energy current issues with the development of wind...

DNV GL © 07 June 2018 SAFER, SMARTER, GREENERDNV GL ©

07 June 2018

ENERGY

Current issues with the Development of wind power in Vietnam

and challenges in supply chain and finance

Supply chain and financing challenges

by Peter C. Brun, Global Offshore Segment Leader, DNV GL

DNV GL © 07 June 2018

DNV GL - A global quality assurance and risk management company -Assisting Companies and Governments with Energy Transformation

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& DistributionUse

Policy &

StrategyProduction

Transmission & distribution Use

Transmission &

DistributionUse

▪ Energy policy & regulation

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▪ Climate change mitigation &

adaptation

▪ Generation mix

diversification

▪ Risk & change management

▪ Alternative business model

development

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▪ Renewables advisory

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purchase agreements

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tariffs

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design

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▪ Asset management

▪ Renewables integration

▪ Power testing, inspections

and certification

▪ Energy efficiency

▪ Demand side management

▪ Big data analytics

▪ Energy economics

▪ Demand response

▪ Load research

▪ Sustainable energy use

Power

GenerationEnergy

Markets


DNV GL’s Global Reach

350offices

100+countries

12500employees

150+years


1GWTechnical advisor to the lenders on Fosen, the world’s largest onshore wind farm at 1GW

2400+Over 2,400 wind inspections conducted each year

1stVerifier of the first floating offshore wind farm, Hywind Scotland Pilot Farm

No. 1Our BLADED tool is the world’s biggest selling design tool for wind turbines

1stConducted the world’s first hardware-in-the-loop testing for an entire wind farm

>65GW65GW of operational wind projects analysed

20+ongoing research and innovation projects to make standards ready for tomorrows challenges

500certificates issued in the last five years

>97%Played a role in the majority of the world’s offshore wind projects


Global - Local: Bringing experience to the Asia region – by maintaining international standards

▪ APAC region has a diverse and wide ranging list of onshore & offshore wind challenges

▪ Some beyond those found in Europe, hence require:

Comprehensive local understanding

Location specific adaptive methods

European experience:Over 30 years of experience and lessons learnt. Extensive expert capacity in on- & Offshore Wind widely recognized in industry

Europe

Local knowledge:Key APAC differencesGeotechnics, Extremes (typhoon, Earthcrages

APAC


DNV GL – offers comprehensive services in the entire value chain of wind power

Site & concept selection Project optimisation Tender support Construction monitoring Operations & maintenance

Technology evaluation Technical due diligence

Wind mapping Measurements Energy assessment Operational assessment

Market intelligence Cost modelling Market forecasts

Digitalisation, Software & training

Project management Marine warranty Inspections

Technology certification

Installation vessel classification

Project certification

Operation & maintenance vessel classification

FEASIBILITY DEVELOPMENT ENGINEERING CONSTRUCTION OPERATION


DNV GL’s approach to project development and risk management


PRE-DEVELOPMENT

PRE-FID STUDIES(Financial Investment Decision)

FID & CONTRACTING OPERATION

20+ yrs1-2 yrs1 yr1-2 yrs1 yr

Concept Design (FEED), Met Mast, Offshore Surveys Operation

Construction Project Full-Feasibility

FID, Specs. & Bids

High Impact Risks80% Risks Born

Only ~10% CAPEX

FEED Study Critical✓ X

>80% Risk Events (bad design)80-90% CAPEX

Poor Operational Performance

Non-optimised O&M Strategy

Inaccurate Energy Assessment

High Cost of Energy

OPEX Modelling

Detailed Design

1 yr

De-risking Stage

Project Timeline - know your Risks and Design Well!


Life cycle cost and risk reduction with DNV GL

Planning Construction

Time

Life

Cycle

Cost

end of warranty for mast, turbine

etc.

Investment costs

O&M

costs

Influence on

development

OperationDesign


Our advanced cost of energy modelling tool, Turbine.Architect, allows engineering design decisions

to be made on the bases of LCoE. It contains engineering models of the main components of the

wind turbine and wind farm, including balance of plant, construction and O&M, and combines these

with financial models to allow you to understand the complex relationships involved in the

integrated system to optimise the overall design.

Turbine.Architect can also be used to aid wind turbine OEMs or support structure designers when

bidding for wind farm development opportunities.

Demonstration Wind Farm Location

Gujarat – zone A, 19 sub-zones Tamil Nadu – zone A, 10 sub-zones

Optimum LCOE zone = A3lower CAPEX costs due to shallow

water depth and shorter distance to shore. Despite A3

having the lowest annual mean wind speed.

Optimum LCOE zone = A3relatively close to shore and having a shallow water depth.

A3 does not possess all the most favourable values in these

properties out of all the sub-zones, but has the best

combination of favourable values.

-15.5 mLAT

6.99 m/s (at 120 m AGL)

25.3 km to coast

-18.1 mLAT

8.01 m/s (at 120 m AGL)

12.4 km to coast


Vietnam’s opportunity to harvest its wind power potential


The opportunity in Vietnam – lots of potential and interest…..


Current issues with supply chain

Active Turbine

Suppliers

Current Component

Suppliers in Vietnam

• Currently, GE has invested in a new factory located in Hai Phong city to manufacture wind

turbine components to help support the global demand for GE's wind turbines.

• Towers are available locally with the largest producer being CS Wind (South Korea) in Baria-

Vungtau Province. Another producer is Vina Halla Heavy Industries which has a factory in Ba

Ria Vung Tau Province

• Driven by the competitive markets globally for the supply of equipment, OEM have always

been looking at cost reductions considering the economics of scale. India and China has been

the key locations for a lot of the turbine manufacturers for opening of factories.

• General Electric (GE), Vestas, Siemens Gamesa (SGRE), Fuhrländer and Enercon are some of

the turbine suppliers active in Vietnam.

Opportunities

• With India and China in the region being the top producers of turbine components and the

regional onshore activities being limited, the challenge will be the achievement of an economic

of scale.

• With promotion of offshore wind in Vietnam and the neighbouring APAC regions (e.g. Korea,

Japan, Taiwan, China and India), there could be a demand for the offshore substructures.

• Promotion of local content policies (LCP) for local projects could also drive OEMs to consider

local content or for international suppliers to partner with local facilities.


Are regulated local content requirements… adding investment risk ?

▪ Wind power delivers lots of local content – naturally. WTG only btw

30-50 value of project. Rest sourced locally – see value pie

▪ OEM’s want to make own investment decisions based on economic

sustainability

▪ OEM’s open to source locally – if quality & business case is present

▪ Vietnamese industry is already supplier to international supply

chain (bigger market – more sustainable business strategy)

▪ Local content requirement – illegal according to internatrional law

(WTO). Two principal LCR-rulings: Ontario-wind/Canada 2013 (DS

412) and India-solar in 2014 (DS 456)

▪ International developments banks decline financing of projects

with local content requirement (f.x. EIB) Source: Vestas


Permitting Process in Vietnam

▪ Approximately 29 individual permits,

agreements, or licenses were identified for

utility sized wind farm that can be classified

into the 8 categories shown on the right.

▪ Agencies involved includes: EVN, DPI, MPI,

MoIT, DoIT, DoNRE, DARD, Provincial PC,

EPTC, EVN, NPT, etc.

▪ Approval process ranges from a few days to

several months with the whole process taking

years so it is important to plan ahead and

understand the requirements.

▪ Government should consider a “one-stop-

shop” planning and approval process for both

on- & offshore wind.


Main challenges for project financing

Lack of Bankable

standardized PPA

Exchange Rate Risk

and Currency

Convertibility

Electricity Offtake

and Guarantee of

Offtaker Obligation

• Some terms in the PPA are not typical in international PPAs, so these addition risks

and corresponding mitigations measures would need to be in place.

• F.x. Termination Payment, Force Majeure, Offtake interruptions, Dispute

Resolution, Grid Connectivity, Change in Law and Tariff escalation are just some of

the atypical issue with the standardized PPA.

• Since 2011, Government of Vietnam generally only provides a guarantee of

foreign exchange to BOT power projects up to 30% of revenue after deduction

of expenses in VND in accordance with Official Letter 1604. Exceptions where

100% currency convertibility guarantee has been seen for some projects

(e.g. 1,200 MW Vung An 2 coal-fire IPP project) which requires in-principal

approvals by National Assembly.

• Usually, wind IPP projects are financed through non-resource (project finance)

debt, serviced by cash flow from the sale of electricity through the PPA.

• If offtaker’s creditworthiness is under question, then lenders tend to require a

“backstop” for the offtaker’s obligation under the PPA, usually in the form of a

government guarantee.


SAFER, SMARTER, GREENER

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Thank you !

Peter C. Brun, Offshore Wind Segment Leader

[email protected]

+45 604 338 78


Case studies for Wind IPP in Vietnam

Phu Lac Wind Farm

- Phase I (24MW)

Bac Lieu Wind Farm

– Phase 1&2

Dam Nai Wind Farm

• Project Developer: Thuan Binh Wind Power Joint Stock (TBW)

• Equity Investor: Thuan Binh Wind Power Joint Stock (TBW)

• Debt Investor: KfW Development Bank (EUR 35 million ODA Loan from a DFI)

• Located in Binh Thuan province, developed in two phases

• Debt/Equity ratio (80/20) with total investment at USD 52 million

• Project Developer: Cong Ly Ltd Company

• Equity Investor: Cong Ly Ltd Company

• Debt Investor: Vietnam Development Bank (VDB), with ECA funding (U.S. Ex-IM Bank)

• Located in Bac Lieu province, developed in two phases

• Debt/Equity ratio (85/15) with total investment at USD 260 million

• Project Developer: The Blue Circle / TSV Investment

• Equity Investor: The Blue Circle / TSV Investment

• Debt Investor: Not defined yet.

• Located in Dam Nai province, developed in two phases

• Phase 1 was through equity finance, second phase might be debt-financed

energy current issues with the development of wind...

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