Vietnam needs new FiT to boost biomass investment, say experts


Despite an existing feed-in tariff (FiT) for deepening biomass energy investment in Vietnam, some experts advise that a new scheme must be paired with other legal incentives to ensure a more significant share in the country’s energy mix.

The Vietnamese government has applied FiT for biomass electricity between 7.03 and 8.47 US cents per kWh since 2020, depending on where the energy is generated. 

Matthias Eichelbronner, specialist of the Sustainable Bioenergy Markets (BEM) initiative via the German Development Agency, commented: “That is too low of a price and not enough to encourage the development of biomass electricity.”

He mentioned that many Southeastern countries, such as Thailand and Malaysia, have very good FiT rates for biomass energy. In Germany, the average purchase price of biomass energy is 19 US cents per kWh, even reaching up to 21 cents per kWh. Currently, Germany has a total biomass power capacity of 50 GW.

“Low electricity prices are the reason that many factories buy cheap Chinese technology,” Eichelbronner said, noting that this technology would not be durable enough and would render the costs of producing biomass electricity higher in the end.

“The initial investment capital of each biomass power plant depends not only on capacity but also on technology,” Eichelbronner added.

However, Dr. Luong Quang Huy from the Department of Meteorology, Hydrology, and Climate Change under the Ministry of Natural Resources and Environment said that technology is not the primary issue, as more businesses conduct research and application of technology autonomously.

Huy believes that finance is the first difficulty when businesses invest in a biomass power project, with the development policy coming next. Existing policies are unattractive, with high associated costs compared to wind and solar power. Moreover, biomass power production still lacks sustainable raw material areas, Huy commented.

BEM’s senior specialist Le Thi Thoa pointed out that biomass power projects haven't been making progress since 2014, when the FiT rate for biomass electricity firstly launched.

“As of May 2020, Vietnam had 10 bio-energy plants with an installed capacity of 377.6 MW, but only 202 MW was connected to the grid, accounting for 0.57% of the total electricity capacity,” she explained

Thoa added that the ability of finance institutions to evaluate biomass energy projects and the lack of access to a suitable financial mechanism are two factors affecting the development of biomass power.

“For example, the biomass power project in the central province of Quang Binh has been developed since 2014, but with a capacity of only 7MW, it is too small to access bank loans. Moreover, transaction and management costs are also very large, leading to higher interest rates for biomass power projects than for solar and wind power,” Thoa explained.

Many investors are worried that banks will stop lending money if the FiT remains unappealing.

Nguyen Thuy Ha, deputy head of the Foreign Capital Department at Vietnam Development Bank (VDB) said, “The biggest concerns of investors are borrowing capital in Vietnam and the question of where to develop biomass electricity.”

Currently, Lam Son 2 Sugar Factory is receiving more than $6 million of loans from VDB, with capital provided by the Japan International Cooperation Agency (JICA). The bank also provided more than $4.55 million to the 25-MW Tuyen Quang Sugar Cane Biomass Power Plant.

Eichelbronner of BEM added, “Vietnam needs about $1 billion to invest in biomass power plants, convert new technologies for sugar mills, and develop biomass power in the wood and paper industries.”

Analysts said that Vietnam needs to solve the existing problems to move on reaching the target under the upcoming Power Development Plan VIII as well as the Vietnam Renewable Energy Development Strategy.

According to the strategy, the total biomass energy consumption will reach about 32.2 million tonnes of oil equivalent in 2030 and 62.5 million TOE in 2050, balancing the proportion of renewable energy sources in the power network of the country.

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