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The wind and solar power project transfer is ‘normal transaction’

The wind and solar power project transfer is ‘normal transaction’ - 

Explaining an information that, in recent years, many wind and solar projects were initially assigned to Vietnamese investors, but later transferred to Foreign investors to invest, own, manage and operate, Mr. Hoang Tien Dung - Director of Electricity and Renewable Energy Department (Ministry of Industry and Trade) affirmed that transferring all or a part of the investment project is a normal transaction in the market mechanism and is regulated by the Investment Law.

Mr. Dung also Explained the matters related public opinions on the wind and solar power projects development.

By the current regulations, transferring the projects or changing shareholders are handled by the Provincial Departments or Ministry of Planning and Investment depending on the project size.

In difference from the coal and gas power projects invested in BOT form with Government guarantee, investment in wind and solar power projects does not request Government guarantee that is a positive point for attracting investment in the electricity industry in current situation.

Besides, foreign investors have the better experience and ability in investing, managing and operating power plant, so their participation in the power projects brings better overall interest for themselves and society.

On the question whether the foreign investors, in fact, have bought the solar power projects from Vietnamese investors due to too high FIT of solar power in Vietnam,

Mr. Dung said, the domestic and foreign investors implement investment in case that the projects bring efficiency and interests for them, so electricity prices must be designed to guarantee benefits for them, then the investment attract can take place. If the solar power FIT in recent time called “attractive” would be more accurate than “high price”. Because of the science – technological progress, the costs of solar power project reduce very rapidly:

In 2016 the FIT mechanism for solar power projects was started for developing and by 2017, solar power FIT as 9.35 USC/ kWh was approved by the Prime Minister. At that time, the solar power FIT 9.35 USC/kWh was seemed reasonable and it very much attracted the attention of many investors.

Due to anticipating the development trend of solar power, the Prime Minister decided to set a deadline for FIT price to take effect only until June 30, 2019. After this time, the FIT has decreased from 9.35 cents / kWh to 7.09 cents / kWh for the on-ground solar PV projects.

The fact that the foreign investors participate in investment projects through domestic investors is a good sign in attracting investment for the power sector.

The large energy corporations in the world rarely directly implement project development stage to avoid, reduce risks, time and costs at the stage of project development, such as site clearance compensation, asking approval of the central and local authorities.

While, the domestic investors better understand domestic laws, mechanisms, policies and procedures, etc., so should better implement the investment preparation stage.

On the other hand, foreign investors have good potentials in capital, technology, investment experience and operation ... Therefore, the combination of domestic and foreign investors will bring better results for the projects and for investors.

Foreign investors also often participate in large projects, or group of many small projects, that also helps reduce overall operating costs for foreign investors.

Regarding opinions that FIT mechanism created conditions for the negative asking – giving activities Mr. Dung explained: in the previous period, when the market for renewable energy in Vietnam was too new, the costs of developing renewable energy projects were higher than traditional power projects, so in order to promote the development of the renewable energy market, Vietnam applied the FIT support mechanism as a common policy tool used by the most countries in the world.

The practice has proved that the FIT mechanism was an effective tool to promote rapid development of renewable energy projects, especially for new markets like Vietnam, by the following advantages:

Firstly, preferential long-term prices (20 years) create transparency in assessing the feasibility and mobilizing capital for the project.

Secondly, Government commitment to prioritize mobilizing electricity generated from renewable energy projects.

Thirdly, abridging the time for negotiating power purchase contracts, saving time and expenditure for the investors.

In Vietnam, through the FIT policy, there are currently nearly 6,000 MW of renewable energy projects in electricity generation, that ensures timely supplying electricity to the economy, reducing electricity generation by the high-priced oil-fired power plants, transferring energy towards sustainable development and reducing greenhouse gas emissions.

The development of renewable energy power projects has also contributed to the development of machinery, equipment and service industries for solar power projects, effectively exploiting waterless areas, low agricultural production efficiency and attracting the large social capital for investment in infrastructure of the power sector.

However, Mr. Dung has showed a number of the FIT mechanism limitations as follows:

Firstly, projects focus on development in areas with good potential that leads to grid overload in some areas and increasing competition for land.

Secondly, it is difficult for FIT to timely reflect change in technology prices of the market, which often leads to unexpected "hot" development.

In the coming period, when the renewable energy market in Vietnam develops, the renewable energy technology has a great progress, technology costs strongly reduce and renewable energy projects can compete with traditional energy projects, a new mechanism is needed to overcome the above limitations.

Therefore, the Prime Minister has directed the Ministry of Industry and Trade to study and propose the application of bidding mechanism to develop renewable energy projects to replace FIT mechanism.

VER.

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