Global Wind Energy Council (GWEC) welcomes the recent decision by the Vietnamese government to approve an extension of the Feed-in Tariff (FIT) scheme for wind power in the country.
Proposed dramatic reduction in the FIT risks significantly harming the development of Vietnam’s promising wind power market, slowing down investment and creating new jobs, and making it more difficult for Vietnam to meet increasing energy demand.
The proposed new FIT rates, which will be included in an official letter from the Ministry of Industry and Trade in October 2020, will be 7.02 US cent/kWh for onshore wind and 8.47 US cent/kWh for intertidal/nearshore wind, and will apply to projects commissioned from November 2021 to December 2023.
This reflects a tariff cut of more than 17 percent for onshore wind–one of the most drastic reductions seen in any wind power sector worldwide to date, according to GWEC.
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 difficulties faced in the early stages of the wind industry would have struggled to close funding, leading to a “bust” cycle that could cut new wind installations by up to 80 percent in 2023, and an additional 25 percent per year afterwards.
Reductions to the project pipeline would trigger lost employment prospects for thousands and a loss of billions of dollars in inward investment. GWEC estimates that the slowdown will result in about 4GW of total installed wind power capacity in Vietnam by 2025 – well below Vietnam’s ability and likely a dramatic shortfall from government goals, given the MOIT already reported 2.9 GW of signed PPA projects.
“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”.Ben Backwell, CEO of GWEC.
The current FIT for wind power was launched in September 2018 and aroused significant interest on the part of investors and industry, given Vietnam’s strong potential for wind energy, increasing demand for energy and decarbonisation. However, due to delays in the implementation of the COVID-19 Planning and Disturbance Law, GWEC Market Intelligence downgraded its 2020 estimate for new wind power plants in Vietnam by 75 percent to 125 MW. This will result in a cumulative wind capacity of only 472 MW 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 out in the Power Development Plan 7, by 41 percent.
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.
“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”.Mark Hutchinson, chair of GWEC’s South East Asia Task Force.