GWEC: USD 6.7 billion in wind power investment in Vietnam at risk without COVID-19 relief
- Wind energy in Vietnam is on the cusp of growth, as projects are rushing to complete ahead of the expiry of the Feed-in Tariff (“FiT”) on 1 November 2021. But COVID-19 has caused significant delays for wind project construction, due to supply chain bottlenecks, limited worker mobility and other issues.
- Due to COVID-19 impacts, 4,000MW of wind power projects, which are approved projects under construction with a target to reach COD for 1st November FiT deadline, are likely to miss the deadline in November 2021, putting USD 6.7 billion in clean energy investment and almost 21,000 potential jobs at risk.
- Without a COVID-19 relief measure to extend the FiT for wind projects by at least six months, these projects will become collateral damage of the pandemic. This will translate into lost investment and tax revenue for local governments, delayed progress towards Vietnam’s renewable energy aims in Resolution 55 and a “bust” cycle in Vietnam’s wind market which may take years to recover.
9 September 2021, Singapore: The Global Wind Energy Council (“GWEC”) and the global wind industry is calling on the Vietnamese government to postpone the FiT deadline for wind projects by at least six months as a COVID-19 relief measure for the wind sector in Vietnam. Due to pandemic-related obstacles and delays, most onshore wind projects currently in the pipeline will not complete construction in time to meet the 1 November 2021 deadline for tariff access. Without a deadline postponement, these projects will be unable to progress, adversely impacting local economic growth and the wider renewable energy investment environment in Vietnam.
Over the last few years, Vietnam has emerged as a top market for wind and renewable energy investment in Asia, and particularly South East Asia. The ambitious targets proposed in the draft PDP8 master energy plan have reflected the government’s commitment to long-term decarbonization of the energy system and strengthening Vietnam’s regional competitiveness. It is vital that policymakers act to prevent pandemic-related difficulties from reversing this progress.
The COVID-19 situation in Vietnam has created many hardships for the industry. This extends to supply chain bottlenecks for wind project components, workers prevented from reaching project sites for crucial inspections and activities, travel restrictions for foreign personnel, and other issues. As of August 2021, an industry survey conducted by GWEC estimates that 4,000MW of mainly onshore wind projects in Vietnam are severely challenged by these extenuating circumstances and are now at risk of missing the November deadline for the wind FiT.
Using standard industry calculations based on global and Vietnam averages, 4,000MW of wind projects translates to around USD 6.7 billion in investment that would significantly benefit local authorities and communities. This includes USD 6.51 billion in capital expenditures, and an additional USD 151 million in operating expenditures per year across an average 25-year lifetime of projects. Approximately 21,000 jobs could be created from these wind projects, sustaining coastal populations and supporting a blue economy in Vietnam. Much of this investment and workforce expansion would be locally focused at province level, including in transport, installation and operations and maintenance activities.
GWEC is calling on the Government of Vietnam to implement a 6-month postponement of the FiT deadline to April 2022, to allow wind projects to complete construction safely and within the current procurement scheme. GWEC supports establishing clear criteria for eligibility for this deadline postponement, not a blanket extension. This is in line with international relief measures around the world which have been implemented to support the wind sector from the impacts of the pandemic. For instance, in May 2020 the US provided one year of “safe harbour” for wind projects to complete and continue accessing a clean energy tax credit, while in June 2021, India issued a 2.5-month commissioning extension for renewable energy projects, in recognition of the lockdown measures which lasted from April to mid-June.
Vietnam has identified wind as a key sector for energy security and system decarbonization in Resolution 55, the draft Power Development Plan and other documents. The wind FiT was introduced by Decision 39/2018 and set at 8.5 US cents/kWh for all projects achieving commercial operations (“COD”) before 1 November 2021. This policy provided a clear route to market for onshore wind projects and resulted in an enormous investment pipeline of more than 140 wind projects signing Power Purchase Agreements with the state-owned grid operator, Electivity Vietnam, as of August 2021.
However, due to the massive challenges posed by the ongoing COVID outbreak, most of these projects face uncontrollable delays to construction. GWEC’s survey found that more than 70% of wind projects which had submitted grid connection requests by August 3, 2021 will not achieve COD by the deadline. Missing this deadline would leave these projects outside the FiT scheme, deteriorating their economics and raising the risk of becoming stranded assets.
Specific challenges have become more acute following the April 2021 COVID-19 outbreak in Vietnam, and include:
- International supply chains are backed up and vital equipment is often 6-8 weeks behind schedule. Lack of inbound air freight and limited local transport facilities to move large wind turbine equipment have exacerbated these delays.
- Challenging and complex procedures to bring in necessary international expertise combined with national quarantine policies add at least 2-3 weeks to travel time, in addition to inter-provincial/district quarantine rules which range from 7-21 days. The enforcement of these restrictions has more than doubled the time for foreign experts to travel to project sites, from 8 weeks to 18 weeks.
- Localized lockdowns across districts and provinces have included province-specific quarantines, workforce capacity caps, so-called ‘3 on the spot’ policies, and in some cases complete shutdown of construction operations.
- Slowdown of procedures at port facilities and customs due to COVID-prevention measures and the impact of positive cases among customs staff.
Ben Backwell, CEO GWEC said, “Pandemic-related disruptions to travel, worker mobility and supply chains have reverberated across different countries over the last 1.5 years. In recognition of these disruptions, many countries like the US, UK, Germany, India and Greece have implemented COVID relief packages or deadline extensions for projects to reach their commissioning date. This support is crucial to ensuring investment and development in wind power can continue amid the harsh realities of the pandemic, which are beyond the control of individual project developers. In Vietnam, similar relief measures will be needed to support the nascent onshore wind industry which has been heavily impacted by COVID-19.”
Wind energy will make a strong contribution to Vietnam’s energy future, and action to support the renewables sector is needed to safeguard the country’s attractiveness as an FDI destination.
Mark Hutchinson, Chair of GWEC’s South East Asia Taskforce, said, “Vietnam is one of the most promising wind markets in South East Asia. But this is the make-or-break moment for onshore wind, which reached more than 500MW by end of 2020. The Government must introduce a FiT time postponement that will allow these 4,000MW of otherwise viable and economic wind projects to complete on a reasonable deadline. This is not just a marginal issue: Losing this volume of wind projects would strike a blow to the renewable energy investment environment, initiating a “bust” cycle in Vietnam’s wind market which may take years to recover.”
A FiT postponement will not only ensure the health of the onshore wind pipeline but also support future investment in the offshore wind sector. The first generation of offshore wind projects are undergoing different stage to close project finance right now. A similar group of international investors is anxiously watching the destination of the current onshore projects at risks. Thus, the project at risk now is not just 4,000MW projects and the investments behind it, but a burgeoning offshore wind industry, which is positioned to become a sustainable, affordable, reliable and indigenous energy solution for Vietnam.
- COVID-19 relief measures for wind energy projects, including commissioning deadline extensions and tax relief measures, have been recorded in the US, Germany, the UK, India, Greece and other countries. Full list of these measures from different countries can be found in the information package.
- Data used to calculate the global and Vietnam averages for capital and operating expenditures of onshore wind projects have been drawn from the BloombergNEF LCOE database and an expert elicitation survey of more than 140 global wind experts, published in Nature journal in 2021 (https://www.nature.com/articles/s41560-021-00810-z). These figures have also been checked against summary reference figures from NREL (https://www.nrel.gov/docs/fy21osti/78471.pdf). CAPEX for Vietnam onshore wind was increased by 4% from the BloombergNEF figure, based on GWEC’s discussions with onshore wind developers in Vietnam on realized CAPEX as of August 2021.
- Data used to calculate job creation is drawn from an onshore wind study by IRENA published in 2017 (https://www.irena.org/publications/2017/Jun/Renewable-Energy-Benefits-Leveraging-Local-Capacity-for-Onshore-Wind) on global average job creation across a 50MW onshore wind project with 25-year project lifetime. Data was originally provided by IRENA in person-days; jobs were determined by dividing the person-day figure by 260, the typical number of working days in a year. One job is defined as one calendar year of full-time employment (FTE, 260 working days) for one person. This assumes an 8-hour workday, 5-day working week and 52 working weeks in a year, in line with a standard calculation of one FTE year based on one individual working 2,080 hours in one year. A job can be considered to be equivalent to an FTE year.