The Global Wind Energy Council (GWEC) appreciates the recent decision by the Vietnamese government to approve an extension of the Feed-in Tariff (FIT) scheme for wind power in the country. However, the proposed dramatic reduction to the FIT risks seriously damaging the growth of Vietnam’s promising wind power sector, slowing down investment and the creation of new jobs and making it harder for Vietnam to meet growing energy demand.
The proposed new FIT rates, included in an official letter from the Ministry of Industry and Trade on 28 October 2020, will be 7.02 US cent/kWh for onshore wind and 8.47 US cent/kWh for intertidal/nearshore wind, and would apply to projects commissioned from November 2021 to December 2023. This represents a tariff slash of more than 17 per cent for onshore wind – one of the most dramatic reductions seen in any wind power market globally to date, according to GWEC.
Based on market forecasts and experience in other wind markets, a FIT reduction of this size would derail investment in new and planned wind projects in Vietnam and threaten the country’s current position as a leading wind market in South East Asia. Developers already facing delays due to COVID-19, and the general challenges encountered in an early stage wind market would struggle to close financing, leading to a “bust” period that could reduce new wind installations by up to 80 per cent in 2023, and a further 25 per cent per year thereafter.
The reductions to the project pipeline would create missed job opportunities in the thousands and loss of billions of dollars in inward investment. GWEC estimates that the slowdown would result in around 4GW of total wind power installed capacity in Vietnam by 2025 – far below Vietnam’s potential and a likely drastic shortfall from government targets, given the MOIT already records 2.9 GW of projects with signed PPAs.
Ben Backwell, CEO of GWEC said: “The wind industry is on the cusp of achieving economies of scale and cost reductions which will make Vietnam the leading wind market in South East Asia, but if the proposed FIT is implemented, it would jeopardise long-term development and ultimately result in higher energy prices at a time when the country’s energy demand is soaring. We have already seen this happen in wind markets in Europe and the Americas in the past with highly damaging effects, and it is vital that the government of Vietnam avoids creating a similar ‘boom and bust’ cycle so the country can benefit from the cost-competitive prices and socioeconomic benefits wind power can offer”.
“Throughout the pandemic, wind power has only continued to grow and attract more investment, while other sectors like coal have seen massive demand drops and price fluctuations. Ensuring the steady growth of wind power in Vietnam is therefore crucial for the long-term resilience of the country’s economy and energy security”, he added.
The current FIT for wind power was introduced in September 2018 and sparked enormous interest from investors and industry, given Vietnam’s strong wind resource potential, rising power demand and decarbonisation goals. However, due to delays related to implementation of the Law on Planning and disruptions from COVID-19, GWEC Market Intelligence has downgraded its 2020 forecast for new wind power installations in Vietnam by 75 per cent to 125MW. This will bring cumulative wind capacity to only 472MW by the end of this year, which means that the country will miss its target of 800 MW of wind power capacity by 2020, set in the Power Development Plan 7, by 41 per cent.
An installation rush was expected in 2021 ahead of the expiry of the current FIT, but prolonged delays mean much of the expected volume may spill over into 2022.
GWEC has recommended a 6-month extension of current FIT levels to allow projects in the current pipeline to come online, followed by a milder FIT reduction for onshore and intertidal/nearshore wind projects commissioned from May 2022 onward.
Mark Hutchinson, Chair of GWEC’s South East Asia Task Force added: “We recognise Vietnam’s efforts in shifting the focus from coal to renewables in order to meet growing electricity needs, and wind power is more indispensable than ever to provide large-scale clean energy and balance the solar influx . Wind has longer project develop timelines than solar, and a milder FIT reduction will ensure there is sufficient time to develop a stable project pipeline and supply chain for the wind sector. But a steep reduction with no consideration for pandemic-related challenges will shrink Vietnam’s wind project pipeline and lead to a likely shortfall of wind targets again in 2025. Considering that wind power will be a critical pillar for Vietnam’s decarbonisation and industrialisation strategies, the country simply cannot afford to lose momentum in developing its wind power market”.