Constraints in developing recycle energy

In the last few years, the Vietnamese government has been keenly interested in developing solar and wind power projects. These plants have attracted many foreign as well as domestic investors. However, many constraints still remain in developing recycle energy.
Stricter vetting by banks
Vietnam is climatically very suitable for developing of solar and wind power projects. The total wind power capacity is estimated at 513,000MW, six times the electricity capacity for 2020. This capacity is much bigger than in some neighboring countries, such as 152,392MW in Thailand, 182,252 MW in Laos, and 26,000MW in Cambodia. 
According to the VII master plan, the installed capacity of solar power projects will increase from 6-7MW in 2017 to 850MW by 2020, and further to 12,000MW by 2030, equivalent to 1.6% and 3.3% of total electricity production, respectively.
 The lending interest rate is currently very high while loan maturity is very short. This creates payment pressure on investors.
However, availing different capital sources to fund these solar and wind power projects comes with many obstacles. Several banks are not willing to lend to develop these projects as this area is quite new to their banking staff. Banks are being more cautious when appraising these recycle energy projects.
After evaluating the risks of these projects, banks usually require a higher ratio of investors’ equity, sometimes up to 30-40% of total investment capital while the equity ratio required by regulation is only 20%.
Furthermore, banks also require investors to deposit their assets as collateral for the bank loan or block their other assets to offset any risks in the projects. This has created barriers for investors to implement several projects at the same time. 
The foreign banks offer lower interest rate but require stricter information. The investors for recycle energy projects have to follow a long list of set rules and regulations, such as submitting a feasibility report, inspection of tools and machinery quality, project management methods, environment and social management solutions. Even after qualifying for all these requirements, the procedures for guarantee are also very complicated.

Several policy barriers 
Besides the difficulties faced in procuring capital, investors also face several policy barriers. Currently, in some provinces, the transmission system is overloaded as the construction speed of this system is far behind growth and demand of electricity production.
 The monopoly of EVN as sole wholesaler of electricity in Vietnam is scaring off investors for important solar and wind power projects, especially foreign investors.
Hence, when signing contracts with electricity producers, EVN adds a term which allows it to drop purchases in case of overload. This creates a huge risk for investors as selling volume becomes lower than expectation and capacity. The selling volume depends on decisions made by EVN at different times. Production activities which are based on purchasing orders, and have no influence on selling volumes, are likely to face losses or go bankrupt. 
Vietnam does not have a master plan for green power at country level. Hence, it is complicated and time consuming to do studies and then get approvals. The approval process or implementation procedure of recycle energy projects is also not consistent at different local areas. This causes huge waste of time.
Furthermore, the government only encourages development of green energy projects within a certain time frame. For example, to achieve selling price of 9.35 US cents, the projects have to be completed before 30 June 2019, or to get the selling price of 8.5 US cents, the investors have to run the plants before October 2021. If the approval procedure takes longer time, investors are at risk of facing lower selling price.
One more thing, to connect to the EVN transmission system, the investors have to work with EVN right from the time of starting implementation of the projects. The investors have to sign about seven agreements with EVN, such as connection agreement and agreement on electricity volume. Any delay in meeting these agreements will impact the progress of the projects. This is a big risk for investors, excluding the risk from importing spare parts, tools, machinery or other barriers such as with custom procedures.
Recently, Circular 18/2019, that was issued to replace Circular 134/2014 from 20 May 2019, requires investors to deposit a large monetary amount towards VAT when importing tools and equipment. The prominent character for solar and wind power projects development is basically huge investment capital. Hence, if the government does have a special functioning scheme for these projects, investors have to be prepared to dole out big capital amounts.

Solutions to policies and procedures
To encourage the development of recycle energy projects, especially solar power and wind power projects, I suggest the following solutions:
Constraints in developing recycle energy ảnh 1 A renewable energy project in Ninh Thuan. Photo: MINH TUAN 
Firstly, regarding policies and procedures, the government should issue a national master plan for solar and wind power development at the earliest, to help investors easily screen and choose projects. At the same time, the government should prepare a detailed guideline about administrative procedures, shorten the approval process and be consistent in appraisal of energy projects. 
The responsibilities of local administrations and Ministry of Industry and Trade should be made transparent and mentioned clearly. The approval and response time period should be clarified to avoid corrupt practices. Sales contracts with EVN must be simplified. The government should apply fair treatment between contracts with different parties. The assets invested by investors should be paid back to investors by EVN, not transferred at zero cost like they are being currently.
Secondly, EVN should have a long term plan to invest and improve the national electricity grid as well as the transportation system. It should maintain transparency with investors on transmission capacity in different areas.
EVN should propose to the government to create a mechanism for attracting private investments into national electricity grid to ensure the country’s energy security.
The government should gradually mitigate the monopoly of EVN, have a detailed plan to split the electricity sector in divisions, same as it did in the water sector previously. 

Nguyen Quang Huan, Chairman, Halcom Vietnam JSC

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