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Creating A Sustainable Offshore Wind energy Industry in Vietnam

Source: 
Business and Financial Times

Offshore wind power is distinguished from conventional renewable energy sources in many ways and will be an important driver of the global energy transition in the coming decades. For reasons such as:

Offshore wind is a highly scalable renewable energy technology, capable of generating large-scale volumes of low-carbon electricity at a competitive cost.

With average load factors in excess of 40 percent, offshore wind is far more predictable than other renewable energy sources.

The application of offshore wind in near-shore and deep-water sites offers flexibility in location and potential cost reductions.

The scalability, predictability, and flexibility offered by the offshore wind make it an optimal source of the operating reserve, which will be needed to stabilize and decarbonize Vietnams electricity system.

Over the past 17 years, offshore wind has achieved considerable worldwide growth, with global installed capacity rising from just 83 MW in 2000 to 23.1 GW at the end of 2018. The vast majority of installations to date are concentrated in the European region but countries in East Asia and North America are demonstrating greater interest and ambition in significantly ramping up their deployment of offshore wind in the near future.

Significant cost reductions for this technology have been a success story in Europe, attracting media attention over the past two years. In European markets like the UK, levelized cost of electricity (LCOE) of offshore wind has already fallen by 50-70 per cent from 2010 levels, surpassing industry cost targets for 2025 eight years ahead of schedule.

Capturing the potential of offshore wind in Vietnam

Since the 99 MW Bac Lieu wind power project the first offshore wind farm in the Mekong Delta region came online in 2013, new developments have sparked interest in Vietnams offshore wind sector. In September 2018, the Government of Vietnam issued Decision No. 39/2018/QD-TTg (Decision 39), which introduced an offshore wind tariff of VND 2,223/kWh (USD 0.098/ kWh) and increased the onshore wind tariff. The feed-in tariffs (FiTs) for offshore wind have been in effect since 1 November 2018 and will be valid for projects beginning commercial operation by 1 November 2021.

There is growing industry appetite to develop offshore wind power in Vietnam from its current 99 MW of capacity, given the monumental technical potential for fixed and floating offshore wind is estimated at 309 GW of capacity.

However, key challenges in government policy need to be urgently resolved in order to develop a supportive system for offshore wind. Recognizing and clearing these obstacles will allow Vietnam to capture the enthusiasm and investment from industry, create local and sustainable economic value, lower its carbon emissions and assume a leading role in the energy transition in South East Asia.

Key Challenges and Recommendations

Ensure policy stability in the long-term energy plan

Improve the bankability of the current PPA

Shape industrial policy to grow and build capacity for an offshore wind supply chain

Other important lessons

Government targets for the offshore sector should be included in the national Power Development Plan VIII (currently pending) for 2025, 2030 and 2050, in order to establish investor confidence in the offshore sector in Vietnam.

Among various policy signals, the offshore FiT in Vietnam should be extended to at least 2025, providing the industry with sufficient time to establish project pipelines and invest and engage in manufacturing and service supply chains in Vietnam.

Background:

The installation scale and cost reductions achieved in Europe are due to the strong political support, the investments made in local supply chains, and the clustering effects spurred by manufacturers and service-providers. The establishment of a similar collaborative structure between government and industry is crucial for Asian markets to reap the benefits of these achievements.

Emerging offshore wind markets in Asia will need to rely on government support to bring down the cost of projects to a competitive level, which is already happening in Taiwan, the regional lead in offshore wind.

In addition, the majority of investments in the offshore market will originate from the private sector. This makes such collaboration essential to create understanding of and confidence in the offshore sector among the finance community to translate any interest into concrete investment decisions.

Compared to onshore projects, offshore wind projects take 4-5 years more from development to operation, due to the financial risks, engineering challenges and the sheer size and scale of projects.

Given the current cut-off date of the offshore wind FiT in November 2021, the window left to grow the offshore wind industry is now less than two years. Under this deadline, there is insufficient time to generate enough projects in the pipeline to spur the large-scale engagement and investment in the supply chain, service and industrial clustering and financial commitment needed to advance the offshore sector.

Recommendations: We call on the Government of Vietnam to initiate substantial and ambitious near- and long-term offshore wind targets, which will provide the industry and investors a clear vision and confidence for this market. We also urge the Government to extend the current cut-off date of the FiT of November 2021 to at least 2025, which will kickstart the industry with a solid project pipeline, generating cost reduction benefits in the long run.

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