Vietnam: Blowing in the right direction?

Vietnam: Blowing in the right direction?

Alongside solar power, Vietnam has significant potential in wind energy and
it's hoped that wind will play a large role in turning the country away from
coal and gas.

To encourage the development of wind power projects the government
introduced a feed-in tariff (FiT) scheme way back in 2011. The FiT rate of
VND1,614/kWh (excluding VAT, equivalent to US$0.078) was seen at the time as
an important step towards realising the country's renewable ambitions.

The low rate, however, has proved unappealing to investors. Despite a range
of tax benefits offered to developers, including exemptions from customs
duties, a preferential corporate tax rate of 10% and income tax and land use
fee exemptions, Vietnam has just four operational wind farms. The original
plan to have 1 GW of wind power capacity by 2020 was fanciful, with current
projects generating just 138 MW. In fact, three of the four farms are only
in existence because they were able to negotiate power purchase agreements
(PPA) at better rates than the FiT.

The poor take up led to an inevitable rethink, with the revised Power
Development Plan 7 (PDP 7) targeting a 6.5% share of electricity generated
from renewables by 2020 and 10.7% by 2030. On wind specifically, installed
wind power capacity was forecast downwards to 800 MW by 2020, 2000 MW by
2025 and 6000 MW by 2030. These figures would account for 0.8% of total
electricity production in 2020, 1% in 2025 and 2.1% in 2030.

Winds of change

There is little doubt about Vietnam's potential when it comes to harnessing
wind energy. The country boasts over 3,000km of coastline and is subject to
regular monsoonal winds. According to The World Bank, 8.6 percent of
Vietnam's territory is suitable for the construction of wind farms, in
comparison with 2.9 percent in Laos, and just 0.2 percent in Cambodia and
Thailand.

A large part of this potential is thanks to the South China Sea, which
presents a golden opportunity for the development of offshore wind farms.
The waters bordering the southern tip of the country have an average wind
speed at sea of 10-11km per hour, according to research conducted by the
Vietnam Institute of Seas and Islands, under the Ministry of Natural
Resources and Environment (MONRE). At a height of 80m above sea level,
turbines could generate 400-800W per square metre per year.

However, even the modest targets included in the PDP 7 will be difficult to
achieve if changes are not made. As with the solar situation, the economic
feasibility of the renewable energy sector largely depends on the policies
put forward by the government, including the FiT.

As with other forms of renewable energy, Vietnam is in a strong position for
wind power production. There is strong interest in the country's energy
sector from both domestic and foreign investors, but the low power
purchasing price remains a significant sticking point for wind energy
projects, making it difficult for Vietnam to become an international
competitor in wind energy.

According to the United Nations Development Programme (UNDP), the FiT
proposed is not sufficient for investors to recover their investments. This
tariff is also much lower than in Indonesia (US$0.11), Malaysia (US$0.1476)
and Thailand (US$0.19).

By the latest estimates, even the lower target of 800 MW by 2020 looks
unachievable. Installing wind turbines is still a challenge in Vietnam and
the country relies heavily on imported equipment. Investors have been
clamouring for more government support and a guarantee that it will buy
electricity at higher prices so that they can recoup costs from their wind
energy projects. Blown off course

A number of regulatory and market barriers are preventing the industry from
meeting its full potential.

Besides the low feed-in tariff that needs to be adjusted, the issue of
transparency presents additional challenges. The insufficient reliability of
data, and the lack of a systematic and consistent database for investors and
producers to tap into, makes for unnecessary risk.

A dearth of qualified human resources and technical infrastructure, as well
as an inadequate supply of auxiliary equipment and services, forces
additional costs on power producers.

Complex procedures make it difficult for foreign investors to tap into the
market in the first place. Local stakeholders are also unclear about the
rules, leading to subjective interpretation and application of national
regulations at the provincial level.

The Vietnamese government has indicated it will review and update the buying
price, but investors are still waiting. Local groups have proposed an FiT of
US$0.095/kWh, while the German Agency of International Cooperation (GIZ)
states that US$0.098/kWh for mainland farms and US$0.112/kWh for offshore
projects is about as low as is commercially viable. Such an increase will
help offset the risks detailed above and get more turbines spinning around
the country.

Too good to miss

Even as foreign investors wait for news on pricing some have already taken
the plunge. Seven months after it was first proposed, the massive 800 MW
Vietnamese Phu Cuong Wind Farm has been officially formalised under a $2
billion Joint Development Agreement between GE Renewable Energy, Mainstream
Renewable Power, and local Vietnamese partner, the Phu Cuong Group.
Mainstream is also planning two other projects with a combined capacity of
138 MW in the southern province of Binh Thuan.

Deals like these represent progress, albeit slight, on the road to
harnessing Vietnam's wind power potential. Clearly, the country's
significant potential is enough for some firms to look past the bottlenecks.
However, low subsidies are stunting the sector, threatening to turn rich
resources and investor interest into hot air. The outlook remains
conservative, but even a small upwards adjustment in the power pricing could
change that, ensuring that Vietnam's wind power advantages don't go to
waste.

--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---

Link to Original Article:
http://www.lexology.com/library/detail.aspx?g=24b71636-611c-4afe-9db7-93b26d
d1c9c9&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+Gen
eral+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexolog
y+Daily+Newsfeed+2017-08-07&utm_term=

--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---

John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com