‘Major problem’: will policy own goals stop Vietnam’s wind power boom in its tracks?

Vietnam supplied one of the bright spots of what was widely seen as a disappointing COP26 climate summit when it signed up to a pact to phase coal out of its energy mix, sending a signal to the world that it was ready to leave behind the world’s dirtiest fuel and embrace renewables.

As a nation regularly branded as one of Asia’s most wedded to coal power, the move to halt investments in new plants, along with a wider pledge to seek net zero by 2050, was hailed as a surprise step forward by Vietnam, which said it wants to have 31-38GW of wind and solar in place by the end of the decade to help make the shift.

But behind the COP headlines, some involved in Vietnam’s renewable energy sector fear that policy missteps are putting at risk the momentum behind what has so far been among Asia’s brightest prospects for wind and solar.

From an installed base of about 500MW, 2021 was for Vietnam’s onshore wind sector due to be a breakout year of multi-gigawatt expansion that laid the ground for steady growth in the years ahead.

But Vietnamese onshore now has a “major problem”, according to Patrick Architta, Asia-Pacific president for renewables consultancy K2 Management.

“Vietnam is a great country – you have the right wind, you have the right sun, you have the right growth – all the elements are there.

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“They have a lot of ambition – but the implementation is causing problems,” Architta told Recharge.

The root of the issue was the deadline on 1 November for Vietnam’s $0.085/kWh feed-in tariff (FIT) for onshore wind, which over the last 18 months has fuelled a frenzied construction boom by developers that ran smack into the unforeseen challenges of the Covid pandemic.

With global supply chains suddenly seizing up and workers quarantined, what was already a tough build schedule suddenly became impossible for a significant chunk of the gigawatts of onshore capacity racing to meet it.

Architta gives the example of staff just 5km from a project site but unable to move from their hotels for months due to quarantine restrictions.

The industry, led by the Global Wind Energy Council (GWEC), pleaded with the government for an extension, even if just for a few months, but to no avail. “We gave the example of many other countries that had an extension of time…but the government ignored it,” Architta said.

Instead, any turbines that missed the 1 November cut-off will have to enter negotiations with the Vietnamese state offtaker EVN over what level of remuneration they will enjoy – a nerve-racking situation for projects whose viability was based on grabbing the full 20-year FIT.

GWEC told Recharge its data suggests 3.3GW across 69 projects hit the 1 November deadline but almost 2.4GW missed it and will now have to wait to see what emerges from the negotiations.

So far so bad. But Architta claims the problem has been compounded by a regulatory limbo that now leaves Vietnam’s onshore wind sector facing the same fate as its large-scale PV installations, which have plunged dramatically since its own FIT expired a year earlier following an installation boom that helped push the nation to 16.5GW of solar by the end of 2020. “We installed 3GW [of PV] in one year. But the year after, no FIT – suddenly no activity,” said Architta

So far, no replacement FIT has been put in place for either wind or solar, nor has any clear signal been given over a shift from tariffs to auctions, which is widely expected to happen sooner rather than later as Vietnam seeks to follow other markets in ramping down subsidies.

“The end of the feed-in tariff without having a future FIT – it’s a major problem, Covid or no Covid,” said Architta, who warned that once the current construction backlog unwinds, Vietnamese wind faces exactly the sort of boom-and-bust cycle disliked by developers across the world.

Developers don’t want to invest until they are certain. There will be a drop-off of activity then we will have to ramp up again.

He gives the example of cranes shipped in from Australia and personnel trained up that now face a costly void in activity as investors wait for the policy certainty needed to advance their projects.

“Developers don’t want to invest until they are certain. There will be a drop-off of activity then we will have to ramp up again.”

The industry could live with a signal that auctions are coming, and even with a lower FIT than the old one – “we’d just have to be more efficient” – but not with a void that means multi-gigawatts built one year then none the next.

“For the good of Vietnam – not for the good of our business – in this transition until the auction is ready, they should put in place a feed-in tariff,” he said, warning that ultimately Vietnamese power buyers will be the losers if costs go up because of a lack of continuity.

Architta added that such a transitional FIT could be graded to the specifics of the Vietnamese wind market, which unusually spans three sectors – onshore, nearshore ‘intertidal’ projects and offshore.

Offshore more complex

Matt Lorimer, a partner at law firm Watson Farley & Williams (WFW) based in Hanoi, told Recharge: “For onshore wind (and near offshore) it now seems inevitable that we will move to an auction-based system, but there are limited details on how this works.

“Due to the high uptake of the FIT (especially for solar), EVN does not currently have a shortage of electricity and there appears to be no hurry to announce how the auction process will work. The FIT for solar ended last year and there have been no details of the replacement auction system.”

“An announcement on how the auction system will work is fundamental for onshore wind,” Lorimer added.

For Vietnam’s offshore wind sector – regularly cited as one of the most promising globally and the target of activity by the likes of Orsted, CIP and Enterprize Energy – the WFW lawyer said the situation is more complex.

It was long since clear that the massive projects off its shores would come nowhere near the 1 November FIT, but developers’ ongoing challenges include resolving specific elements of the power purchase agreement (PPA) on offer from EVN which while workable for onshore projects, Lorimer said do not reflect the added scale and complexity of projects at sea.

Flawed master plan?

Lorimer points out that also key to offshore wind’s prospects is its place in Vietnam’s Power Development Master Plan 8 (PDP8), which sets the national high-level policy agenda for the sector and is eagerly watched for signals of what energy sources are favoured by state planners.

The latest draft of PDP8 appeared just before COP26 and – to the consternation of many – signalled a move back to coal and a relegation of offshore wind.

Think-tank the Institute for Energy Economics and Financial Analysis (IFEEFA) in September said the draft “in a surprising shift, proposed to raise the installed capacity target for coal-fired power by 3GW to 40GW by 2030, with an additional (and final) 10GW to be deployed by 2035”.

The IFEEFA added: “To make room for this pivot back to coal, the planners sacrificed 6GW of wind power expected to come online by 2030. Offshore wind was removed entirely from PDP8’s base case scenario.”

Hardly the signal to the international investment community of a nation committed to the energy transition, said the IFEEFA, pointing out that the coal power sector also had a dismal track record of failing to deliver the capacity it promised Vietnam under previous PDPs.

But that was in September, before the climate summit, and joining the COP26 coal pact may signal new realities in play – not least the decision by China to stop financing new international coal-fired plants.

Thu Vu, who compiled the September analysis for the IEEEFA told Recharge: “We understand that another round of revision on the draft PDP8 is underway, to reflect the recent announcements made by Vietnam at COP26.”

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