Vietnam could be a significant market for offshore wind, but the country’s government needs help with policy, regulation and planning to make it possible
In September 2018, the prime minister of Vietnam approved a draft decision on new feed-in tariffs (FITs) for onshore and offshore wind power projects in the country, but before commercial-scale projects can get underway there are a host of challenges to address, as delegates at the Global Wind Energy Council’s (GWEC’s) first Vietnam Wind Power conference heard.
Organised by GWEC in partnership with Vietnam’s Ministry of Industry and Trade (MOIT), Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) and the Embassy of Denmark, the event attracted more than 200 delegates from over 40 countries and was intended to enable companies interested in developing the wind sector in Vietnam to meet and discuss with government officials what needs to be done for the wind industry to grow and remain sustainable.
The prime minister’s decision (known as Decision 39), was due to become effective on 1 November 2018 and will amend and revise articles in the prime minister’s decision No. 37/2011/QD-TTg on mechanisms supporting the development of wind power projects in Vietnam. For onshore projects, the FIT will be increased from its current level of US$0.078/kWhr to US$0.085/kWhr. The tariff for offshore wind projects will be US$0.098/kWhr.
Discussing the decision, and definitions of what constitutes onshore and offshore projects, Duane Morris Vietnam general director Dr Oliver Massmann said he believed Vietnam’s ministry of industry and trade needed to provide further guidelines and a better definition of ‘onshore’ and ‘offshore’ wind power projects. Another law firm following the development of the new FITs, Baker McKenzie, agreed.
The new FITs apply to a part or the whole of a wind power project that achieves a commercial operation date (COD) before 1 November 2021 and will apply for 20 years from the COD. For wind power projects that achieve COD prior to the effective date of the prime minister’s decision, that is 1 November 2018, the new FITs apply for the remaining term of the power purchase agreement. As Baker McKenzie also noted, the prime minister instructed the MOIT to propose a mechanism to encourage the development and manufacturing of domestic wind power equipment and increase the local content of wind power projects in Vietnam.
As previously highlighted by OWJ, Vietnam has significant nearshore and offshore wind potential but needs to reform its energy sector and develop competition-based generation and a wholesale and resale market to attract the foreign investment it needs to develop wind energy and solar projects. It also faces challenges such as developing windfarms in typhoon-prone areas, local supply chain limits and sometimes challenging seabed conditions offshore.
As one of the speakers at the event, DNV GL’s global offshore wind segment leader Peter Brun noted, he is optimistic there could soon be major developments and “significant decisions” taken on Vietnam’s energy system but highlighted that less than 200 MW of offshore wind has been installed there to date, despite the huge unexploited wind power potential in the country.
“Vietnam is in a situation where the country needs to go for energy technology which can be brought online fast, such as solar and wind,” he said, noting it has a very capable industry and is already a global supplier to the energy sector and other industries.
In fact, one of the leading tower suppliers – South Korean-owned CS Wind – has a sizable factory in the Ba Ria-Vung Tau Province, as does another producer Vina Halla Heavy Industries, and GE has a wind turbine generator factory in Hai Phong.
“All these local suppliers have come to be in Vietnam because of the country’s industrial offering, quality and competitive prices,” he explained. “But Vietnam has much more supplier potential for the wind industry than is already there, and is very well positioned to harvest not only many manufacturing jobs, but jobs in installation and operations and maintenance.”
However, as he pointed out, the permitting process in Vietnam is “very complex and cumbersome” and the country has at least 29 individual permits, agreements or licences for utility scale windfarms. There are many government agencies involved at state and regional level, he explained – at least 12 different agencies, counties and ministries. The approval process ranges from a few days to several months and the entire process can take years.
Another significant barrier facing investors and developers of wind energy projects in Vietnam is the lack of available project finance. There is a lack of local finance and the Vietnamese power purchasing agreements do not follow international standards in the areas of force majeure, offtake interruptions, dispute resolution, grid connectivity, change in law and tariff escalation.
As Mr Brun also explained, “failure to provide full currency guarantees is a serious problem for bringing in international capital and international public finance to Vietnamese wind projects. The only way to currently finance wind projects is through Overseas Development Aid-financed or equity-financed projects setting certain limits to scale.”
A third significant barrier for larger wind power installation in Vietnam is the country’s weak grid system and competition with solar PV, which is rapidly expanding in the country and could ‘cannibalise’ grid capacity for wind projects.
“Looking at the issues and opportunities facing Vietnam to capture its wind potential, a realistic approach for onshore wind will likely be slow development owing to some of the barriers and mitigating actions described above,” Mr Brun said. “This will take time to overcome and implement. With that in mind and the aggressive scaling power demand for the expanding Vietnamese economy, the government should seriously consider leapfrogging to opportunities in offshore wind.
“Vietnam has exceptional offshore and near-coast wind opportunities. Offshore wind conditions not far from large load-centres, such as Ho Chi Minh city, have great potential according to the World Bank Energy Sector Management Assistance Programme and with reasonable water depths between 20 m and 50 m, this could easily be a wonderful opportunity for Vietnam to add yet more global suppliers to its fledgling wind industry.
“Vietnam could quickly acquire obvious competences in supply, offshore foundations and substructures, creating new jobs and diversifying the industry,” Mr Brun concluded. “Fast-tracking offshore wind planning appears to be the right decision for Vietnam right now, where offshore wind technology is entering the region quickly thanks to the investment made in Taiwan.
“Because of a mix of conditions described above, Vietnam should consider taking a dual strategy planning for its wind power strategy, but there is certainly also a strong socio-economic business case for fast-tracking planning of the development of its vast offshore wind potential.”
In a presentation he gave at the conference, head of wind projects at the MOIT/GIZ energy support programme Tobias Cossen also highlighted lack of access to finance as an issue, along with complex and unclear investment procedures.
Mr Cossen said Vietnam needs a national wind power development programme, and support and advice is required to enable Vietnam to develop a suitable legal and regulatory environment. He also highlighted the need for capacity development and technology co-operation, the need to develop guidelines for environmental and social impact assessment, to provide support to developers to enable them to obtain finance for projects in the country and identify what kind of support mechanisms and feed-in tariffs would work best in the long term.