This is an extract from a recent report “Global Offshore Wind Report 2024” by GWEC. In this extract, we specifically focus on Vietnam and Philippines.
Vietnam
Vietnam is a new offshore wind (OFW) market that has world-class wind resources, a long coastline, and strong fundamentals for growth which could make offshore wind a significant component of its future energy mix. The national Power Development Plan 8 (PDP8) targets 6 GW of offshore wind installations, projected to contribute approximately 4% to the total installed capacity.
Vietnam’s offshore wind development: To date, Vietnam has not initiated any true OFW projects and has only developed intertidal wind projects situated in close proximity to the shore. The target of installing 6 GW of offshore wind capacity by 2030 presents considerable challenges. GWEC highlighted that an OFW project needs 6-8 years from greenfield to Commercial Operation Date (COD), which was adopted by the Ministry of Industry and Trade (MOIT). Consequently, connecting the first generation of OFW projects by 2030 necessitates the immediate establishment of policy and regulatory frameworks. MOIT estimates that the first pilot offshore wind project may not be completed until 2032.
Therefore, there is an urgent need for a Route to Market process to expedite the installation of over 6 GW of offshore wind capacity by 2030 in Vietnam. Key components of this process include:
1) Implementing a simple remuneration mechanism for initial pilot projects.
2) Developing a streamlined permitting process to ensure timely implementation.
3) Developing a robust Marine Spatial Planning (MSP) and site allocation approach
4) Defining a clear timeline for auction implementation.
5) Enhancing Power Purchase Agreement (PPA) bankability to attract international finance.
6) Upgrading grid infrastructure for seamless offshore wind integration.
Recent developments in offshore wind energy: Firstly, preparations are underway for the submission of Marine Spatial Planning (MSP) to the National Assembly, scheduled for the upcoming meeting from 20 May to 28 June this year. Secondly, in April 2024, MOIT submitted a draft proposal for the pilot mechanism of offshore wind projects, which includes the proposal for the State Energy Steering Committee (established in November 2023) to oversee the offshore wind projects. This committee facilitates coordination between ministerial agencies such as the Ministry of Natural Resources and Environment (MONRE), the Ministry of Industry and Trade (MOIT), the Commission for the Management of State Capital at Enterprises (CMSC), the Ministry of Planning and Investment (MPI), and others. Finally, the PDP8 implementation plan was issued in April 2024, determining regional allocations for offshore wind development, and the Draft Law on Electricity includes regulations for offshore wind power development.
Route to Market is important for new markets for several reasons:
Catalyst for policy development: A Route to Market process serves as a critical catalyst for shaping the direction and sustainability of new markets in the offshore wind sector in Vietnam. Given the early stage of offshore wind development in Vietnam, the absence of pre-existing policies necessitates the establishment of a Route to Market process. This process provides the essential groundwork for government and industry collaboration in formulating coherent offshore wind policies. By doing so, it lays the foundation for regulatory certainty and market stability, thereby facilitating the long-term growth and investment of the offshore wind sector.
Promotion of transparency and efficiency: Transparency and efficiency are paramount for attracting investment and ensuring the long-term success of offshore wind projects. The Route to Market process facilitates transparency by providing developers and investors with a clear roadmap for navigating regulatory hurdles and market dynamics. This clarity enables stakeholders to make informed decisions, assess risks, and effectively allocate resources. Moreover, by fostering a conducive business environment, a Route to Market enhances operational efficiency and reduces capital expenditure (CAPEX), thereby improving the overall competitiveness of offshore wind projects. As a result, international investors and financiers will be more open to participating in the Vietnam offshore wind market, thereby catalysing its growth and maturation.
Fostering local industry development: Beyond its immediate impact on project development, a Route to Market plays a pivotal role in fostering the growth of local industries and supply chains. By incentivising the localisation of key components and services, such as industry clusters, infrastructure, and skilled labour markets, a Route to Market creates opportunities for the development of a robust domestic supply chain ecosystem. Moreover, by nurturing local talent and capabilities, it also contributes to the broader socio-economic development goals of the country, thereby ensuring a more inclusive and sustainable energy transition. Moving forward, GWEC will continue to work closely with industry stakeholders, policymakers, and local communities to further refine and implement an effective Route to Market process, fostering an offshore wind sector in Vietnam and beyond.
Philippines
Philippines has emerged as a pivotal player in the offshore wind (OFW) industry, propelled by progressive policies streamlining permits, encouraging foreign participation, and the introduction of a marine spatial tool (MSP). With plans for the existing one-stop shop, EVOSS to be enhanced, developers anticipate smoother permitting processes for OFW projects. Ongoing discussions among regulators, particularly those integral to infrastructure development, underscore a concerted effort towards industry advancement. The Philippine Energy Plan (PEP) aims for a 35% share of renewables in the power mix by 2030 and 50% by 2040.
Offshore wind will play an important role in decarbonising the economy while reducing dependence on energy commodity imports. The DOE has already approved 63 GW of offshore wind sites and are processing more applications. The industry welcomes the DOE’s plan to conduct the first OFW Green Energy Auction Program (GEAP) round by Q2 of 2025. Having a separate auction for OFW will hopefully set clear capacity targets and price expectations for the medium- to long-term horizons. This provides a stable revenue stream outlook for developers and will also create confidence from lenders to assign risk and mobilise funds specific to OFW.
Key parameters for a successful OFW auction:
1. Ensuring the transparency and certainty of the OFW pipeline: It is paramount for fostering investment and mobilising resources effectively. By establishing a clear capacity target and Commercial Operation Date (COD) horizon, developers and supply chain stakeholders are prompted to align their services and equipment with the Philippines’ goals. Moreover, this clarity enables the financing sector to timely allocate the necessary capital for project development. Emulating successful strategies from other countries that mobilised OFW, a formal long-term scenario or roadmap is essential. This roadmap should delineate infrastructure availability crucial for supporting OFW deployment. Currently, the government is finalising key frameworks such as the Permitting Framework, Marine Spatial Planning, and Port Feasibility studies. Once completed, these frameworks will pave the way for the announcement of the auction program by the DOE. This strategic sequencing allows developers ample time to evaluate their timelines, costs, and overall project viability. Ultimately, the pipeline announcement empowers developers to make informed decisions regarding the timing of their project commitments.
2. Employing realistic assumptions when determining auction prices to incentivise developers and ensure participation is crucial. Unlike more established markets, the Philippines’ nascent offshore wind sector requires careful consideration of various cost components. To arrive at a realistic tariff, it’s essential to map out all cost elements comprehensively – this includes pre-development expenses such as technical and social studies (e.g., wind campaigns, geotechnical assessments, ESIAs – which developers are currently undertaking). Additionally, equipment costs and where they are sourced from will have a huge impact on the tariff. All of these options need to be factored in, encompassing availability, delivery, and assembly. Balance of plant expenses, including offshore substations and onshore grid connection points and which entity responsible for building for these should be well accounted for in the price discovery. Interest rates, often sourced from international financial institutions at this stage, further contribute to the overall project costs.
3. Setting prerequisites will determine which OFW developers are eligible to participate in the offtake program. The second round of renewable energy auctions for onshore technologies is less stringent in its conditions and any developer with a Letter of Intent may participate. The auction program for OFW should incorporate robust technical and financial prequalification, –striking a balance between wider participation and guaranteeing successful project execution rounds.
4. The imposition of performance bonds is crucial for ensuring that only serious and capable developers participate in offshore wind projects. However, the current 20% requirement may be too high given the per MW cost of such projects. Regulators should consider alternatives, such as lowering the performance bond requirement for winning bidders, and mandating specific permits and technical as well as social studies. These requirements serve as investment commitments and allow developers to allocate funds towards de-risking their projects. To further incentivise participation, the Department of Energy (DOE) should consider implementing a decreasing bond amount per year as developers commit more CAPEX. As development progresses and risks diminish, a lower bond requirement would be more appropriate. It’s essential to benchmark the proper performance bond rate against those of newer markets or consult with other Asia-Pacific countries and engage with Philippine developers for insights.
5. Ensuring an aligned transmission development plan is vital for the continued progress of the offshore wind industry in the Philippines. The approach taken in the last two auctions, which divided capacity among Luzon, Visayas, and Mindanao, has been well-received by the industry. This method considers not only the number of participating developers and their capacities but also the readiness of the grid to accommodate renewable projects based on entry years. Such an approach fosters proper and segmented competition, promoting growth in each major region of the country.
Moving forward, OFW-specific auctions should adopt a similar design by setting capacities based on specific OFW zones. This departure from previous auction rounds enables the DOE to collaborate with the National Grid Corporation of the Philippines (NGCP) in identifying potential substation connecting points capable of integrating OFW power plants. This collaboration signals the grid operator’s commitment to upgrading connecting points, bolstering confidence in commissioning timelines and costs for both regulators and developers. The government has been swift in addressing the constraints to fully develop the OFW Industry. With the President at the helm of this massive renewable energy commitment, the Philippines can continue to harness the opportunity that OFW presents – to provide a sustainable shift to carbon neutrality, to utilise an abundant and indigenous power source and with the right policies and auction design, present a lower cost of energy in the long run.
Access the complete report here
