Offshore wind power is still waiting for legal framework

Nov 24, 2023

Orsted, an investor wishing to develop 6,900 MW of offshore wind power in Hai Phong and Thai Binh,
and its domestic partners decided to stop the project in Vietnam. Opportunities open up for other
investors, but this also presents many challenges to overcome.
Investors are afraid
The joint venture of Orsted Group and T&T Group recently announced to the People's Committee of Thai
Binh province and Hai Phong City to stop offshore wind power project development activities in these
two localities. The decision to "stop" was considered difficult by Orsted after a process of careful
consideration and assessment based on Orsted's senior leadership's global perspective on the Vietnamese
market.
Previously, since 2017, Orsted began observing and evaluating the development of the offshore wind
power market. In 2021, Orsted officially participates with the expectation that effective policies and legal
frameworks for the development of this very new field in Vietnam will be issued in 2023, especially in
the context of PDP VIII targeting to have 7,000 MW of offshore wind power capacity by 2030.
In listing the legal reasons for implementing the project in Vietnam, Orsted mentioned that PDP VIII has
been approved, but the market still has to wait for the Implementation Plan to determine capacity target
allocation for each period.
Up to now, it is still unknown when the Implementation Plan VIII will be approved, after the Ministry of
Industry and Trade has re-submitted it for the fourth time.
Besides, there is no decree amending Decree 11/ND-CP related to survey and assessment of marine
resources...
The developer of this project believes that the investor selection mechanism as well as the electricity
selling mechanism will be direct commercial negotiations based on ceiling prices or competitive bidding
on prices or buying and selling at current fixed and unclear prices causes certain concerns, because it is
difficult to forecast a stable revenue source from the project.
Power purchase agreement (PPA) has great risks from output reduction rates or contract suspension and
cancellation clauses like some current power projects are applying, which also makes project developers
worried because they do not meet the requirements of the lender's requirements.
Legal issues along with some challenges such as supply chain disruptions or limitations; inflation and
rising capital costs; Increased competition from other competitors in this industry has caused Orsted to
decide to stop the project in Vietnam.
Accordingly, the Company has no plans to resubmit the application for approval of marine resource
survey and assessment activities to the Ministry of Natural Resources and Environment, nor to conduct
any project development activities for offshore wind power projects with T&T Group, and did not renew
the Memorandum of Understanding between the two parties after it expired.
These worries are never old
Remember, in June 2022, in a survey related to offshore wind power project development, after
interviewing 3 domestic investors, 2 foreign investors, 5 domestic lenders and 7 international lenders,
Ernst & Young Vietnam (EY) has listed 19 risks to keep in mind during the implementation of wind
power projects.
In particular, during the project preparation phase, investors bear all project risks, including risks related
to licensing activities (including survey licenses) and approval; risks of choosing project location; wind
resource risks; technical design risks; capital mobilization risks.
During the investment phase, investors and lenders also share most of the project risk. Investors, lenders
and EVN share the risk of divestment (and change of control). The government shares part of the risk of
terminating the contract ahead of schedule.
During the operation phase, the risk allocation mechanism is similar to the construction phase. In
addition, EVN shares with investors and lenders the risk of terminating contracts ahead of schedule; risk
of dispute resolution and risk of force majeure.
To promote the development of the offshore wind power market in Vietnam, the study also believes that
the Government plays an extremely important role by improving PPA's ability to mobilize capital by
building an risk allocation mechanism accepted by international practice.
Next is to build a strict and transparent legal framework, as well as develop a domestic supply chain to
support the offshore wind power sector; Strengthen grid reinforcement plans to support offshore wind
power.
And so far, the movements have not been much compared to when the issue was raised.
Source: https://baodautu.vn/dien-gio-ngoai-khoi-van-cho-hanh-lang-phap-ly-d203630.html