Developers demand long-term fix

Developers demand long-term fix

Under the Ministry of Industry and Trade’s (MoIT) proposal to the government late last month, bidding mechanisms could be applied to unfinished solar and wind power projects that did not reach their commercial operation dates (COD) to be able to enjoy the feed-in tariff (FiT) mechanism.

However, the main principles in the bidding for those projects set that the power purchase agreements (PPA) term should be applied until 2025 only. The currency used to calculate prices is VND per kilowatt-hour, which will not be adjusted in accordance with the US dollar prices and power plants are mobilised according to power system demand.

A representative of one wind project in the Mekong Delta province of Ben Tre commented that the pandemic caused significant delays in project commissioning schedules for utility-scale renewable projects because of limited labour, supply chain disruption, and lockdown – and a short-term fix, as the proposal suggests, would not cut it.

“Wind power is a long-term investment. The financial problem has been used as a basis for us on the FiT mechanism. We can’t just sign a PPA contract for a few years and then continue to negotiate and bid under the new mechanism. It is not bankable,” he said.

“The requirement for bidding including currency and timeline is contrary to worldwide best practice and may put developers and lenders in a vulnerable position,” he added, warning that pandemic uncertainty and non-favourable business environment will heighten perceived risks.

Nguyen Anh Tuan, former director of the Renewable Energy Centre of the Institute of Energy under the MoIT stated that it is impossible to maintain the FiT rate for long, but if it suddenly stops, investors in the transition period between the old and new mechanism will face difficulties.

“Renewable investors often need a third-party funding source, such as a bank. It is, however, unlikely that a third party will lend without security. PPAs are usually signed for a long-term period between 10-20 years," said Tuan.

Pham Thi Thanh Tung, head of the Department of Credit for Agriculture under the State Bank of Vietnam, noted at the Vietnam Clean Energy Forum held over a week ago that the lack of guaranteed access to the national grid and strict limits on curtailment make things uncertain for both investors and banks. “Investors have difficulties in PPA contracts and lack of synchronisation in the transmission system, affecting the capacity to release the expected capacity, thereby affecting the revenue and ability of customers to pay debts,” she said.

Limitations and risks

Giles Cooper, partner at consultancy firm Allens in Hanoi – which specialises in mergers of power and other major projects, with a particular focus on renewables – told VIR that he would like to see more nuance in 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 has only completed some ground preparatory work,” he said.

Meanwhile, the MoIT pointed out a series of limitations if the preferential FiT mechanism continues to be extended for wind and solar power projects that cannot be commercially operated ahead of time.

“The FiT is an incentive mechanism that is applied only at a certain time to attract investment in wind power and solar power. Keeping the preferential price mechanism unchanged will have limitations, such as the 20-year power purchase agreement term being too long,” the MoIT stated in a March 24 document submitted to the government on a transitional policy mechanism for wind and solar projects.

The cost of wind and solar power production has decreased compared to the time when the FiT mechanism was promulgated 4-5 years ago, while technology efficiency has also been improved, and scale and development experience expanded.

The future of renewable energy projects hangs on the policy as there is no official decision for wind and solar after the FiT mechanism ends, which poses a major risk to onshore wind capacity additions in 2022.

A Global Wind Energy Council report released last week noted that in 2021 alone, Vietnam surprised the world with an impressive boom in wind despite severe supply chain disruption. More than 3,300MW of new wind capacity was built by the end of 2021 as the industry rushed to meet the wind FiT deadline, making Vietnam the largest wind energy market in Southeast Asia.

“However, due to logistics, workforce, and supply chain challenges posed by the pandemic, delays have led to only 106 wind projects (roughly 5,800MW) successfully submitting required paperwork for connection,” the report noted. “Of these, only 84 projects (roughly 3,900MW) have been accepted for COD or partial COD, leaving around 4,200MW of onshore and nearshore wind projects at risk of becoming stranded assets without clarity on procurement or grid connection.”

Prolonged issue

The Government Office has recently requested the MoIT to check information after wind investors of Nhon Hoi, Nam Binh 1, Cau Dat, and Tan Tan Nhat sent a petition to the prime minister, the MoIT, and other relevant agencies proposing removing stumbling blocks related to policy for wind and solar projects.

Under that, these power projects have had the construction and installation processes completed and attained certificates of appraisal prior to October 31 last year. However, the lack of labour and transportation prevented these plants from running on a trial basis before that date.

This is not the first time a business or organisation has sent a petition to the prime minister and related ministries due to the gap in policy. Bui Van Thinh, chairman of the Binh Thuan Wind Power Association, said the story of renewable energy investors who asked for help from the MoIT and the prime minister has been repeated many times but has not been resolved. The main cause comes from not only the regulations of the electricity industry with the COD process and FiT mechanism, but also from energy sources.

“Renewable energy is already in excess, reaching a dangerous threshold for the power grid, while the transmission network has not been adequately funded in order to meet the electricity distribution,” Thinh noted.

According to Electricity of Vietnam, by the end of 2021, Vietnam’s total installed power capacity reached 76.6GW, a 7.5GW increase from 2020, with renewable energy comprising 27 per cent of the total capacity. The dramatic increase in renewable energy in the last three years has highlighted the need to upgrade the existing electricity grid and transmission infrastructure to meet future energy demand and supply.