Evaluation and risk analysis of KE GA ofshore wind power project

 
With the advantage of tropical weather and a long coastal line, there is great potential for renewable energy in Viet Nam, especially offshore wind power. However, the exploration of this source of energy is still limited.

To develop a market for renewable energy, the Vietnamese Government encourages organizations and individuals of different ownership to participate in the market in Viet Nam.

A group of foreign investors in renewable energy including the UK and Singapore- based Enterprize and other international joint venturers intend to co-develop the KE GA BINH THUAN wind power project. For this project to be feasible, the VEA suggests that investors and authorities undertake some important tasks, including the evaluation and risk analysis of the KE GA BINH THUAN Wind power project.

Evaluation of the KE GA BINH THUAN wind power project

The evaluation of a project must be considered in both qualitative and quantitative terms. Before a decision is made, we need to consider and appraise the entire project in technical, financial, socio-economic and environmental aspects.

Technical and economic evaluation

Technical and economic evaluation is the first criteria. We need to go for the best technical options in an economic sense. Technical analysis is the premise for an investment project’s economic and finance analysis. Without these analyses, we will be unable to conduct economic and finance analysis.

The economic-technical analysis of KE GA project must include:

- The total capacity, capacity of each unit, selection of turbine and tower.

- Connection diagram from sources and from buyer EVN, connection plan and control system

- The map and location for planting the wind turbines, the wind farm plan and technical specifications
= Choose the best technical option for KE GA project

EVALUATION

Economic-financial Evaluation

Economic financial Analysis is to appraise the financial feasibility of a project to investor based on the project’s cash flow, including revenue flow and spending flow during the entire project. Based on these calculations, the following elements are worked out:

- NPV – Net Present Value

- IRR – Internal Rate of Return

- B/C – Benifit / cost Ratio

- T- Discounted pay Time

- LCOE-Levelized Cost of Electricity

Analysis must include: 

 - Total investment capital, investors’ capital and stakeholders’, loan (duration and interest rate) 

- Phases of the projects: Number of turbines, capacity, investment capital

- Operation and Maintenance Cost (OM) during the entire project life

- Identify revenue flow, including revenue from selling to EVN and CER.

- Based on the revenue and spending flow, calculate indicators for profitability like NPV, B/C, IRR, T.LCOE. From there, work out the financial evaluation of KE GA project to investor.

Socio - Economic –– environmental evaluation

The objective of socio-economic analysis is to evaluate the benefit to the national economy through fundamental indicators: the value added to the national economy, contribution to state budget, local economic development, contribution to lifting people’s living standards and workers’ income.

Socio-economic-environmental evaluation of KE GA project include:

- The yearly clean electricity supply for the country and the province

- Contribution to the state budget ( mainly through tax and other revenue).

- Number of jobs generated.

- Impact on sectoral development, local development, contribution to lifting people’s living standard.

- Environmental impact including sea environment, noise pollution, effects on birds and fish and resolutions.

Risk and risk management for KE GA BINH THUAN Project

The harvesting of wind power depends heavily on the nature, namely wind speed and windy period. Wind power is generated only when the wind speed reach the threshold for the wind turbines to turn. Therefore, to reduce risk, investors must choose a location with high and stable wind resources.

Identify the risks

KE GA wind power project is located on the coast line. It is the largest scale and most modern wind power project in Viet Nam invested by a group of international companies. The total installed capacity is proposed at 3,400MW, to be delivered through multiple phases of up to 600 MW per phase. Turbine capacities will be a minimum of 9.5MW each. The turbines will be installed in waters between 30 and 45 meters deep in the sea and 20-45 km away from the shore.

The risks associated with the project include:

1. Investment capital: For wind power project, equipment cost the most (70-80% of total investment) . KE GA wind power project is constructed on the coast, therefore, the installation of turbines’ foundation will be affected by the tides, flooding might occur which leads to lengthened construction and increased cost.

2. Financial discount coefficient: for major wind power projects, loan accounts for a large proportion in the investment capital, interest rate might increase the financial discount coefficient.

3. Annual Generation: electricity output depends on the windy period of the year and the wind speed. Meanwhile the average operational wind speed might be higher or lower than the average wind speed measured in the feasibility study. The uncertainty of yearly wind speed pose a risk to the plant’s output. On the other hand, there are times that demand is lower than supply, hence, the farm must reduce its outputs, resulting in revenue drop.

4. Selling Price: The new regulation on the wind power price can be found in the Prime Minister’s decision No 39/2018/ QĐ-TTg dated 10 September 2018, accordingly:

- Onshore wind power project:: 1,928đ/kWh equivalent to 8.5 UScent/kWh

- Offshore wind power project: 2,223đ/kWh equivalent to 9.8 UScent/kWh

- This price is applied for a part of or all of the wind power plant connected to the national grid with commercial operation date before 1 November 2021 and will be applied for 20 years since the commercial operation date.

- This new regulation on wind power price is a great privilege to wind power project, especially the offshore one like KE GA. However, the project must connect to the national grid and operate commercially before 1 November 2021. This is a challenge to KE GA to meet this schedule.

CERs selling price

This will affect KE GA project’s revenue. However, recently, CER price drops drastically due to adversity in the world market.

The uncertain nature of the five elements mentioned above can result in KE GA project’s unstable revenue, low profitability and little socio-economic benefits. Therefore, investors as well as the Government must take into account all these risks as they analyze and appraise the project in order to work out solutions to prevent and mitigate the risk.

Conclusion

KE GA BINH THUAN is an offshore wind power project with great potential. If successfully implemented, the project will provide clean energy for Viet Nam’s electricity system, help ensure energy security and protect the environment of Viet Nam in the future.

At the moment, negotiation on the project is taking place along with the project appraisal. These are some opinions to contribute to the evaluation and risk management of the project with a view to improving the quality and feasibility of the project.

Associate Professor.Dr. Nguyen Minh Due

Chairman of the Scientific Council - Viet Nam Energy Association (VEA)