Wind market storming ahead in Vietnam, but possible obstacles remain
With Indonesia and the Philippines still not quite reaching their stride and the leading Thai market hitting a rough patch, wind development in Vietnam looks like storming ahead of the ASEAN pack. It was with this background that market participants gathered in Hanoi on 11-12 June for the Global Wind Energy Council’s Vietnam Wind Power (VWP) 2019 event.
International developers, equipment manufacturers and service suppliers have been flocking to Vietnam in recent months and developments in many projects, both onshore and offshore, are racing to meet completion dates. This has been encouraged by generous feed in tariffs (FiTs). Wind farms constructed before 1st Nov 2021 may be eligible for 8.5 USc/kWh onshore or 9.8 USc/kWh offshore, which includes nearshore projects. In addition, developers may receive a corporate tax exemption for the first 4 years, followed by 50% discount up to Year 13, as well as an import tax exemption for renewable energy equipment.
At the same time, the cost of wind power is continuing to fall to the point where it will soon be competitive with coal power. Vietnam is also blessed with relatively good wind resources, compared to other countries in the region. Large parts of the country have wind resources in the range of 6.5 m/s -7.5 m/s at a 120m hub height. By end of 2018, there were 10 Wind Farm Projects in Vietnam for a total Installed Capacity of 228 MW. The Vietnamese government plans 800 MW by 2020, 2 GW by 2025 and 6 GW by 2030.
Peter Brun, DNV GL’s Global Segment Leader for Offshore Wind has previously shown how Vietnam has managed to encourage inward investment in manufacturing to support the wind industry in their own and neighbouring countries. International manufacturers are attracted to an existing manufacturing base, low labour costs and access to the global supply chain. Soon, the operation and maintenance of wind farms will also become important employers.
However, despite the bullish mood, concerns remain about the risks of building wind farms in Vietnam. Fears about reliable grid access, complex national and regional permitting procedures and power purchase agreements which do not meet international lending expectations result in a risky investment market where local lending is limited and international financiers are nervous to enter.
As energy demand grows in Vietnam, the national utility Vietnam Electricity (EVN) is struggling to install sufficient grid capacity for new generation. Wind power is competing for space on the networks with large solar developments, as well as conventional generators. With wind projects concentrated in relatively small geographic locations, local constraints may be particularly severe.
DNV GL’s Benoit Nguyen, in his keynote during the VWP conference, highlighted the concerns about the PPA offered by EVN for wind. As it currently stands, this can evidently be terminated unilaterally by EVN with an ill-defined compensation scheme or offtake curtailed due to congestion, with no requirement to take or pay. Reforms will be needed to the PPA process to encourage international lenders and non-recourse lending.
Nevertheless, none of these challenges is insurmountable. New, innovative, methods of finance can help encourage investors. Vietnam is in the happy condition of being able to take advantage to considerable improvements in the measurement and prediction of wind generation. Better prediction of wind power over the long term will help to mitigate power supply risks, as well as helping to better plan electricity networks.
Lessons can be learned from other countries about making the permitting process for wind projects quicker and more efficient. A better national integration of permitting can help to ensure that local blockages do not unduly hold up national renewable energy developments.
Increasing investment in the national electricity networks will help to mitigate curtailment risks. Short-term monitoring and prediction can help to operate networks in a smarter and more efficient manner.
At DNV GL, we believe that renewable energy sources, such as onshore and offshore wind, have a bright future in growing economies, such as Vietnam. Despite ongoing challenges, Vietnam is grasping a great opportunity to take a leading role in the development of clean power in SouthEast Asia, which will hopefully soon spread across the region.