giz support mechanism for re development in vietnam

Seite 1

Support Mechanisms for RE Development in Viet Nam

Hanoi, 19/09/2014

Ingmar Stelter, Program ManagerWerner Kossmann, Chief Technical Advisor

GIZ Viet Nam Energy Support Program

Seite 2

Technical Cooperation in Viet Nam

Energy Sector Development Partners Coordination19.09.2014

National Strategy

PDP VII objectives on RE: Increase in electricity produced from RE sources

5.6% 9.4%

2020 2030

Biomass Wind Biomass Wind

500 MW

1000 MW

Other RE

2000 MW

6200 MW

Other RE

5620 MW

2700 MW

Other RE: Biogas, Waste-to-Energy, Solar PV/ST, SHP etc.

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Source: PDP 7


Barriers for RE Development in Viet Nam

Lack of national (comprehensive) law

for RELow electricity price

Limited data availability (and poor

data quality)

Limited capacities on central and provincial

level

Difficult access to information

Complex and unclear procedures for RE

investments

Limited access to financing (equity &

loans)


Wind PowerSHP

Existing Support Mechanisms for RE – I/II

Decision 18/2008/QD-TTg (18.07.2008)• In 2014: 2.7 – 3.2 US-Cents/kWh (depending on

season and daytime)• Avoided-Cost-Tariff, varied by year• Calculated annually based on 1 kWh electricity

avoided from the most expensive power plant connected to the national grid

• Duration of PPA: 20 Years

Decision 37/2011/QD-TTg (29.06.2011)• Feed-in-Tariff for Wind Power• Tariff: 7,8 US-Cents/kWh (6.8+1)• Duration of PPA: 20 Years• GIZ-supported; currently under revision


Solid WasteBiomass

Existing Support Mechanisms for RE – II/II

Decision 24/2014/QD-TTg (29.06.2014)• FiT for electricity from CHP-Biomass

Power: 5.8 US-Cents/kWh• Avoided-Cost Tariff for electricity from

other Biomass plants• Annually calculated based on the

avoided cost for 1 kWh electricity from imported coal

• Duration of PPA: 20 Years• GIZ-supported

Decision: 31/2014/QD-TTg (05.05.2014) • Feed-in-Tariff for electricity from MSW• Incineration: 10.05 US-Cents/kWh• Landfill-Gas: 7.28 US-Cents/kWh• Duration of PPA: 20 Years• GIZ-supported


Additional Incentive Mechanisms for RE

• Corporate income tax

• Years 1-4: tax exemption

• Years 5-13: 50% tax reduction

• Import tax (goods, machinery etc.)

• Varying levels of import tax, depending on type of imported goods

• Exemption on goods forming fixed assets, which cannot be produced locally

• Waiving of land use/lease fees

• Land is provided for free as part of the licensing agreement

These are substantial financial incentives for project developers. However, in a situation of financial stress, tax incentives cannot

cushion liquidity problems as there are no tax payments to be made.


Revision of the support mechanism for wind – I/III

• Methodology:

• Qualitative: interviews, questionnaires, assessment of exist. framework

• Quantitative: wind data, pre-/feasibility studies, international comparison

• General findings/recommendations (excerpt):

• FiT payment system should be a one-stop-shop (not VNEPF+FiT)

• Government guarantee for payments

• Better wind speed measurements and improved standards are required

• Enforce standard agreements for network connection and power purchase


Revision of the support mechanism for wind – II/III

• Basis for analysis:

• PDP target: 1GW wind power by 2020 (currently: ca. 50MW)

• Assumptions for CapEx, O&M, Capacity Factor: based on P/FS, questionnaires, international experience

• Required investment and assumed investor structure:

• 1GW by 2020 = ca. US$ 2.1 billion over the next 6 years

• At average debt level of 70% => US$ 630m equity and 1.47b debt

• This investment level cannot (should not) be reached with public investment only.

• Assumed investor types: highly-subsidized, strategic, fully commercial


Revision of the support mechanism for wind – III/III

• FiT calculation:

• All three investor types must be targeted with the FiT

• Assumed IRR: 10% (international experience)

• Basis for FiT calculation: Levelized cost of electricity (LEC)

• Also included: additional incentives like tax breaks etc.

• Result:

• Proposed FiT for on-shore installations: US-cents 10.4 / kWh

• Proposed funding scheme: Tariff-funded, i.e. through a levy on the electricity price: for 1GW by 2020 => less than 5VND/kWh


Bioenergy technologies applicable in Vietnam

Biomass- Sugarcane bagasse- Rice straw/husk- Timber waste

Biogas- Animal manure- Industrial wastewater- HDPE covered lagoon

Municipal Solid Waste- Incineration- Landfill Gas


FiT for non-CHP biomass power (avoided cost tariff)

Government opted for the avoided cost tariff based on imported coal as reference price for biomass

Reason to apply an avoided cost tariff based on imported coal:

• Coal thermal power plant has the highest share in power mix

• Avoid electricity generated from these plants

• Biomass power plants as substitution to provide base load in the system

Problem:

• Annually calculated and issued

• Fluctuating coal prices

• Inflexible in combination with 20 years PPA


Comparison of regulated prices with proposed levels for Bioenergy

Technology Proposed purchasing price (US-Cents/kWh)

Regulated level (US-Cents/kWh)

Sugarcane bagasse 5.6 5.8

Rice husk 7.34

Avoided cost based tariff

Rice straw 10.79

Timber waste 8.77

SW - Landfill gas 7.28 7.28

SW – Incineration 10.05 10.05


Thank you for your attention!!

Werner Kossmann Ingmar Stelter

[email protected] [email protected]

04 39 41 26 05 - 15 04 39 34 49 51 - 114

mailto:[email protected]

mailto:[email protected]


Backup: Installed capacity of electricity sources (2013)

Source Capacity (MW) Rate (%)

Big hydropower 13,260 43.21

Coal thermo-electric 7,116 23.19

Gas thermo-electric 7,446 2.97

Oil thermo-electric 912 0.22

RE

Small hydropower (≤ 30MW) 1,670 5.44

Wind 52 0.18

Biomass 150 0.49

Biogas/MSW 4 0.01

Solar PV 4 0.01

Total 30,684

Share of RE: 6.13%

Source: GDE 2014


Backup: Electricity production (2013)Source Output (GWh) Rate (%)

Big hydropower 56,943 40.51

Coal thermo-electric 26.843 20.93

Gas thermo-electric 42,650 33.26

Oil thermo-electric 95 0.07

Others 249 0.19

Exported 1,337 1.04

Diesel 7 -

Small hydropower 4,989 3.89

Wind 62 est. 0,05

Bioenergy (Biomass, -gas, MSW)

47 est. 0,04

Solar PV

Total 128,228

Share of RE: 3.98%

Source: GDE 2014


5.2 FiT calculations

The following assumptions result from the analysis of the

feasibility studies and questionnaires

• Average CapEx: 2.0 USD Mio. /MW

• Average O&M cost 35,000 USD / MW per year

• Average capacity factor: 30%

This is in line with international experience!


5.2 FiT calculations; international benchmark: CapEx


5.2 FiT calculations; international benchmark: OpEx


5.2 FiT calculations; international benchmark: Capacity Factor



• Levelized Electricity Cost (LEC) as basis of analysis

• LEC is function of CapEx, discounted OM (OpEx) and total electricity production (Capacity factor)

• LEC(

• There is a direct relationship between internal rate of return (IRR) and LEC

• According to intl. experience, investors typically demand a project IRR of 10%, resulting in an LEC of US Cent 10.4



Sensitivities derived from feasibility studies and questionnaires

Scenario CapEx [million USD/MW] O&M [T USD/MW*year] Capacity Factor Base

case

2.00 35.00 30.0%

CapEx+ 2.25 35.00 30.0%

CapEx- 1.65 35.00 30.0%

O&M+ 2.00 45.00 30.0%

O&M- 2.00 25.00 30.0%

Capacity+ 2.00 35.00 35.0%

Capacity- 2.00 35.00 25.0%



Scenario LEC

Base Case 10.39

CapEx+ 11.51

CapEx- 8.83

O&M+ 10.80

O&M- 9.98

Capacity+ 8.91

Capacity- 12.47

Min. value 8.83

Max. value 12.47


5.3 Financing properties for developing the national wind power market

a. Target installation of 1 GW till 2020 requires investment amount of

about USD 2.1 billion over six years.

b. At average debt level of 70% this translates into:

• USD 630 million equity and

• USD 1,470 million debt


5.4 Developing the national wind power market by targeting diverse investor types

Market is assumed to be developed by mixture of three investor types

i. Highly subsidized investors like ODAs: access debt funding at interest rates of 1%-2% and demand single digit project IRRs. These early movers may provide funding of one third of target capacity and lay foundation of wind development by boosting synergy effects

ii. Strategic investors: like turbine manufactures, large industry enterprises and sovereign wealth funds: access pools of debt funding in the range of 6% and accept projects IRRs of about 10%.

iii. Fully commercial investors: have to resort to local loans at interest rates of 10% and above and demand two digit project IRRs. They require additional incentives like tax breaks.


5.5 Additional regulatory incentives have been considered and quantified at calculated FiT-level

Tax effects:

a. Reduced corporate tax contributes by 0.3 US Cent/kWh to FiT

b. Exemption from import tax e.g., 10% tax break corresponds to FiT

surplus of 0.7-1.0 US Cent/kWh


5.6 FiT funding for 1 GW target installation

Funding requirements for 1GW by 2020 at US 10.4Cent/kWh

Description 2016 2020 2021 2030FIT 10,4 10,4 9,4 9,4ttl Energy Sold TWh 158 243 273 545Wind Energy generated GWh 0 2628 4021 16556Average System Cost 7,7 8,8 9,28 10TTL Cost demand for funding Mio USD 0 42 46 -73Levy per kWh in VND 0 3,7 3,5 -2,8


5.6 FiT funding for 1 GW target installation (cont.)

Funding sources of FiT for 1 GW target installation

Tariff funded Tax funded

Advantage Disadvantage Advantage Disadvantage

• Transparency of subsidies

• Independent of budgetary needs

Requires “fair” allocation of costs of customer segments

• Independent of electricity prices for customers

• More flexibility with adjustments

Potential regular disputes with MoF over budget availability, and thus uncertainties for investors


Technology Levelized costs in US-Cents/kWh

Base (~ 10% IRR) Low (~ 8% IRR) High (~ 12% IRR)

Biomass Power Plant

Sugarcane bagasse 5.6 5.15 5.85

Rice husk 7.34 6.87 7.84

Rice straw 10.79 10.35 11.27

Timber waste 8.77 8.35 9.22

Biogas Power Plant

Animal manure 7.72 7.11 8.36

Industrial wastewater 12.29 11.20 13.31

HDPE covered lagoon 6.12 5.69 6.57

SW Power Plant

Landfill gas 7.28 6.65 7.95

Incineration 10.05 8.8 11.39

Levelized costs for Bioenergy based power plants

giz support mechanism for re development in vietnam

Government & Nonprofit

wind power tariff

gw wind power

avoided cost tariff

kwh electricity

tax exemption years

uscentskwh duration

wind data

wind iiiiii fit calculation