Vietnam’s offshore wind gets a boost from new policies

A two-year extension to the FiT framework and a direct PPA programme could lead to greater opportunities for the sector, according to Fitch, but grid access and bankability of projects remain a challenge.  

New energy policies announced by the Vietnamese government are expected to increase growth opportunities in the country’s wind sector, according to Fitch Solutions.

Vietnam’s Ministry of Industry and Trade is looking to extend the feed-in-tariff deadlines set to expire in November 2021 to the end of 2023. After that it will adopt an auction process for such projects. According to Fitch Solutions, the current FiT is “a highly attractive” 9.8 cents per kilowatt-hour.

The ministry is also looking to implement a direct power purchase agreement framework, enabling renewable energy producers to sell and deliver electricity directly to corporate customers. A pilot programme is set to be implemented nationwide from later this year to 30 June 2022.

“Both policies would be very positive,” Andrew Affleck, founder and managing partner of Armstrong Asset Management, told Infrastructure Investor. “This could be the catalyst for wind energy to replicate the scale of solar growth we saw over the previous two years. With more and more private sector investors shunning new coal projects, Vietnam needs to continue to facilitate the growth of renewable energy to meet its growing energy demand.”

According to Fitch Solutions, Vietnam’s wind potential is among the highest in the region, “as it is endowed with high wind speeds, particularly in the offshore or near-shore areas”. The ministry estimates this potential to be at approximately 475GW.

Fitch Solutions expects Vietnam’s wind power capacity to grow from an estimated 375MW as at the end of 2019 to 2.5GW by the end of 2029. It also expects net consumption to increase from 185.4 terawatt-hours to 348.3 terawatt-hours over the same period.

The country has over 900MW of wind power plants under construction currently, and Fitch Solutions estimates an additional 13GW in the pipeline, including Ke Ga, a 3.4GW offshore wind farm planned by Singapore’s Enterprize Energy. Should it be realised, it will be one of the largest offshore wind farms in the region.

The government is also increasing wind sector production targets from 2GW to 6GW by 2025 and from 6GW to 10GW by 2030, but challenges remain.

“The uncertainty on the approval process [of the FiT extension] is one of the key challenges for new investors, among a number of other local-specific issues, from permitting process to risk allocation and contractual frameworks to obtain financing on a project finance basis,” Thanh Hai Nguyen, associate at Baker & McKenzie in Vietnam told Infrastructure Investor.

“Access to the grid and grid connectivity could [also] be a challenge,” Frederick Burke, a partner at the law firm, added. “Wind power resources are often far from existing grid access points, and management of the grid is technically challenging. This is one of the first considerations the government is thinking about when licensing new capacity – when it comes online, where is the line?”

The auction system after 2023 won’t bring in 100 percent private capital, Burke added.

“The auction is on tariffs and development rights to gradually replace [the] fixed FiT tariff regime for grid-connected projects for the sale of energy to [Vietnam’s largest and state-owned power company] EVN,” Burke said.

“Government support is still expected by the private sector, especially on risk allocation and contractual frameworks for large-scale offshore wind projects. [To form competitive auction mechanisms], the auction process requires sufficient capacity in the market, information exchange to enable price determination, and legal and technical reliability of underlying agreements, among other things.”