by Customsnews 29/01/2023, 02:00

Newly-announced ceiling prices insufficient to cover costs: project developers

Wind farms incur a cost of 7.0 cents for each kWh of electricity generated, whereas the ceiling prices for wind energy are set at VNĐ1,587.12 (6.8 cents) per kWh.

Hòa Bình 5 Wind Farm in Bạc Liêu Province. Project developers said the ceiling prices are insufficient for their farms to break even. — VNA/VNS Photo 

HÀ NỘI — Many project developers are expressing concern that the ceiling prices for solar and wind energy set recently by the Ministry of Industry and Trade are not high enough to offset their costs.

The representative of four wind farms in Gia Lai Province Trần Minh Tiến remarked that the construction of the wind farms was completed a year ago but they have been idle due to the absence of official purchasing prices.

"We have spent US$300 million to build our wind farms that have been lying dormant for one year. Meanwhile, interest payments and depreciated costs pile up day by day," said Tiến.

The introduction of the ceiling prices did not make the representative any happier because it is never easy to negotiate an agreement with Vietnam Electricity (EVN), under which the power corporation purchases electricity from the wind farms at exactly the prices.

Even if the agreement is reached, the wind farms would not be able to make a profit with such low prices. They incur a cost of 7.0 cents for each kWh of electricity generated, whereas the ceiling prices for wind energy are set at VNĐ1,587.12 (6.8 cents) per kWh.

"Price negotiation takes at least three months, and one year is for most cases. We will petition the government to raise the ceiling prices as the current prices are insufficient to cover our costs," added Tiến.

The presentative of the Bến Tre Renewable Energy Community reveals that about 62 newly-built wind farms have been staying inactive since the expiration of the Feed-in Tariff (FIT) mechanism on November 1, 2021. 

"No official purchasing prices in place means no revenues for wind farms. Meanwhile, the farms incur various costs day by day, including overheads, depreciated costs, and interest payments," said the representative. 

He is concerned that renewable energy would not be able to take root in Việt Nam should solar and wind farms keep falling into disuse as such.

He also opines that the newly-announced prices would not make any difference to the gloomy situation as they are not high enough to propel the farms into profitability. 

"Project developers need those ceiling prices that are high enough to help farms in distress turn profits. The newly-announced prices are not what they have expected," he added.

The denomination of the prices in VNĐ, rather than in strong currencies as it was in previous legal documents, is another matter of concern for the representative because VNĐ is depreciating against certain strong currencies, exposing the developers to an exchange rate pass-through.

"The denomination of the prices in VNĐ would put developers at a cost disadvantage in the long term since most of their costs are denominated in USD," he added.

The representative calls for higher ceiling prices for renewable energy to support those developers that have built their farms in Việt Nam and incentivise those that are considering investing in the country.

According to the securities firm VnDirect, the ceiling price applicable to ground-mounted solar projects is 29.5 per cent lower than its corresponding expired FIT; floating solar projects, 17.3 per cent; onshore wind projects, 21.2 per cent; and offshore wind projects, 21.8 per cent.

As such, the prices are estimated to reduce the internal rate of return (IRR) of ground-mounted solar projects to 5.1 per cent; onshore wind projects to 8.0 per cent; and offshore wind projects to 7.9 per cent. Under the old FITs, IRRs of the projects were over 12 per cent.