower, less than half of Thailand at 13 US cents and the Philippines at 12.4 US cents,” Ward said.
He noted that the government should also revise the current power purchase agreement (PPA) to address the issues of dispute resolution, extension rights, grid connections and termination rights to increase attractiveness to investors (see box). “If Vietnam raises the FiT and revises the PPA, I am 100 per cent certain that more foreign investors will be willing to put money into this industry,” Ward said.
“During the past two years we have worked with five sugar companies across Vietnam to assess their feasibility to generate additional power for the grid, they are all keen to do so,” he said. “We also discussed with international investors and they expressed their interest to invest. But the economics don’t stack up now – the number one issue is the low FiT, and the second-biggest issue that international investors tell us is the current conditions in the PPA.”
“The international investors interested in renewable energy projects are plentiful, such as PIDG, ADB, the World Bank, GCF, FinnFund, K-EXIM Bank, not to mention large domestic and international banks that would all be interested if these policy changes were made,” he continued.
The GGGI and GIZ last week launched a landmark report which builds on the work conducted with five sugar mills across Vietnam including Lam Son, Nghe An, Dak Lak, Phung Hiep, and Vi Thanh. The results showed that Vietnam’s sugar industry can utilise bagasse waste from crushed sugarcane together with other sources of biomass like wood chips, rice straw and rice husks to generate much-needed electricity in a carbon-neutral way.
There are currently 41 sugar mills in Vietnam generating more than $1 billion in revenue, contributing at least 0.53 per cent of GDP. The total energy production could reach 4,300 gigawatt-hours (GWh) per year, which is enough to power 630,000 households.
If fully realised, the biomass industry could be a game-changer for Vietnam’s energy sector. “Vietnam has huge untapped potential for biomass energy, and with some changes in policy, we can see 737MW of clean energy resulting in significant carbon dioxide (CO2) emission reductions,” Ward said.
Under the report, the sugar industry could generate an additional 2,180 green jobs and reduce about 2.7 million tonnes of CO2 emissions a year, tantamount to 7 per cent of Ho Chi Minh City’s greenhouse gas emissions in 2013. This will help Vietnam decrease reliance on coal power, meet the Paris Agreement commitments, implement the United Nations’ Sustainable Development Goals, and increase the income of farmers.
The Vietnam Sugarcane and Sugar Association (VSSA) welcomed the study and urged the government to raise the FiT for biomass energy to $9.35 US cents per kWh.
“There are great benefits from exploiting the potential of the sugar industry that can contribute energy during the low season and national security as well as create revenue and competition,” said VSSA chairman Pham Quoc Doanh. “It will also bring jobs and greater income for the industry, and a reduction in CO2 emissions.”
According to Vietnam’s revised Power Development Plan VII, installed capacity of renewable energy is planned to reach 12GW by 2025 and 27GW by 2030, representing 21 per cent of total planned capacity. At this target, renewable energy is planned to reach 11 per cent of total electricity production by 2030 including relatively equal contributions by biomass and wind at 2.1 per cent each and solar at 3.3 per cent.
Compared to other Southeast Asian nations, Vietnam’s installed capacity for biomass energy is low, at only 352MW, with Thailand at 3.3GW and Indonesia at 1.7GW. Thailand has been leading in biomass energy thanks to abundant resources, available grid connection and favourable policies.