Focus On: Project Financing in Vietnam
On 11 June in Hanoi, GWEC is organizing a Finance Workshop as part of Vietnam Wind Power 2019. The finance workshop is gathering a number of industry leaders as speakers from wind developers, international and domestic banks, as well as funds and financial advisories. The speakers including BNEF, Mainstream Renewable Power, UPC Renewables, The Blue Circle, IFC, BNP Paribas, Astris.
The workshop also features an exclusive presentation from Carbon Tracker about the economic and financial risks of coal power in Vietnam as well as a USAID Clean Power Asia Training Workshop, this one-day workshop will be an important platform to discuss how we can overcome the project financing challenges in Vietnam.
In September 2018, the government of Vietnam increased its Feed-in-Tariff (FiT) of onshore projects from 7.8 US cents/kWh to 8.5 US cents/kWh, and also introduced the offshore tariff of 9.5 US cents/kWh. Other support mechanisms in the form of tax exemptions, such as import, corporate and land tax exemption, as well as exemption from Environment Protection Fees were also put in place. Altogether, these measures have piqued the interest of the international developer community as eyes have gone to Vietnam to be the next big wind market in South East Asia.
The majority of the current projects have been largely installed by local companies and financed either by Official Development Assistance (ODA) or local banks. The 99MW Cong Ly near shore project was financed by US-EXIM, the Export–Import Bank of the United States, and the 24 MW Phu Lac project owned by EVN TBW was financed by KfW, the German development bank. Local banks, such as BIDV and Vietnam Development Bank, have also been financing local developers. 40MW by Trungnam Group which was recently inaugurated was financed by Vietnam Development Bank and they are likely to finance their second phase as well. The 30MW Huong Linh 2 developed by Tan Hoan Cau Joint Stock Corporation (THC) was completely financed by BIDV bank.
Yet, lack of project financing remains one of the key obstacles facing wind power development growth in Vietnam. One of the main reasons for the international developers abstaining from doing business in this market is that PPA's are simply not bankable in Vietnam, which lead to the major challenges of lack of non-recourse financing in Vietnam. Furthermore, local banks do not have sufficient liquidity to finance wind power projects on a non-recourse basis. If the challenges of financing wind projects can be addressed, wind power development can grow exponentially in Vietnam.
Various unaddressed risk factors are preventing international developers from getting non-recourse financing for wind projects in Vietnam due to the PPA bankability.
In South East Asia, very few markets have a FiT level as attractive as it is now offered in Vietnam – thus, the current challenges on PPA bankability boils down to risk vs returns. We are now seeing the balance shifting as returns are beginning to outweigh the risks for some developers. The local banks have financed power projects, especially small hydro, where EVN is the offtaker. EVN has never defaulted on their payments, hence the banks have a certain level of comfort when they lend for power projects. Although financing wind energy projects is new for local banks, they are undertaking these projects on the basis of their existing relationship with the local company and their prior experience with EVN .
Innovation is the new buzzword for financing wind projects in Vietnam, with international as well as local developers finding innovative ways to finance their projects.
Currently, the most common form of financing is where a local bank finances the project on a corporate balance sheet basis. With these innovative solutions being discussed more and more in Vietnam's wind market, we could foresee international banks being involved in at least partial non-recourse basis.
At the end of the day, one has to acknowledge the fact that government has shown a level of commitment to increase the adoption of renewable projects in its energy mix. They have set targets of 800MW by 2020, 2GW by 2025 and 6GW by 2030.There are also various multilateral agencies working with the government to make PPA's more bankable. With the FiT expiring by the end of October 2021, this will be an exciting period for executing wind power projects as there will be a rush to install projects before the end of the FiT.
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