Slow extension of FiT scheme hurts investor appetite in Vietnam wind power: GWEC

Vietnam, the fastest-growing wind energy market in Southeast Asia, is believed to avoid a “bust” cycle for the wind sector from 2022-2023 if it quickly extends feed-in-tariff (FiT) scheme for wind power projects.

Wind power is significant in Vietnam's power mix strategy. Image: GIZ

With an aim to maintain investor appetite in this sector, an industry alliance led by the Global Wind Energy Council (GWEC) has called on the government of Vietnam to urgently extend the wind energy FiT scheme.

Last week, GWEC-led alliance sent a letter to the government of Vietnam calling for approval of the FiT extension to ensure that long-term investment, cost reduction and supply chain development in the wind sector will continue.

Indeed, Vietnam’s wind industry is already facing a slowing of investment in 2020 because of uncertainty around the investment framework.

Therefore, further delays to the FiT extension will hinder supply chain development and cost reduction in the emerging wind market, and ultimately undermine Vietnam’s goal of affordable, reliable, and clean electricity, according to GWEC, a member-based organization that represents the entire wind sector, representing over 1,500 companies, organizations, and institutions in more than 80 countries.

“The government must now avoid slowing down badly needed investment in wind energy by extending the FiT scheme, thereby ensuring that long-term investments can materialize to create tens of thousands of skilled jobs and provide clean, competitive power for Vietnam’s economy,” said Ben Backwell, GWEC’s CEO.

“Vietnam is on the cusp of achieving economies of scale and cost reduction in the wind industry, and this momentum must be maintained if it is to avoid a boom-bust cycle of development,” says Mark Hutchinson, chair of GWEC’s Southeast Asia Taskforce.

“Due to project timescales, a delayed FiT extension risks a “bust” period for the wind sector, wherein very few projects will be connected to the grid from 2022-2023. In the long run this will jeopardize the cost reduction made possible by consistent, large-scale supply chain development, and ultimately result in less renewable energy at higher prices for Vietnam,” Mark Hutchinson noted.

GWEC’s CEO Ben Backwell. Photo: GWEC

Reality

According to Ben Backwell, Vietnam has been widely recognized for quickly becoming a regional leader of clean energy in South East Asia with 500 MW of onshore and offshore capacity currently installed and at least 4,000 MW forecast to be commissioned by 2025.

The country is attracting investment commitments from a number of world-class companies in the sector.

However, investor interest in wind project development in Vietnam has slowed significantly in 2020, as onshore wind projects typically require two years for development but the current FiT only applies to projects completed by November 2021.

Without clarity on the FiT scheme from 2022 onward, investors are facing too much uncertainty to commit to new wind projects, jeopardizing the future pipeline and leading to job cuts in the sector, GWEC said in the latest press release.

The Government Office and the Ministry of Industry and Trade have already recognized the substantial potential of wind energy to generate clean power and green growth. In June this year, the prime minister approved an additional 7,000 MW of new wind projects to be added to Vietnam’s Power Development Plan VII (PDP7). However, the target will not be materialized due to lack of certainty on the FiT extension.

Significance of FiT extension 

According to GWEC, at least 1,650 MW of wind projects are forecast to be installed before the current FiT expires in November 2021. Meanwhile, wind energy, as a clean, indigenous energy source, plays an important role in bolstering Vietnam’s energy security and meeting its soaring electricity demand.

Moreover, the growing renewables sector could generate billions of dollars in investment capital and hundreds of thousands of jobs in the long term.

The situation for the wind sector has now become critical, as the slowdown in investor interest in 2020 has been compounded by disruptions from the Covid-19 pandemic.

For that reason, GWEC said the investment case for wind projects in Vietnam will be significantly challenged without a transparent and reasonable FiT scheme announced as soon as possible due to component bottlenecks in the global wind supply chain and less favorable capex rates at future sites for new wind projects, particularly around the Mekong Delta.

To date, Vietnam’s wind market has benefited from increasingly strong flows of foreign and domestic capital. The 4,000 MW to be installed by 2025 could generate up to 65,000 jobs and about US$4 billion in investment.

To realize this potential, the government of Vietnam must act now to extend the wind energy FiT scheme and avoid a prolonged slowdown of clean energy investment and installation in the years ahead, GWEC emphasized.