Even when investors were able to put their wind power projects into operation before November 1, 2021 to be able to enjoy the FIT (feed in tariff), they still faced difficulties, including high operation costs.
Meanwhile, the investors who failed to complete their projects prior to the deadline are worried as electricity selling prices are unclear.
The prices for transitional projects
The Ministry of Industry and Trade (MOIT) urged Electricity of Vietnam (EVN) to complete negotiations with 85 investors of transitional ‘clean’ power projects prior to March 31, so that the projects could operate soon.
However, only 17 investors had submitted documents by April 15 to prepare for negotiations on electricity prices.
One of the reasons most investors have not sent documents is that the ceiling price is too low, far from the price level of VND1,900 per kwh applied to projects becoming operational prior to November 1, 2021.
Meanwhile, transitional projects have high investment rates as investors had to ‘sprint’ to complete the construction.
The ceiling price applied to onshore wind power is VND1,587.12 per kwh, and for offshore wind power VND1,815.95, according to Decision 21/QD-BCT dated January 7, 2023.
An investor said MOIT has caused difficulties for investors by calculating the ceiling selling prices based on ideal input factors to ensure the IRR (internal rate of return) of 12 percent for transitional wind and solar power projects.
The lending interest rates are hovering around 12 percent, and if the projects are not ‘ideal’ as calculated by MOIT, cash flow will be negative and investors may not be able to pay bank debts.
According to EUROCHAM, the ceiling prices set in MOIT’s Decision 21 represent a 20-25 percent decrease compared with FIT prices previously applied and a 40 percent decrease for ground-mounted solar projects.
Transitional projects that have completed construction may have no other choice than to accept the price levels.
According to EUROCHAM, it is unreasonable to use the lowest value for the ceiling price. When calculating prices for future projects, it is necessary to consider new macroeconomic conditions (higher investment capital, interest rates, supply chain deadlock…etc).
The association said MOIT should consult with independent experts to verify the assumptions and methodologies before finalizing price frames.
At a dialogue with EVN in March, Do Van Binh, chair of Ocean Renewable Energy JSC, once again complained that the prices set by MOIT are not high enough to cover the investments.
The formulas used by MOIT are unreasonable because they are based on the highest possible electricity generation output and lowest possible investment capital. Meanwhile, in reality, power plants cannot operate at such capacity.
According to experts, obtaining selling prices high enough to cover the investment and make a profit is a legitimate aspiration of investors.
The negotiation needs to be conducted based on the principle of harmonizing the benefits of the state, investors, and consumers.
“The ceiling prices designed by MOIT are a basis for discussion. However, if they are unreasonable, they need to be adjusted. The principle is that the pricing must not have a strong impact on macroeconomic stability,” said Ngo Duc Lam, former deputy head of the Energy Institute.
Production costs
Vu Van Ngoc, deputy CEO of AMACCAO, and CEO of Khe Sanh Wind Power Project, cited expense items to operate the project, which enjoys the FIT price. The investment rate is VND40 billion per MW and the depreciation period is 20 years. As such, the project needs to collect VND2 billion/MW each year.
The investor had to borrow 65 percent of the investment capital, or VND26 billion, at an interest rate of 9-10 percent. As such, he has to pay VND2.4-2.6 billion per MW a year in interest for the loan. It will take 12 years to pay this kind of debt.
Regarding operation costs, Ngoc said that for thermal power and other types of power the cost is low, just 2-2.5 percent of turnover, but wind power projects must be operated by turbine sellers, because Vietnamese still cannot do this.
On average, it costs US$60,000 to operate a turbine a year, therefore, investors would have to pay $3 million a year for a project with 50 turbines. In general, the turbine operation hiring contracts last 10 years. The operation cost is extremely expensive, which accounts for 6-8 percent of revenue.
Investors also have to pay for the operation of transformer stations, transmission lines and infrastructure items, about $20,000/MW per year, and others.
The ‘other items’ include small repairs (once every two years) and big repairs (once every five years). The exact figure remains unclear as investors still don’t have experience on the issue.
Luong Bang