Covid-19 likely to leave wind power investment in Vietnam at risk
Covid-19 likely to leave wind power investment in Vietnam at risk
Without a FiT deadline postponement, these projects will be unable to progress, according to GWEC.
Covid-caused impacts will likely leave US$6.7 billion investment in 4,000 MW wind power projects in Vietnam at risk, the Global Wind Energy Council (GWEC) has raised concerns.
A wind farm in Vietnam. Photo: Carbontracker
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The pandemic restrictions that have put brakes on the supply chain, worker mobility, and other issues have caused significant delays for wind project construction in the fact that they are rushing to complete ahead of the expiry of the Feed-in Tariff (“FiT”) on November 1, 2021.
Without a Covid-19 relief measure to extend the FiT for wind projects by at least six months, these projects will become collateral damage of the pandemic and almost 21,000 potential jobs at risk, GWEC said in a request released on September 9.
GWEC and the global wind industry are calling on the Vietnamese Government to postpone the FiT deadline for wind projects by at least six months.
Most onshore wind projects currently in the pipeline will not complete construction in time to meet the deadline for tariff access, GWEC argued, adding that without a deadline postponement, these projects will be unable to progress, adversely impacting local economic growth and the wider renewable energy investment environment in Vietnam.
This will translate into lost investment and tax revenue for local governments, delayed progress towards Vietnam’s renewable energy aims in Resolution 55 and a “bust” cycle in Vietnam’s wind market which may take years to recover, the organization noted.
Pandemic-related impact
Ben Backwell, CEO of GWEC said pandemic-related disruptions to travel, worker mobility and supply chains have reverberated across different countries over the last 1.5 years. In recognition of these disruptions, many countries like the US, UK, Germany, India, and Greece have implemented Covid relief packages or deadline extensions for projects to reach their commissioning date.
“This support is crucial to ensuring investment and development in wind power can continue amid the harsh realities of the pandemic, which are beyond the control of individual project developers. In Vietnam, similar relief measures will be needed to support the nascent onshore wind industry which has been heavily impacted by Covid-19,” he said.
Wind energy will make a strong contribution to Vietnam’s energy future, and action to support the renewables sector is needed to safeguard the country’s attractiveness as an FDI destination, he added.
The Covid-19 situation in Vietnam has created many hardships for the industry. This extends to supply chain bottlenecks for wind project components, workers prevented from reaching project sites for crucial inspections and activities, travel restrictions for foreign personnel, and other issues.
As of August 2021, an industry survey conducted by GWEC estimates that 4,000MW of mainly onshore wind projects in Vietnam are severely challenged by these extenuating circumstances and are now at risk of missing the November deadline for the wind FiT.
Using standard industry calculations based on global and Vietnam averages, 4,000MW of wind projects translates to around $6.7 billion in investment that would significantly benefit local authorities and communities. This includes $6.51 billion in capital expenditures and an additional $151 million in operating expenditures per year across an average 25-year lifetime of projects.
Approximately 21,000 jobs could be created from these wind projects, sustaining coastal populations and supporting a blue economy in Vietnam. Much of this investment and workforce expansion would be locally focused at the province level, including in transport, installation, and operations and maintenance activities.
Wind - key sector for energy
Vietnam has identified wind as a key sector for energy security and system decarbonization in Resolution 55, the draft Power Development Plan and other documents.
The wind FiT was introduced by Decision 39/2018 and set at 8.5 US cents/kWh for all projects achieving commercial operations (“COD”) before 1 November 2021. This policy provided a clear route to market for onshore wind projects and resulted in an enormous investment pipeline of more than 140 wind projects signing Power Purchase Agreements with the state-owned grid operator, Electivity Vietnam, as of August 2021.
GWEC’s survey found that more than 70% of wind projects, which had submitted grid connection requests by August 3, 2021, will not achieve COD by the deadline. Missing this deadline would leave these projects outside the FiT scheme, deteriorating their economics and raising the risk of becoming stranded assets.
Mark Hutchinson, Chair of GWEC’s South East Asia Taskforce, said Vietnam is one of the most promising wind markets in South East Asia. But this is the make-or-break moment for onshore wind, which reached more than 500MW by end of 2020.
“The Government must introduce a FiT time postponement that will allow these 4,000MW of otherwise viable and economic wind projects to complete on a reasonable deadline. This is not just a marginal issue: Losing this volume of wind projects would strike a blow to the renewable energy investment environment, initiating a “bust” cycle in Vietnam’s wind market which may take years to recover,” he said.
Hutchinson added that a FiT deadline postponement will not only ensure the health of the onshore wind pipeline but also support future investment in the offshore wind sector. The first generation of offshore wind projects is undergoing different stages to close project finance right now. A similar group of international investors is anxiously watching the destination of the current onshore projects at risk.
Thus, the project at risk now is not just 4,000MW projects and the investments behind it, but a burgeoning offshore wind industry, which is positioned to become a sustainable, affordable, reliable, and indigenous energy solution for Vietnam.
Over the last few years, Vietnam has emerged as a top market for wind and renewable energy investment in Asia, and particularly South East Asia. The ambitious targets proposed in the draft National Power Development Plan VIII (PDP8) have reflected the government’s commitment to long-term decarbonization of the energy system and strengthening Vietnam’s regional competitiveness. It is vital that policymakers act to prevent pandemic-related difficulties from reversing this progress.
