|Giles Cooper, partner at the Hanoi branch of Allens |
Vietnam is leading Southeast Asia’s energy transition, but it continues to face challenges including gaps in regulations. What are you looking for in the government’s policies in the coming time?
Looking past the transitional projects’ regime to new greenfield development, the key is certainty. Investors and lenders are willing participants and will adapt to what’s in front of them to the maximum extent possible. The sooner it is clear which projects will be approved in principle, how investors will be selected to implement them, and how they will be remunerated, the better. The sector still needs and deserves a supporting and enabling environment.
This needn’t be a one-size-fits-all approach. For example, offshore wind has huge potential but is currently almost entirely undeveloped. I would like to see ambitious targets for offshore wind projects by 2030 and approval of a new feed-in tariff (FiT) for offshore wind projects in particular, even if just for an initial batch of projects, for example, up to the first 5GW. This would be money well spent to enable Vietnam to benefit from its vast offshore wind resource and involve many interested and highly capable investors in this sub-sector of renewable energy.
I would also like to see greater flexibility in the project planning and approval process. As tech develops and the market matures, new opportunities will arise to exploit clean forms of energy and the policy framework should be able to adapt quickly to benefit from this. Energy storage and green hydrogen production are two clear examples of developments the regulators should see coming and at least be willing and able to address decisively at the right time.
Finally, I would also like to see the direct power purchase agreement (PPA) pilot approved which will facilitate a fuller assessment of the demand and willingness of the private sector, particularly large manufacturers, to essentially underwrite new clean power generation capacity.
The Vietnamese government and the Ministry of Industry and Trade (MoIT) are looking at a transitional policy mechanism for ongoing projects that did not reach commercial operation last year. What do you think of the current proposal?
I appreciate the MoIT’s efforts to provide a special regime for so-called transitional projects. Many wind power projects in particular were unable to meet the FiT deadline for reasons beyond their control. I have a lot of compassion for project owners, many of whom had to rely on their own equity to fund development and construction, who narrowly missed the deadline and are now mired in uncertainty as a result.
More than anything, the market needs policy and legislative certainty so it can develop sustainably and efficiently. Decisions on what would happen after expiry of FiTs, especially in circumstances where it was clear that many projects were working in good faith but impacted heavily by matters outside their control, should have been made well in advance of the expiry of the FiT and not only talked about some months after.
Now we are where we are though, I would like to see more nuance in the transitional regulations. Each project has its own set of facts and development progress. A project that was unable to connect due to a lack of technicians in the days ahead of the FiT deadline is very different from a project that had only completed some ground preparatory work. A project that has only just received an investment approval is very different from one that has bought wind turbines but has been unable to receive them due to global shipping bottlenecks.
Yet, the proposal of the MoIT seems to treat all these the same. It would be a fairly simple matter to set out certain development milestones and/or factual matters to separate projects that failed and deal with them on their merits.
If this proposal is eventually approved, how would you rate its impact on investors?
If the MoIT’s proposal is adopted as is, it would send a chilling signal to renewable energy investors at exactly the wrong time. The sector as a whole has, over a period of a few years, adapted very well to the market environment, particularly around the quality of the standard PPA, and has largely come to accept risks that at one time were thought untenable.
Pivoting directly from 20-year fixed tariff PPAs to 5-year competitive tariffs and without dollar indexation will dramatically alter the commercial, legal and financial landscape and will hinder the efficient development of high-quality renewable power projects.
I appreciate that the government intends to develop a fully competitive electricity market and that’s a worthy goal. I also appreciate that the government has signalled for many months that it would be moving to an auction regime for the selection of investors and tariff negotiation post-FiTs. These proposed transitional project regulations are only a small part of this big picture and, clearly, it’s not a simple matter to weigh competing interests. It is in the government’s interests, however, to ensure well-advanced and commercially and technically feasible projects don’t fail.
I encourage interested parties to work with the system and make submissions to the MoIT on its proposal with a view to creating outcomes that facilitate rather than disrupt renewable energy ambitions. Ultimately, the better the market conditions, the easier it will be to access the capital needed to meet targets and facilitate low-cost energy generation for the country’s benefit as a whole.