Unleashing Vietnam’s clean power potential
Vietnam today has reached a tipping point of clean energy development. In April 2012, when Deputy Prime Minister Nguyễn Xuân Phúc opened Vietnam’s first wind farm, the 20-turbine 30 megawatt (MW) Bình Thuận Wind Power Plant1, few could have imagined the renewable energy revolution that would accelerate over the ensuing decade.
In just nine years, renewable energy capacity has almost tripled, from 13.7 gigawatts (GW) in 2012 to almost 36 GW in 20202, most of which comes from hydroelectricity. Vietnam has overtaken Thailand, the region’s second-largest renewable energy economy, with three times the electricity generation capacity of the latter3. During 20204, renewable energy accounted for some 30 per cent of the nation’s electricity output – with natural gas and coal collectively contributing almost 70 per cent.
“With hydropower fully exploited, the country’s resources of coal, oil and gas declining, and nuclear power no longer feasible due to cost and safety concerns5, sources of renewable energy are viable alternatives,” explains Lưu Trung Thái, Vice Chairman, CEO of Military Bank. “Wind, solar, biomass and waste-to-energy (WTE)6 are new types of clean energy that will power Vietnam in the coming decades, bringing prosperity to businesses and society alike.”
It is no small feat to keep pace with the energy demand of Vietnam’s burgeoning economy, which is growing annually by six per cent7. By 2030, the country will require up to 632 terawatt-hours (TWh) per annum – more than double the amount consumed in 20208. If Vietnam can supply this level of energy consumption, it will become one of the world’s top 10 electricity producers, ahead of Western economies like the United Kingdom, France and Germany9.
To fulfil the country’s renewable energy potential, continued support from the Government of Vietnam is essential, as is assistance from financiers and private-sector industry players – from both within the country and overseas.
Policies and plans
The Government of Vietnam has been actively fostering renewable energy generation over the past five years. Its Power Development Plan VII (PDP7) and the recently announced PDP8 have set ambitious targets for wind, solar, biomass and WTE projects. These four types of renewable energy will increase their share in Vietnam’s energy mix from about three and a half per cent in 201010 to 44 per cent by 2045, according to the plans11. About 10 per cent of the nation’s electricity consumption is currently powered by these four renewable energy sources.
Favourable power purchase agreements (PPAs) between electricity producers and the state-owned Vietnam Electricity Corporation ensure power companies will receive a fixed tariff for 20 years once a plant goes live12. For example, producers will receive VND1,928 per kilowatt-hour (kWh) (US cents 8.5 per kWh) for onshore wind power projects13 and VND2,223 per kWh (US cents 9.8 per kWh)14 for offshore wind power projects. These rates are comparable to industry PPAs elsewhere in Southeast Asia.
Winds of change
Vietnam has set a capacity target for wind power of 2,000 MW by 2025, and 6,000 MW by 2030. The aforementioned incentives make renewable energy projects particularly attractive. “Military Bank views the financing of renewable energy as an opportunity to contribute to the country’s development, and improve and preserve its ecological environment,” Lưu Trung Thái enthuses.
The bank is financing two noteworthy projects: the 75 MW nearshore Tan Thuan Wind Power Project in Cà Mau province, owned by Cà Mau Energy Investment JSC, and the 117 MW onshore Hanbaram Wind Farm in Ninh Thuan province, owned by Hanbaram Wind JSC.
Lưu Trung Thái says Military Bank brought several attributes to the projects. “We have an in-depth knowledge of the intricacies of renewable energy projects – including legal matters, the viability of natural conditions, technology and construction. Besides, the bank has developed a robust financing plan from thorough research of previously approved projects to identify the most feasible approach.”
Standard Chartered Vietnam’s ability to complete such deals within a tight timeline as well as its expertise in financing renewable energy projects are noteworthy.
Looming uncertainty
Projects like Tan Thuan and Hanbaram can be challenging to finance. Long-term US-dollar funding can be costly, unavailable or prohibitive for project owners. Wind power projects involve significant upfront capital – about VND40 billion (USD1.64 million) per MW for onshore projects, and VND56 billion (USD2.4 million) per MW for offshore projects – and tend to involve a payback period of more than 14 years. These issues may deter some lenders.
Corporates and banks in Vietnam typically use an export credit agency (ECA) guarantee as risk mitigation when seeking funding from foreign banks, which have competitive cost but limited risk appetite. However, the application process for ECAs is especially time-consuming, hence projects on a tight schedule usually miss out.
An additional hurdle was the COVID-19 crisis, which has not only disrupted the supply chains for such projects, but also kept staff, construction workers and engineers off-site15. Uncertainty troubled the two project owners, as well as Military Bank and China Energy Engineering Group (CEEG) – the company in charge of building and operating both projects, as well as the procurement of technology and equipment.
Bridging the gap
Fortunately, help was at hand, thanks to Standard Chartered Vietnam, a key partner of Military Bank, and Standard Chartered China, a long-time supporter of CEEG’s business at home and overseas. By representing both the beneficiary and the issuing bank, Standard Chartered could conduct negotiations smoothly. The bank’s ability to complete such deals within a tight timeline as well as its expertise in financing renewable energy projects, were also noteworthy.
Together, the two country branches provided essential support for Tan Thuan and Hanbaram, especially in financing the wind turbines that will power both projects. CEEG selected the Siemens Gamesa 4.X wind power platform, powered by SG 5.0-145 turbines16. These are industry benchmark platforms made overseas, renowned for their operating efficiency, robust design and state-of-the-art remote monitoring capabilities. Siemens Gamesa will provide 16 units to Tan Thuan17 and 29 units to Hanbaram18, with estimated capacity to meet the electricity consumption needs of approximately 400,000 Vietnamese residents.
Standard Chartered China was the confirming bank and discounting bank for the letter of credit (LC) issued to both projects. Standard Chartered Vietnam provided consultation, facilitated the LC term, and helped with negotiations between all parties. The bank also acted as a communication channel between the beneficiary and the project owner.
“To meet the requirements of the projects, we received support from Standard Chartered Vietnam in terms of funding arrangement – as well as LC opening, confirming and discounting,” Lưu Trung Thái recalls.
While Standard Chartered faced fierce competition from numerous Chinese and international banks, its track record tipped the scales. “Our deep relationships on both sides of the deal, strong focus on renewable energy projects, execution record, and distribution capability to generate market appetite in a short span of time ensured Standard Chartered was the banking partner of choice for the two projects,” says Michele Wee, Chief Executive Officer, Standard Chartered Vietnam.
The bank has since won three further wind projects in Vietnam, making the total volume size for the five deals USD538 million.
“The Tan Thuan and Hanbaram projects proved that even during difficult times, sustainable projects receive much support from international banks like Standard Chartered,” adds Wee. “Successful ventures like these draw greater attention to renewable energy, and encourage more private-sector participation in both the financing of international trades and the building of such projects. They help create opportunities for local and overseas businesses, while unleashing Vietnam’s clean power potential.”
1 https://www.sunwindenergy.com/news/first-wind-farm-vietnam
2 https://www.irena.org/publications/2021/March/Renewable-Capacity-Statistics-2021
3 https://www.eco-business.com/news/renewables-are-booming-in-vietnam-will-the-upswing-last/
4 https://www.eia.gov/todayinenergy/detail.php?id=48176
5 https://www.reuters.com/article/us-vietnam-politics-nuclearpower-idUSKBN13H0VO
6 https://www.vietnam-briefing.com/news/vietnams-push-for-renewable-energy.html/
7 http://hanoitimes/vietnam-sets-gdp-growth-target-at-5-6-in-next-decade-839.html
8 https://www.vietnam-briefing.com/news/vietnams-push-for-renewable-energy.html/
9 https://yearbook.enerdata.net/electricity/electricity-domestic-consumption-data.html
10 https://policy.asiapacificenergy.org/node/4056
11 https://en.vietnamplus/vietnam-needs-1283-billion-usd-to-develop-electricity-industry/196910.vnp
12-14 https://www.vietnam-briefing.com/news/vietnams-push-for-renewable-energy.html/
15 https://gwec.net/vietnam-needs-to-act-now-to-mitigate-wind-development-disruptions/