Transparent mechanisms advised to make most of offshore wind potential

Transparent mechanisms advised to make most of offshore wind potential

Right after sending a positive message to the world at the COP26 climate summit by pledging to phase coal out of its energy mix, Vietnam attracted more attention than ever before from many domestic and foreign investors to wind power projects, especially in offshore wind.

“At first we could not have imagined that wind power in Vietnam would develop so quickly despite many challenges in the short term. After COP26, wind power is expected to lead the path towards a net-zero future that Vietnam targets to achieve by 2050,” said Logan Knox, general director of UPC Renewables Vietnam at a forum hosted by the Global Wind Energy Council (GWEC) earlier this month.

The World Bank Group estimates that offshore wind in Vietnam has a potential of over 600GW. However, there are currently no offshore wind projects in operation in Vietnam.

The long list

Recognising that wind power has a future for development, Dang Hoang An, Deputy Minister of Industry and Trade, said that many localities are now proposing to develop offshore wind power.

“Many localities have submitted proposals to the MoIT to develop offshore wind power projects of up to 110GW. The commitment of many countries, including Vietnam, at the recent COP26 conference is a great premise for wind power development. We will develop a detailed programme to fulfil this commitment,” An said.

According to him, in the draft Power Development Plan VIII which is being widely consulted on, the Ministry of Industry and Trade (MoIT) plans to raise the planning for offshore wind power to 5,000MW by 2030 and to 40,000MW by 2045. “If economic and technical conditions allow, we can develop even more,” An said.

Up to now, 55 localities have sent proposals to the ministry for additional power sources and power grids that have not yet been approved for it to summarise.

The People’s Committee of the southernmost province of Ca Mau province has submitted a proposal to supplement the power source and grid, including gas, solar, and wind power projects. Specifically, the province proposed four liquefied natural gas (LNG) to power projects with a total capacity of 10,700MW and 24 wind projects with a total capacity of more than 12,000MW, including six offshore wind power ventures.

In the central region, Binh Thuan and Ninh Thuan provinces have all proposed to add tens of thousands of MW of offshore wind power. The latter proposed to put into planning about 42,600MW, of which offshore wind power would be 21,000MW and 4,600MW of nuclear power converted into LNG power, supplemented with stored hydroelectricity.

The northern and central provinces of Quang Ninh, Thanh Hoa, and Thai Binh have also proposed to continue adding wind power projects. Explaining the development of only 5,000MW in the first phase, Nguyen Tuan Anh, deputy director of the MoIT’s Electricity and Renewable Energy Department, said that the wind power market is still new and bound by the transmission grid.

“By 2030, Vietnam will only participate in a certain amount of capacity to give time to strengthen the transmission grid and complete the appropriate policy mechanism for offshore wind power,” Anh said.

Unlock the barriers

Groups such as Copenhagen Infrastructure Partners (CIP), Orsted, Enterprize Energy, and T&T have outlined huge ambitions and made busy preparations in Vietnam as they both set up offices in the country and sign geological survey contracts with Vietnamese contractors.

Keld Bennetsen, vice president at CIP, said that a clear consenting framework is critical for investors to understand how to secure the project exclusivity and commence any meaningful development work.

“Uncertainty in the project or unclear consenting routes make it really difficult for investors to commit fully or plan their next steps,” Bennetsen said. “We understand that the regulatory framework is being finalised, but it is not yet clear. We still need power purchase agreements and mechanisms to facilitate participation by international financial institutions.”

Copenhagen Infrastructure Partners is developing the massive La Gan offshore wind project off the coast of Binh Thuan province. With an expected capacity of 3.5GW, the wind farm is estimated to power more than seven million households and aims to be one of the first large-scale offshore wind ventures in the country. Bennetsen noted that only top professionals have the capacity to carry out such activities.

“It is also important that projects will first need to be developed by experienced companies that will help Vietnam attract more financial investors as well as international investors to develop the supply chain and promote the national value chain,” he added.

Besides these issues, the grid system also needs to be upgraded and the feed-in tariff (FiT) mechanism is also a factor to help support early projects.

Andrew Ho, head of Government and Regulatory Affairs for Asia-Pacific at Danish giant Orsted Group, said that when it comes to a market, international investors need to see a stable framework for long-term investment.

“The government needs to put in place important and transparent regulatory frameworks because offshore wind power cannot be deployed quickly,” he said. “In many countries, they have established a single point of contact designated by the state to manage the matter. That is great for investors because the state will share the risk and contribute to reducing the price of electricity production. This benefits both sides.”

A GWEC report released in the summer noted that the first large-scale offshore wind projects are not likely to be connected to the grid until 2026 or later. “For these initial projects, policy clarity and transparency on procurement mechanisms are urgently needed as the current FiT mechanism is soon to expire.” The latest FiT mechanism ended in November.

Practical experience from countries such as the UK, Germany, Denmark, and the Netherlands have shown the importance of having a clear roadmap for industry development in this area, starting with FiT pricing incentives, before the transition to open bidding.

But Dr. Nguyen Duc Hien, deputy head of the Central Economic Commission, admitted that offshore wind power is still considered a new field in Vietnam. “The institutionalisation and concretisation of the direction require the development of supportive policies and breakthrough mechanisms for offshore wind power development, which are still slow,” he said last week.