Low feed-in-tariffs deter foreign wind power investors

illustration photo

According to Oliver Massmann, general director of Duane Morris Vietnam LLC, Vietnam can be seen as a strong international competitor in wind energy as it has significant potential for wind energy and a continuously increasing electricity demand.

The World Bank reported that 8.6 per cent of Vietnam’s territory has potential for the development of wind energy, in comparison with 2.9 per cent in Laos, and just 0.2 per cent in Cambodia and Thailand.

“Although Vietnam possesses considerable potential for wind power production and an energy sector with strong interests from domestic and foreign investors, the low power purchasing price remain the biggest barriers to wind energy projects, making it difficult for Vietnam to become an international competitor in wind energy,”Massmann stressed.

Under the existing regulations, Electricity of Vietnam (EVN), the only off-taker on the market, has the responsibility to buy the whole electric output from wind power projects with a feed-in tariff (FIT) of VND1,614 per kilowatt hour (excluding value added tax, equivalent to 7.8 UScents/kWh).

According to the United Nations Development Programme (UNDP), this current subsidised tariff is not sufficient for investors to recover their investments. This tariff is also much lower than in Indonesia (11 UScents), Malaysia (14.76 USents), Thailand (19 UScents), the Philippines (34 UScents), China (11 UScents), India (12.5 UScents), and Japan (20-24 UScents).

“Vietnamese wind energy producers keep complaining about the very low purchasing price, while the current cost of electricity generated from wind power plants is still quite high due to large technical investment costs,” Massmann said.

For instance, several Japanese and South Korean investors are asking the Central Highlands province of Dak Lak’s authorities for high FITs for their major upcoming on-water renewable energy projects worth billions of dollars.

According to EuroCham, a FIT of at least 11.5 UScents/kWh is required.

Also concerned about Vietnam’s low FIT for wind power, KoosNeefjes, formerly working for the UNDP Vietnam’s Policy Advisory Team, said that electricity in Vietnam “remains quite cheap compared with other countries and it would make renewable energy a financially attractive power alternative. Thus a roadmap of incremental power retail price increases should also be issued.”

Investors are also required to negotiate and ink standard power purchasing agreements (PPP) with EVN. However, the negotiation process is very time consuming and it is almost impossible to predict how long it will take to negotiate the relevant PPA with EVN.

In some cases, it has taken up to six years to negotiate a PPA for a coal fired power plant with EVN in the past, according to experts.

“This is a deterrent for foreign investors if they cannot calculate such a timeline into the development costs,” Massann said. “If the FIT is not increased to be on par with regional levels and until there is no clear roadmap for negotiating the PPA, it will be very difficult to attract foreign investors.”

Echoing this view, EuroCham vice chairman TomasoAndreatta also said that “When Vietnam’s energy market becomes a fully competitive retail market, wind energy projects will play a more important role and investors will make higher actual profits.”

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