The document discusses wind power development in Vietnam. It provides a snapshot of Vietnam's wind power potential and status of existing projects. It then examines regulations around feed-in tariffs and whether wind power can be profitable under current tariffs. It also discusses negotiations with electricity companies over tariffs and challenges with obtaining necessary permits in a timely manner due to complex administrative procedures.
Feed in-tariff regulations and getting wind power projects done (en)
1. Feed-in-tariff regulations and getting
wind power projects done
OLIVER MASSMANN - GILES T. COOPER
Partners
DUANE MORRIS VIETNAM LLC
2. AGENDA:
• Snapshot of wind power development in
Vietnam
• Regulations on feed-in-tariff: can wind
power be profitable?
• Tariff negotiations with EVN/PV Power
• Getting permits on time: how to handle
the red tape
GREEN GROWTH & INVESTMENT
3. GREEN GROWTH & INVESTMENT
Snapshot of wind power development in
Vietnam
4. GREEN GROWTH & INVESTMENT
• State policy on wind power:
Clear intention to develop green power industry
Master plan VII about energy development in Vietnam: To prioritize quick
development of electricity sources from renewable energy (wind power, solar
energy, biomass energy, etc.)
Offered incentives and preferential treatment to the wind power industry
• Vietnam’s wind power potential:
With 3,000-kilometre coastline and an average wind speed of 7 m/s,
Vietnam has greatest potential of wind power development in Southeast
Asia: 8.6% territory in comparison with 2.9% of Laos, and just 0.2% of
Cambodia and Thailand
Total estimated potential: as high as 713,000MW – 510,000 MW on land and
203,000 MW on islands
Wind power potential in Vietnam is 200 times more than the capacity of
Son La, largest Southeast Asia hydropower plant and more than 10 times total
projected capacity of Vietnam’s power generation in 2020
5. • What is current status of wind power projects?
As of May 2012, 67 wind power projects in Vietnam
under development
First wind power plant in Binh Thuan Province was
completed in April 2012 and in June 2013, another one in
Bac Lieu commenced operations
The others are generally behind construction and
implementation schedule
GREEN GROWTH & INVESTMENT
6. • What is behind the delays?
Lack of finance for project implementation
No comprehensive regulatory framework on wind power
Hindrance of complicated administrative procedures
Delays relating site clearance and access
GREEN GROWTH & INVESTMENT
8. • Non market based pricing mechanism in Vietnam’s
energy market:
Current pricing mechanism: NOT reflective of the actual
production and distribution costs with reasonable returns on
investment for investors
• Feed-in-tariff (FIT) mechanism for wind power
projects:
FIT mechanism not yet developed in Vietnam
Insufficient regulatory background: Decision No. 37/2011 of
the Prime Minister (PM) and Circular No. 96/2012 of the
Ministry of Finance
GREEN GROWTH & INVESTMENT
9. • How FITs should work!
GREEN GROWTH & INVESTMENT
Prices are regularly reviewed
for new projects and reduced to
encourage technical innovation
and reflect falling costs
Government sets the
feed-in tariff for
suppliers feeding RE
into the grid
Renewable systems
are built all over the
provinces
Local distributors
/utilities allow grid
access and pay the
set price to RE
operator
Incremental costs
are passed on to the
customers
10. GREEN GROWTH & INVESTMENT
• How does FIT mechanism work in Vietnam?
EVN has take-or-pay obligations towards wind energy
developers
EVN or authorized affiliated units receive subsidy via the
Vietnam Environmental Protection Fund
Subsidy formula: Amount of electricity price subsidy (VND) =
Rate of electricity price subsidy (VND/kWh) x Power output
purchased (kWh)
Rate of electricity price subsidy and term of tariff subsidy
will change from time to time based on PM decision
11. GREEN GROWTH & INVESTMENT
• What is current purchase price of wind power in
Vietnam?
Power purchase price for on-grid wind energy projects:
7.8 US cents/kWh (excluding VAT)
Electricity price subsidy: 207 VND/kWh (1 US
cents/kWh) subsidized from Vietnam Environmental
Protection Fund for all electricity EVN purchases from
wind energy plants
Term of tariff subsidy: 20 years (i.e. term of wind energy
Power Purchase Agreements (PPAs))
12. • Fiscal and financial incentives for wind power projects:
Corporate income tax incentive rate: 10% for a period of 15 years to
newly-established enterprises investing in power plant projects
Possibility of 10% tax rate being extended up to 30 years: if the
projects are classified as large scale projects, using high or new
technology and in special need of investment
Exemption of import duties: for equipment and machinery imported
to create fixed assets of the RE projects
Special encouraged projects: exemption/reduction of land use
fee/rental (depending also on the location of the projects)
• Can wind power be profitable with current tariff?
GREEN GROWTH & INVESTMENT
Comparison of FITs for wind power
Vietnam Thailand Philippines
7.8 US$ cents/kWh 18 US$ cents/kWh 19.5 US$ cent/kWh
13. • Can wind power be profitable with current tariff?
Current average retail electricity tariff of Vietnam is 6,8 UScent/kWh.
However, still lower than electricity tariff of other Asian countries
•
•
• Recent FIT proposal for Bac Lieu Wind Power Plant:
The MOIT proposed new FIT for the PM’s approval: For first 10
years: 11.5 UScent/kWh and next 04 years: 9.8 UScent/kWh
While the developer expects from 10.2 to 12 UScent/kWh
GREEN GROWTH & INVESTMENT
14. •Recommendation: The Government cannot continue
subsidizing EVN as currently and will have to adopt a FIT
mechanism for wind power in particular and renewable
energy in general
•Solutions to finance wind FITs: “Cross-industry"
financing?
How does it work?
Example of Germany: taxing heavy industry which cause
much pollution with a special environmental tax, proceeds
from this are used to subsidize FIT for wind and other
renewable energies
GREEN GROWTH & INVESTMENT
16. • Why negotiate tariff with EVN and PV Power?
The power purchaser under standard PPAs is EVN or authorized
dependent entities
The investor has to obtain agreement of EVN on power purchase
prior to licensing procedures
EVN monopoly in energy market: EVN acts the single buyer,
distributor and transporter
PV Power’s involvement is new hope for a more diversified energy
market
• Dominance of EVN in the energy market:
Leads to lack of private investment in energy sector which may
result in energy deficiency, unimproved infrastructure, and absence
of projects on renewable energy, affects energy efficiency etc
No guarantee of fair price for wind power projects as well as fair
competition in the market
GREEN GROWTH & INVESTMENT
17. GREEN GROWTH & INVESTMENT
• Negotiation with EVN/PV Power: Why NOT
efficient?
INEXPERIENCE: Lack of knowledge/experience on
international business practice, language barriers, skilled
lawyers, etc..
Complex approval procedure: Too many parties involved
•IMPACTS:
Negotiation process is SLOW AND INEFFICIENT
Mistrust and reluctance from foreign investors: they cannot
wait for years to finalize a PPA
18. • Unfair right of electricity purchaser to re-negotiate the
electricity price in PPA even after PPA has been signed
• Article 23.5 of Electricity Law scares the investors:
“An electricity purchaser shall have the right to require the electricity seller to
reconsider the amount of the electricity price payable and, upon receipt of
such a request, the electricity seller must resolve it within fifteen (15) days. If
the electricity purchaser disagrees with the resolution of this issue by
the electricity seller, the electricity purchaser may request the competent body
or organization to conduct conciliation and, if the electricity purchaser does not
make such a request or if the conciliation does not resolve the issue, the
electricity purchaser shall have the right to institute legal proceedings
in accordance with the law on civil proceedings. Pending resolution, the
electricity purchaser must make payment and the electricity seller must not cut
off the electricity supply.”
GREEN GROWTH & INVESTMENT
19. GREEN GROWTH & INVESTMENT
Getting permits on time: How to
handle the red tape
20. GREEN GROWTH & INVESTMENT
• Plan for wind power development:
As yet no national plan and strategy for wind power
development
Recently, the MOIT issued Circular No. 06/2013 regulating
the procedure for preparing , assessing and approving the
national and provincial plan for wind power development
Decision No. 37/2011 of the PM states that the PM will
decide any wind power projects until such planning is
completed and approved
However, still a long way to a final approval
21. GREEN GROWTH & INVESTMENT
• Investment procedures in wind power projects:
Uncertainty about investment procedures
Many requirements to be satisified by the investor
before commencing construction, e.g. to obtain the
investment certificate, sign the PPA and electricity
integration agreement
Other permits need to be obtained: Construction permit,
electricity operation permit, etc...
22. GREEN GROWTH & INVESTMENT
• Wind power projects generally take the following steps:
Step 1: Site selection
Step 2: Assessment of wind resources at the selected site
Step 3: Pre-feasibility study and request for inclusion in the
power development plan
Step 4: Investment report (feasibility study)
Step 5: Signing PPA with the EVN
Step 6: Project implementation
Step 7: Construction phase
Step 8: Electricity delivery
23. GREEN GROWTH & INVESTMENT
• What are the obstacles to obtain permits?
Complicated and uncertain investment and licensing procedures with
the involvement of many State authorities
Loose coordination and non-transparent communication among the
State authorities in charge of wind power project (from governmental
to provincial levels)
• How to get permits on time?
Seek the in-principle approval of the PM and the MOIT before
commencing any investment procedures is a top priority
Close coordination with the People’s Committee of the province
where the project is located is extremely important: The support from
provincial authority will help to ensure faster and more efficient
licensing procedures
24. GREEN GROWTH & INVESTMENT
• Recommendations for European investors:
Difficult time but opportunities await. For example, wind
power projects can be surprisingly lucrative if combined with
wind farms, tourism and other services
Sound financing structure, good business model and great legal
assistance are keys to success
Accurate prediction of where the market is heading to, in the
context of Vietnam’s critical power shortage, should be
considered
More pressure on the Government to adequately address key
issues on tariff increase, de-monopolization of the power
market
25. DUANE MORRIS VIETNAM LLC
THANK YOU FOR YOUR ATTENTION!
Duane Morris Vietnam LLC Duane Morris Vietnam LLC
Pacific Place, Unit V1307/08, 13th Floor, Suite 1503/04, Saigon Tower
83B Ly Thuong Kiet, Hoan Kiem District 29 Le Duan Street, District 1
Hanoi, Vietnam Ho Chi Minh City, Vietnam
Tel.: +84 4 39462200 Tel.: +84 8 3824 0240
Fax: +84 4 3946 1311 Fax: +84 8 3824 0241
Contact email:
omassmann@duanemorris.com gtcooper@duanemorris.com