Hiep Thanh Wind Power project: deadline well within reach

Ti Chee Liang, chairman of Ecotech Tra Vinh Renewables JSC

Why did it take more than a year for the company to begin the project construction? Are there any reasons behind the delay?

The project received its investment license in August 2018. We have started the investment process according to Vietnamese law immediately after receiving approval for the project’s investment proposal. We hired Power Engineering Consulting JSC No.3 (PECC3) and the Institute of Energy to prepare the feasibility study and basic design on two lots – V1.5 and V1.6 with capacities of 48MW and 30MW – that have been approved for inclusion in the Master Plan by the Ministry of Industry and Trade (MoIT) in 2015.

The company then proceeded to secure the interconnection agreement with Electricity of Vietnam (EVN) and other technical agreements. Despite these efforts, project implementation was slightly delayed for a number of reasons.

First, by their nature, wind projects are much more complicated to implement than solar projects. We need to carefully study the wind and maritime conditions near the shore and other geotechnical conditions for the project.

Second, the power purchase agreement (PPA) is written in Vietnamese without an English version. It took a great deal of effort to convince international lenders to accept this format.

Third, wind and renewable projects are not eligible for guarantees by the Vietnamese government and there are other risks factors such as curtailment risks, which are non-existent in a BOT power project. Lenders needs to be convinced to accept these risks.

Fourth, as this is a green project, we need to prepare additional project documentation to meet international environmental standards, especially when it comes to environmental and social impact assessment. Now we have these documentations ready to have the project fully moving forward.

Last but not least, the global wind market is an investment hotbed with escalating demand for reputable wind turbine suppliers. Wind turbine suppliers like Siemens Gamesa and other suppliers have their manufacturing at full capacity and they are only keen to provide turbines to reputable developers in whom they have confidence to execute and complete the projects. We were able to lock down a commitment from Siemens Gamesa to supply wind turbine generators (WTGs) in a short time.

The delays, however, were mitigated and shortened by active support from the Vietnamese government and relevant ministries. It is always difficult for any developer to implement a project as a plethora of laws and regulations must be followed. We are fortunate that the Vietnamese authorities are always prepared to discuss and review our challenges and provide assistance wherever possible.

In fact, in Vietnam and in Tra Vinh, the MoIT, the provincial People’s Committee, and EVN are always looking to support developers with win-win solutions to ensure that developers can implement their projects on time. The MoIT and EVN’s proactive support allowed the basic design approved in June 2019 and the PPA signed in September 2019.

The strong support from Tra Vinh authorities ensured a smooth and efficient resettlement process. We have secured cleared area for the construction of the main plant and substation in order to hold the ground-breaking ceremony today. We would like to express our heartfelt gratitude and sincere thanks to the MoIT, the Tra Vinh People’s Committee, EVN, and all relevant authorities for their strong support during the project’s development.

You once mentioned that the feed-in tariff (FiT) of 7.8 US cents is not viable for the project. Now the tariffs of 9.8 US cents for offshore and 8.5 US cents for on-shore plants are valid until November 2021. What is plan for Hiep Thanh to be in operation?

Hiep Thanh Wind Power Project is scheduled to come on stream in the first half of 2021

We are very pleased that we will have the first turbines running in early 2021 and will manage to complete the construction of the plant by mid-2021. Ecotech Tra Vinh will achieve commercial operations quite some time ahead of the mentioned deadline for these tariffs. We are proud to also announce that we will be the first developer to execute a wind power plant in Tra Vinh.

The new tariff of 9.8 US cents was extremely important to make the project bankable. However, the tariff is just one of the numerous factors that lenders use to evaluate a project. Other factors include issues like the developer’s reputation and ability to execute projects, the terms of the PPA, the quality of the equipment, and whether the project meets international standards on environmental and social impact. As mentioned above, we have looked at all of these issues and resolved them when necessary – we are confident to achieve commercial operations before November 2021.

Our lender is a Green Fund. The green fund lender is well versed in green energy development and its complications. The lender’s proactive approach to lending, compared to traditional banks, deep understanding of the risk profile of a wind power plant, and the extremely efficient work ethic of CIO and ST International made it possible to quickly resolve the above issues.

During the project preparation and development stage, what are the main obstacles and concerns from the investors?

We are fortunate that we have experience from Duyen Hai 2 to leverage once we start construction after breaking ground on the project. There are certain areas that are critical in the construction stage. There is no well-established investment scheme for nearshore projects that investors and authorities can consider. One example is the lack of regulations on the maritime agreement to lease the surface.

We are still having discussions with the Ministry of Natural Resources and Environment on the leasing contract, discussing whether we need to rent only the footprint of the wind turbines or the complete area that would signify a significant cost increase.

Nearshore wind projects also do not enjoy the rent and tax concessions that are available to onshore projects. We do hope that the government will come out with favourable regulations to promote nearshore projects. It will be good not only for our project but also all other nearshore projects.

There is strong interest from investors in wind projects in Vietnam. Are you willing to invest further in other wind projects?

Wind is green and it is the predominant energy source for future generations. Wind power plants may be less efficient than baseload plants but the difference will narrow with improvements in technology standards. But more importantly, green energy is good for the planet and we must prioritise this form of energy production.

If our partner in the project - Singapore’s Janakuasa Pte LTD - is given more opportunities to do wind projects in Vietnam, we will proceed without a second thought. As we have stated, power projects can be executed in Vietnam successfully. Completing power projects in Vietnam on scheduled COD, as stated in the PPA, is also achievable. The simple reason is that Vietnamese authorities are willing to discuss with developers their challenges and issues and assist whenever possible to achieve win-win solutions. Janakuasa has two power projects attesting to this to any other foreign investors who are keen to invest in Vietnam.

By funding this project through international lenders, Janakuasa has demonstrated that Vietnam’s power plants can meet very stringent social and environmental standards equal to those of Europe. This is an important show that Vietnam can compete with the best to promote green energy. Janakuasa is proud and honoured to play a part to deliver this message.

What advice would you recommend to other investors in wind power development?

Firstly, the investor must understand the regulatory framework of Vietnam’s power industry and assist in explaining this regulatory framework to international lenders. For example, a PPA written only in Vietnamese can be bankable. Bankability lies not in the language used but the risks defined in the PPA. International lenders understand risks, but first, the developers need to understand it by themselves first.

Secondly, the developer should conduct a preliminary study on wind and maritime conditions and shall install a wind mast before the submission of the feasibility study. These gives the developer a “gut fee” of the viability of the project in a particular location.

Thirdly, there should be careful consideration and study of interconnection issues. The selection of the wind turbine that meets the project and financing requirements are also important.

Fourthly, select Janakuasa as the partner.

You are also working on the Duyen Hai 2 project. What is the status of the construction work at this project?

Duyen Hai 2 power project is in full tilt to reach completion

We are pleased to inform that the Duyen Hai 2 project proceeds in a timely manner. We have of course faced many challenges during construction but the support from the MoIT, EVN, MoNRE, and Tra Vinh People’s Committee has had a significant impact on our ability to overcome construction problems and give us the confidence to meet our deadlines.

We can confirm that we will meet the scheduled commercial operation date for the first turbine unit as defined in the PPA in June 2021. We are striving to be between three to six months ahead of schedule and expect the project to be plugged into the Vietnamese grid in the first quarter of 2021. The current coronavirus outbreak (COVID-19), however, is now a great challenge to our construction schedule.

Do you have any concerns of the negative public opinion of coal power? How transparent is the supervision at the site to ensure smooth operation from the get go?

We are always mindful of the public perception of coal-fired plants and its negative impact. It is important to look at everything in the right context. Coal-fired plants are a necessity for a high-growth country like Vietnam. Many of the base load power plants are coal-fired and they ensure stability for the grid and ensure no outages to the many manufacturing plants located in Vietnam.

The challenge, therefore, is to sustain stable energy production to meet growth, yet still comply with strict environmental standards. This explains why Janakuasa has decided to build a supercritical power plant in Duyen Hai 2. This technology does cost much more than a subcritical plant but it has greater efficiency and far lower emissions.

What does this project mean for Janakuasa?

Janakuasa has engaged in these two projects to generate revenue and profit. This, however, is not the only priority – equally important are putting the Duyen Hai 2 and Hiep Thanh wind projects into operation to benefit Vietnam’s economic development.

The benefits are diverse. For instance, these two plants create new employment in Tra Vinh, generate tax revenue to the local budget, provide new impetus to economic growth, and attract new investors to set up new industries in Tra Vinh.

More importantly, by extending a loan to the Hiep Thanh wind project, international lenders are endorsing the fact that wind projects in Vietnam are on par with the stringent environmental and social standards of the west. To me, this is the real benefit for Vietnam and its economy. This means that in implementing a project in Vietnam, we can complete with the best in western economies.