The editorial office of Saigon Investment has since received a wide range of opinions from experts, pointing out the existing reasons for policy risks to the wind power sector. More such articles will continue to be published on this subject in the future by Saigon Investment in the months ahead.
Enterprises in dilemma
There are currently 106 wind power projects with a total capacity of 5,655.5 MW that have been signed by various enterprises. This has been in response to the policy of renewable energy development under Resolution 55-NQ/TW of the Politburo on strategic orientation for national energy development until the year 2030, with a vision upto 2045, and implemented via Decision 39/2018 /QD-TTg of the Prime Minister. In order to encourage businesses to invest in this field, the management agency had created a preferential price mechanism (Feed-in Tariffs-FIT), with the condition that the projects will be operated commercially under Cash On Delivery (COD) before 31 October 2021.
The FIT price applies to electricity produced from renewable energy sources for sale to the grid or for on-site use in order to reduce the load on the grid, as well as to ensure a profit for investors. This is a mechanism applied by advanced countries in the world to stimulate businesses to invest in renewable energy, and gradually reduce their dependence on traditional power plants that are negatively impacting the environment and causing serious climate change. However, only 69 projects with total capacity of 3,298.95 MW were recognized for the COD plan. There are both subjective and objective reasons for this, but the Covid-19 pandemic is of the most serious concern right now.
A typical example is that of the Hanbaram Wind Power Joint Stock Company, cited in a document sent to the Prime Minister and other relevant ministries some time back. The wind power project deployed in Ninh Thuan province is expected to complete construction, installation, connection of 29 out of a total 29 turbine poles, and the entire transmission line and substation, to connect to the national grid system, which is currently being tested. Complete technical testing and COD of turbines was done by 31 October 2021. This unit has mobilized all human and material resources to carry out the project according to the schedule, but the Covid-19 pandemic has delayed and turned everything upside down.
Mr. Dang Manh Cuong, General Director of the Hanbaram Wind Power Company, said that an essential device had arrived at Saigon Port, but it has been lying there for the last four months and could not be taken out due to strict social distancing rules. Besides this delay, the transportation of equipment from Ho Chi Minh City to Ninh Thuan and Gia Lai provinces, as well as the mobilization of construction and installation workers faced difficulties because many localities had implemented blockades against commuting to various areas and regions. The procedures of bringing experts from abroad to Vietnam is also very complicated due to strict pandemic prevention regulations in many places, increasing the time from six weeks to upto even ten weeks at times.
Due to these reasons, up until the milestone of 31 October 2021, only six of the twenty-nine wind power pylons have had COD in time to enjoy the preferential FIT price, but the remaining 23 pylons have been completed but not been able to conduct COD in time, so they cannot enjoy the preferential price. Since then, these projects have also been unable to operate under COD because the power industry has not yet provided guidance on purchase price.
A similar dilemma is being faced by the Gia Lai Wind Power Investment and Development Joint Stock Company which has completed the construction, installation, and connection of all of the 25 turbine towers and many other essential items. Currently it is testing all techniques to go into operation, but due to the impact of the Covid-19 pandemic, only one out of the 25 wind power poles could keep up with the COD plan.
Sunpro Ben Tre Wind Power Company has also poured capital into a project to the tune of USD 56 mn, equivalent to VND 1,270 bn, although progress has only been upto 75% so far. Months of social distancing has disrupted all construction work and both experts and workers are finding it difficult to enter or exit the factory premises, while buying and selling, and transporting of materials is also facing a congested situation. The ground clearance process was stalled when the company could not meet the people to negotiate with the deals.
Currently, dozens of businesses investing in renewable energy are calling for help from the Government and relevant authorities about the risk of bankruptcy when there will be no revenue at all, as most businesses are under pressure to repay loans of credit institutions. The pandemic has caused costs to go up such as increased freight rates, increased warehousing fees, social distancing costs, implementing three on the spot plan, increased testing fees for all workers and personnel, and many other hidden costs, causing untold headache for investors and businesses.
As of now, in the present situation, businesses are going along with Government policies and guidelines but are still feeling ignored and abandoned. Representatives of Sunpro Ben Tre wind power plant and many other enterprises such as Hoa Dong 2 Wind Power Company, and the Lac Hoa 2 Wind Power Company in Soc Trang, said that the investment in the projects is thousands of billion dong, but now the money is just lying there stagnating. The companies will go bankrupt if the Government does not come up with a reasonable and timely policy to bail them out.
Businesses and banks at risk
According to unofficial statistics, about 4,185 MW of renewable energy registered had not achieved the COD schedule before 1 November 2021. This is a total investment of about VND 202,794 bn, about USD 8.8 bn, equivalent to 3.2% of Vietnam's GDP in 2020, of which equity is VND 60,892 bn and bank loan is VND 142,082 bn. Up until now, banks have disbursed about 40% of the total investment of the above projects, equivalent to VND 81,190 bn.
Investors are currently paying an annual interest of VND 8,119 bn at 10% per year, while having no revenue or receiving only a portion of the revenue from the total capacity. This poses a potential high risk of bad debt for the banking system and seriously affecting the circulating cash flow within the economy. Besides, the investors have also spent hundreds of billions of dong for each project to pay import tax, which will not be refunded without an Electricity Activity License, which is only obtained after the COD certificate. On the other hand, the failure to achieve the FIT price, and the lack of a pricing mechanism for the contractual relationship between the investor and the contractor, are also issues that can lead to lawsuits due to the inability to accept payments.
The Ministry of Industry and Trade and related parties held a meeting recently and are expected to offer the purchase price of electricity from wind power plants after 31 October 2021, at about 12% compared to the FIT price according to Decision 39. However, many investors believe that this price level has not clearly stated where the reduction is based, because if a 12% reduction is applied, nearly 40 projects implemented in recent years will suffer serious losses, even lose profit. The application of any reduction also needs a roadmap to be implemented, because businesses are late every day without output on that day, which directly affects the source of money for debt repayment.
According to Mr. Nguyen Anh Tuan, former Director of the Center for Energy at the Energy Institute, wind power development in Vietnam is at its first momentum. It is a long way away from take-off stage in the next five years. Mr. Tuan said that for wind power to take off, it is necessary to have a series of appropriate development policies, such as effective supply chains, financial mechanisms, and better technology, with unchangeable, stable and sustainable policies to support wind power.
He also said that businesses have followed the Government policy in the expansion of renewable energy and limiting forms of electricity production that have a negative impact on the environment. It is necessary now to have a risk-sharing mechanism between investors and regulatory and policy making agencies. Accordingly, managers grasp the situation and propose measures such as extending the incentive or having a follow-up policy to create peace of mind for investors.
Currently, many countries have policies to rescue wind power enterprises and investors when facing difficulties due to the pandemic. For example, in May 2020, the Government in Germany passed the Planning Protection Act, allowing renewable energy projects with COD deadlines before or by 30 June 2020, with an extension of six months. Also, in the US, in May 2020, the Ministry of Finance sent instructions to extend the tax credit period by one year for onshore wind and solar power projects that had started in 2016 and 2017, so as to complete the projects and receive incentives from the production tax credit policy.
At the COP26 conference, the vision of the nation on climate change was expressed in a speech by Prime Minister Pham Minh Chinh to world leaders. He said that Vietnam has several advantages in renewable energy, and will develop and implement strong greenhouse gas emission reduction measures with its own resources. It is to be seen now whether wind power will play an important role in the change towards more efficient national energy, which will then directly affect energy security in Vietnam.