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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.
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 62594921 firstname.lastname@example.org
By Phuong Thu - Vietnam Investment Review
Southeast Asia’ s leading wind energy developer, Blue Circle, showed its pioneering spirit by commencing the first foreign - owned wind project in Vietnam - the $58 million Dam Nai project, while other foreign invested projects remain stagnant due to long delays.
Olivier Duguet, chief executive officer of Blue Circle told VIR last week that the firm began construction of its 40-megawatt Dam Nai project in the windy central province of Ninh Thuan after receiving its investment certificate last year.
“Vietnam is a key market for our expansion into Southeast Asia, and Dam Nai will be our first operating project in the region. Blue Circle intends to be an important long - term power producer in Vietnam, with other project under development,” Duguet said.
The Dam Nai project will position Blue Circle to be one of Vietnam’ s wind energy pioneers. Construction of the project will take place in phases during 2017 and 2018.
Located in a subtropical zone with long coastlines, Vietnam has many advantages for developing wind power. According to a World Bank survey, under the Asia Sustainable and Alternative Energy Program, 8.6 per cent of Vietnam is conductive to wind power, which, if developed, could total 513,360MW.
Many foreign investors are considering wind power projects in Vietnam. Belgium’s Enfinity; Germany’s Domier Aircraft Leasing Limited; Switzerland’s Aero Plus Company; Norway’s SN power; and Germany’s Fuhrlaender AG have all expressed interest in wind power projects in Vietnam.
According to date released by the Ministry of Industry and Trade (MoIT), a total of 50 windfarm projects have been registered, but only five saw implementation. Three of these - the 30MW Tuy Phong plant in the south - central province of Binh Thuan; a 6MW windfarm project on Phu Quy Island; and Cong Ly’s 99MW Plant in the Mekong Delta province of Bac Lieu - are all up and running.
Most of them complained that they are face difficulties paying debt and interest expenses. Some projects have been delayed due to a lack of financing. A major challenge is the low feed- in- tariffs (FiT) for wind power, which were fixed at only 7.8 US cents per kilowatt - hour under the prime minister’s Decision No.37/ 2011/ QD-TTg, making many projects fiscally unviable.
However, Duguet said that focusing on the FiT level is the wrong approach. Instead, focusing on conditions to attract long - term debt financing for projects in Vietnam is the only way to develop widespread wind power in Vietnam. Only the very best projects in terms of wind resources and installation costs will be financially viable in the current environment of difficult financing.
“We think that the current FiT is perfectly suitable for the development of at least 2,000MW of wind projects in Vietnam. Our Dam Nai project fits these requirement,” he said.
Duguet suggest prioritising wind power projects over other projects in the master plan of each province in Vietnam to overlap with titanium mining, shrimp farming, or industrial zones. Another recommendation would be for the provincial authorities to consider a firm’s experience before awarding investment certificates, as many good sites are blocked by novice companies with no previous wind power experience.
According to MoIT, under the country’s latest power development master plan. Vietnam’s total wind power capacity would increase to 800MW by 2020, 2,000MW by 2015 and 6,000MW by 2030.
The FiT is currently under revision to become more favourable for the commercial development of the sector. MoIT suggested increasing the FiT for wind power based on the facility’s location, paying a premium to plants located offshore to offset their initial investment coats.
Southeast Asia’s leading wind energy developer The Blue Circle has started construction of its Dam Nai project in Ninh Thuan province, Vietnam.
Since being awarded an Investment Certificate for 40 Megawatt in July 2016, The Blue Circle and its Vietnamese Partner TSV have worked on the land compensation process and the engineering of the site.
The project sits along the Highway One and consist of 933 hectares of agricultural land where a 100 metre meteorological mast had been erected by The Blue Circle in May 2015.
The site has one of the best wind resources of South Vietnam and has the potential for a total capacity installed of 70 to 100MW.
After an extensive selection process, The Blue Circle has chosen Gamesa as the exclusive supplier for its Dam Nai 40 Megawatt project. The G114-2.625 MW turbine will be the first Gamesa turbine supplied to Vietnam and the largest wind turbine installed in the country so far.
The turbine supply contract as well as a 10 year maintenance contract has been signed with Gamesa Wind and the first turbines are expected to arrive this summer on site. The project construction will take place in phases during 2017 and 2018 for a total budget of US$ 58 million.
Building on a relationship initiated in 2014, The Blue Circle received financial support from Armstrong Asset Management’s Clean Energy Fund for the Dam Nai project.
“The Vietnam wind energy target of 4,000 MW installed by 2025 is ambitious but with long term financing it can be turned into reality” stated Olivier Duguet, Chief Executive Officer of The Blue Circle.
“Thanks to our shareholder Armstrong Asset Management’s investment, we are building the first foreign owned wind project in Vietnam and intend to fully participate in the future growth of what could become the largest market for wind power in Southeast Asia” he added.
The Blue Circle has a total portfolio of 1,658 MW of projects under development in 5 countries with offices in Singapore, Bangkok and Ho Chi Minh City. Dam Nai will become its first operating project.
About The Blue Circle
The Blue Circle is a developer of renewable energy projects with a focus on wind power and projects in ASEAN countries. Based in Singapore, the company works to bridge the gap in project development in Southeast Asia by bringing international project development experience and financial expertise together with local market understanding. Vertically integrated with unique regional wind engineering capabilities, The Blue Circle can identify green field sites, pursue project development milestones up until financing and operating of the generating assets.
More information on The Blue Circle: www.thebluecircle.sg
About Armstrong Asset Management
Armstrong Asset Management is an independent asset manager, based in Singapore, focused on the clean energy sector in Southeast Asia’s emerging markets. Armstrong invests in the development, construction and operation of utility-scale infrastructure projects and currently has an interest in 26 operating projects across Thailand, Philippines and Vietnam. Managed by a multidisciplinary team of investment professionals, all of whom possess deep sector knowledge and a collective 80 years of Southeast Asia operating experience, Armstrong Asset Management integrates strict environmental, social and governance compliance into its investment process to deliver tangible benefits and reduce risks for all of its stakeholders. More information on Armstrong Asset Management: www.armstrongam.com
More information on The Blue Circle:
For further information, please contact:
The Blue Circle
Olivier Duguet Tel: +65 62594921 email@example.com