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GIZ support mechanism for RE development in Vietnam

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Hanoi, 19/09/2014
Ingmar Stelter, Program Manager
Werner Kossmann, Chief Technical Advisor

GIZ Viet Nam Energy Support Program

Energy Sector Development Partners Coordination

Published in: Government & Nonprofit
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GIZ support mechanism for RE development in Vietnam

  1. 1. Seite 1 Support Mechanisms for RE Development in Viet Nam Hanoi, 19/09/2014 Ingmar Stelter, Program Manager Werner Kossmann, Chief Technical Advisor GIZ Viet Nam Energy Support Program
  2. 2. Seite 2 Technical Cooperation in Viet Nam
  3. 3. National Strategy PDP VII objectives on RE: Increase in electricity produced from RE sources 2020 2030 5.6% 9.4% 500 MW 1000 MW 2000 MW 6200 MW 2700 MW Biomass Wind Biomass Wind 5620 MW Other RE Other RE Planned Installed Capacity Other RE: Biogas, Waste-to-Energy, Solar PV/ST, SHP etc. Source: PDP 7 19.09.2014 Energy Sector Development Partners Coordination Page 3
  4. 4. Barriers for RE Development in Viet Nam Lack of national (comprehensive) law for RE Low electricity price Limited data availability (and poor data quality) Limited capacities on central and provincial level Difficult access to information Limited access to financing (equity & loans) Complex and unclear procedures for RE investments 19.09.2014 Energy Sector Development Partners Coordination Page 4
  5. 5. Existing Support Mechanisms for RE – I/II SHP Wind Power Decision 18/2008/QD-TTg (18.07.2008) • In 2014: 2.7 – 3.2 US-Cents/kWh (depending on season and daytime) • Avoided-Cost-Tariff, varied by year • Calculated annually based on 1 kWh electricity avoided from the most expensive power plant connected to the national grid • Duration of PPA: 20 Years Decision 37/2011/QD-TTg (29.06.2011) • Feed-in-Tariff for Wind Power • Tariff: 7,8 US-Cents/kWh (6.8+1) • Duration of PPA: 20 Years • GIZ-supported; currently under revision 19.09.2014 Energy Sector Development Partners Coordination Page 5
  6. 6. Existing Support Mechanisms for RE – II/II Biomass Solid Waste Decision 24/2014/QD-TTg (29.06.2014) • FiT for electricity from CHP-Biomass Power: 5.8 US-Cents/kWh • Avoided-Cost Tariff for electricity from other Biomass plants • Annually calculated based on the avoided cost for 1 kWh electricity from imported coal • Duration of PPA: 20 Years • GIZ-supported Decision: 31/2014/QD-TTg (05.05.2014) • Feed-in-Tariff for electricity from MSW • Incineration: 10.05 US-Cents/kWh • Landfill-Gas: 7.28 US-Cents/kWh • Duration of PPA: 20 Years • GIZ-supported 19.09.2014 Energy Sector Development Partners Coordination Page 6
  7. 7. Additional Incentive Mechanisms for RE • Corporate income tax • Years 1-4: tax exemption • Years 5-13: 50% tax reduction • Import tax (goods, machinery etc.) • Varying levels of import tax, depending on type of imported goods • Exemption on goods forming fixed assets, which cannot be produced locally • Waiving of land use/lease fees • Land is provided for free as part of the licensing agreement  These are substantial financial incentives for project developers.  However, in a situation of financial stress, tax incentives cannot cushion liquidity problems as there are no tax payments to be made. 19.09.2014 Energy Sector Development Partners Coordination Page 7
  8. 8. Revision of the support mechanism for wind – I/III • Methodology: • Qualitative: interviews, questionnaires, assessment of exist. framework • Quantitative: wind data, pre-/feasibility studies, international comparison • General findings/recommendations (excerpt): • FiT payment system should be a one-stop-shop (not VNEPF+FiT) • Government guarantee for payments • Better wind speed measurements and improved standards are required • Enforce standard agreements for network connection and power purchase 19.09.2014 Energy Sector Development Partners Coordination Page 8
  9. 9. Revision of the support mechanism for wind – II/III • Basis for analysis: • PDP target: 1GW wind power by 2020 (currently: ca. 50MW) • Assumptions for CapEx, O&M, Capacity Factor: based on P/FS, questionnaires, international experience • Required investment and assumed investor structure: • 1GW by 2020 = ca. US$ 2.1 billion over the next 6 years • At average debt level of 70% => US$ 630m equity and 1.47b debt • This investment level cannot (should not) be reached with public investment only. • Assumed investor types: highly-subsidized, strategic, fully commercial 19.09.2014 Energy Sector Development Partners Coordination Page 9
  10. 10. Revision of the support mechanism for wind – III/III • FiT calculation: • All three investor types must be targeted with the FiT • Assumed IRR: 10% (international experience) • Basis for FiT calculation: Levelized cost of electricity (LEC) • Also included: additional incentives like tax breaks etc. • Result: • Proposed FiT for on-shore installations: US-cents 10.4 / kWh • Proposed funding scheme: Tariff-funded, i.e. through a levy on the electricity price: for 1GW by 2020 => less than 5VND/kWh 19.09.2014 Energy Sector Development Partners Coordination Page 10
  11. 11. Bioenergy technologies applicable in Vietnam Biomass - Sugarcane bagasse - Rice straw/husk - Timber waste Biogas - Animal manure - Industrial wastewater - HDPE covered lagoon Municipal Solid Waste - Incineration - Landfill Gas 19.09.2014 Energy Sector Development Partners Coordination Page 11
  12. 12. FiT for non-CHP biomass power (avoided cost tariff) Government opted for the avoided cost tariff based on imported coal as reference price for biomass Reason to apply an avoided cost tariff based on imported coal: • Coal thermal power plant has the highest share in power mix • Avoid electricity generated from these plants • Biomass power plants as substitution to provide base load in the system Problem: • Annually calculated and issued • Fluctuating coal prices • Inflexible in combination with 20 years PPA 19.09.2014 Energy Sector Development Partners Coordination Page 12
  13. 13. Comparison of regulated prices with proposed levels for Bioenergy Technology Proposed purchasing price (US-Cents/kWh) Regulated level (US-Cents/ kWh) Sugarcane bagasse 5.6 5.8 Rice husk 7.34 Avoided cost based tariff Rice straw 10.79 Timber waste 8.77 SW - Landfill gas 7.28 7.28 SW – Incineration 10.05 10.05 19.09.2014 Energy Sector Development Partners Coordination Page 13
  14. 14. Thank you for your attention!! Werner Kossmann Ingmar Stelter werner.Kossmann@giz.de ingmar.stelter@giz.de 04 39 41 26 05 - 15 04 39 34 49 51 - 114 19.09.2014 Energy Sector Development Partners Coordination Page 14
  15. 15. Backup: Installed capacity of electricity sources (2013) Source Capacity (MW) Rate (%) Big hydropower 13,260 43.21 Coal thermo-electric 7,116 23.19 Gas thermo-electric 7,446 2.97 Oil thermo-electric 912 0.22 RE Small hydropower (≤ 30MW) 1,670 5.44 Wind 52 0.18 Biomass 150 0.49 Biogas/MSW 4 0.01 Solar PV 4 0.01 Total 30,684 Share of RE: 6.13% Source: GDE 2014 19.09.2014 Energy Sector Development Partners Coordination Page 15
  16. 16. Backup: Electricity production (2013) Source Output (GWh) Rate (%) Big hydropower 56,943 40.51 Coal thermo-electric 26.843 20.93 Gas thermo-electric 42,650 33.26 Oil thermo-electric 95 0.07 Others 249 0.19 Exported 1,337 1.04 Diesel 7 - Small hydropower 4,989 3.89 Wind 62 est. 0,05 Bioenergy (Biomass, -gas, 47 est. 0,04 MSW) Solar PV Total 128,228 Share of RE: 3.98% Source: GDE 2014 19.09.2014 Energy Sector Development Partners Coordination Page 16
  17. 17. 5.2 FiT calculations The following assumptions result from the analysis of the feasibility studies and questionnaires • Average CapEx: 2.0 USD Mio. /MW • Average O&M cost 35,000 USD / MW per year • Average capacity factor: 30% This is in line with international experience! 19.09.2014 Energy Sector Development Partners Coordination Page 17
  18. 18. 5.2 FiT calculations; international benchmark: CapEx 19.09.2014 Energy Sector Development Partners Coordination Page 18
  19. 19. 5.2 FiT calculations; international benchmark: OpEx 19.09.2014 Energy Sector Development Partners Coordination Page 19
  20. 20. 5.2 FiT calculations; international benchmark: Capacity Factor 19.09.2014 Energy Sector Development Partners Coordination Page 20
  21. 21. 5.2 FiT calculations • Levelized Electricity Cost (LEC) as basis of analysis • LEC is function of CapEx, discounted OM (OpEx) and total electricity production (Capacity factor) • LEC(푰푹푹) = 푪풂풑푬풙+푷푽푶풑푬풙(푰푹푹) 푷푽푬풍풆풄(푰푹푹) • There is a direct relationship between internal rate of return (IRR) and LEC • According to intl. experience, investors typically demand a project IRR of 10%, resulting in an LEC of US Cent 10.4 19.09.2014 Energy Sector Development Partners Coordination Page 21
  22. 22. 5.2 FiT calculations Sensitivities derived from feasibility studies and questionnaires Scenario CapEx [million USD/MW] O&M [T USD/MW*year] Capacity Factor Base 2.00 35.00 30.0% case CapEx+ 2.25 35.00 30.0% CapEx- 1.65 35.00 30.0% O&M+ 2.00 45.00 30.0% O&M- 2.00 25.00 30.0% Capacity+ 2.00 35.00 35.0% Capacity- 2.00 35.00 25.0% 19.09.2014 Energy Sector Development Partners Coordination Page 22
  23. 23. 5.2 FiT calculations Scenario LEC Base Case 10.39 CapEx+ 11.51 CapEx- 8.83 O&M+ 10.80 O&M- 9.98 Capacity+ 8.91 Capacity- 12.47 Min. value 8.83 Max. value 12.47 19.09.2014 Energy Sector Development Partners Coordination Page 23
  24. 24. 5.3 Financing properties for developing the national wind power market a. Target installation of 1 GW till 2020 requires investment amount of about USD 2.1 billion over six years. b. At average debt level of 70% this translates into: • USD 630 million equity and • USD 1,470 million debt 19.09.2014 Energy Sector Development Partners Coordination Page 24
  25. 25. 5.4 Developing the national wind power market by targeting diverse investor types Market is assumed to be developed by mixture of three investor types i. Highly subsidized investors like ODAs: access debt funding at interest rates of 1%-2% and demand single digit project IRRs. These early movers may provide funding of one third of target capacity and lay foundation of wind development by boosting synergy effects ii. Strategic investors: like turbine manufactures, large industry enterprises and sovereign wealth funds: access pools of debt funding in the range of 6% and accept projects IRRs of about 10%. iii. Fully commercial investors: have to resort to local loans at interest rates of 10% and above and demand two digit project IRRs. They require additional incentives like tax breaks. 19.09.2014 Energy Sector Development Partners Coordination Page 25
  26. 26. 5.5 Additional regulatory incentives have been considered and quantified at calculated FiT-level Tax effects: a. Reduced corporate tax contributes by 0.3 US Cent/kWh to FiT b. Exemption from import tax e.g., 10% tax break corresponds to FiT surplus of 0.7-1.0 US Cent/kWh 19.09.2014 Energy Sector Development Partners Coordination Page 26
  27. 27. 5.6 FiT funding for 1 GW target installation Funding requirements for 1GW by 2020 at US 10.4Cent/kWh Description 2016 2020 2021 2030 FIT 10,4 10,4 9,4 9,4 ttl Energy Sold TWh 158 243 273 545 Wind Energy generated GWh 0 2628 4021 16556 Average System Cost 7,7 8,8 9,28 10 TTL Cost demand for funding Mio USD 0 42 46 -73 Levy per kWh in VND 0 3,7 3,5 -2,8 19.09.2014 Energy Sector Development Partners Coordination Page 27
  28. 28. 5.6 FiT funding for 1 GW target installation (cont.) Funding sources of FiT for 1 GW target installation Tariff funded Tax funded Advantage Disadvantage Advantage Disadvantage • Transparency of subsidies • Independent of budgetary needs Requires “fair” allocation of costs of customer segments • Independent of electricity prices for customers • More flexibility with adjustments Potential regular disputes with MoF over budget availability, and thus uncertainties for investors 19.09.2014 Energy Sector Development Partners Coordination Page 28
  29. 29. Levelized costs for Bioenergy based power plants Technology Levelized costs in US-Cents/kWh Base (~ 10% IRR) Low (~ 8% IRR) High (~ 12% IRR) Biomass Power Plant Sugarcane bagasse 5.6 5.15 5.85 Rice husk 7.34 6.87 7.84 Rice straw 10.79 10.35 11.27 Timber waste 8.77 8.35 9.22 Biogas Power Plant Animal manure 7.72 7.11 8.36 Industrial wastewater 12.29 11.20 13.31 HDPE covered lagoon 6.12 5.69 6.57 SW Power Plant Landfill gas 7.28 6.65 7.95 Incineration 10.05 8.8 11.39 19.09.2014 Energy Sector Development Partners Coordination Page 29

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