Vietnam Investment review – Investor speaks column
By Olivier Duguet
With 6,000 MW as the target for installed wind power by 2030, Vietnam is positionning itself as potentially the largest wind energy market of Southeast Asia, doubling the 3,000 MW target set by Thailand for 2036 and largely passing the 2,345 MW set by the Philippines for 2030. A Feed-in-Tarriff (FiT) is in place since 2011 at 7.8 US cents per kilowatt-hour but only 129 MW have been built so far. A lot of commentators have blamed the FiT for being too low to make wind projects viable.
Given our experience of developing, financing, building and operating wind projects in Europe, Australia or South Africa, a higher FiT would not accelerate much wind power projects construction in Vietnam. The issue is not in the level of the FiT which is very comparable to European ones (8.2 Euros cents / kWh for France with average wind speed at 6.5 meters per second, 11 Euros / kWh for Germany with average wind speed at 6 meters per second) but much more the lack of long term project financing in Vietnam today.
As Vietnamese banks are not familiar with long term financing, the maximum tenure for debt financing projects is around 10 years, to be compared with a 20 years Power Purchase agreement (PPA) the project will sign with EVN. In Europe, typically debt financing would be 17 to 18 years if the PPA is signed for 20 years. The shorter the tenure, the higher the pressure on short term project cash flow to cover debt service and the higher the chances to default if a bad wind year is coming.
The best way to ease the pressure on project cash flow and to lower the long term risk of wind power projects financing in Vietnam would be to allow the indexation of the PPA price on inflation. As the operating costs of wind projects are requesting manpower and debt financing available is mostly at floating rates, balancing the potential rise in salaries and interest rates with an indexation on the Consumer Price Index would cover this risk for the debt provider and ease long term financing. Introducing indexation of the FiT would not change its price today and would not put pressure on EVN to buy renewable power from wind at a higher price than the 7.8 US cents per kilowatt-hour offered today. Instead, it might foster Vietnamese Bank’s willingness to finance more wind power with longer debt tenure.
As long term project debt financing availablity is the key to wind projects being built in Vietnam, we can foresee that at least 2,000 MW would be immediately financially viable with such a PPA indexation and would contribute to Vietnam’s energy independence as well as to the long term national target of 6,000 MW installed by 2030. The Blue Circle is ready and committed to play a major role in Vietnam future wind power growth.
Background
Olivier Duguet is the Chief Executive Officer of The Blue Circle, a Singapore-based company which focuses on developing wind energy projects in Southeast Asia.
With twenty years’ experience in the renewable energy sector in Europe and Asia, Mr Duguet set up his company in 2013 to bridge the gap in project development in the Mekong Region, by bringing international project development experience, financial expertise and capabilities, together with local market understanding.
For further information, please contact:
Olivier Duguet Tel: +65 6358 3414 olivier.duguet@thebluecircle.sg
