Vietnam's renewable energy companies report loss

Many renewable energy companies in Vietnam have reported a loss in 2022 due to changes in electricity purchasing policies and the prolonged impact of the Covid-19 pandemic.

As of April 5, 23 companies operating in the field of renewable energy had announced their financial figures for 2022 on the Hanoi Stock Exchange (HNX). Of these, 13 companies reported a loss, in particular Nam Phuong Energy Investment JSC that lost VND372.4 billion ($15.88 million), while in the same period last year it made a profit of VND1.6 billion ($68,200).

Switching from profit in 2021 to loss in 2022, IA Pet Dak Doa Wind Power Plant 1 JSC posted a loss of VND209.5 billion ($8.93 million); IA Pet Dak Doa Wind Power Plant 2 JSC VND201 billion; Phuoc Huu-Duyen Hai Wind Power Company Limited 1 VND60.3 billion ($2.57 million); Cho Long Wind Power JSC VND35.6 billion; and Yang Trung Wind Powe JSC VND91 billion.

Working in this field, Ninh Thuan Energy Industry JSC lost more than VND106 billion ($4.52 million) in 2022, while in the same period the previous year, it made a loss of VND22.76 billion ($970,600).

Hoang Son Joint-Stock Investment Power Construction Trade Company 2 recorded a loss of VND80 billion ($3.41 million) in 2021 and VND66.5 billion ($2.84 million) in 2022, while BB Power Holdings JSC reported a loss of VND153 billion ($6.52 million) in 2022 and VND79 billion (43.37 million) in 2021.

The above instances were driven by the challenges facing the renewable energy industry last year like wind power investors not turning on electricity in time after the feed-in-tariff (FiT) regulation expired, changes in electricity purchasing policy and the lingering impact of the Covid-19 pandemic.

In addition, renewable energy projects often have large capital requirements but high risks due to capacity and output being dependent on weather and climate, prolonging the payback period. Meanwhile, financial institutions and commercial banks are not willing to lend or lend at high interest rates.

Moreover, instability in the corporate bond market in the past time has forced businesses to buy back bonds ahead of time while projects have no cash flow, thereby putting many renewable energy businesses at risk of a cash flow crisis.

Changes in policy are also a reason for investors to be discouraged. At the beginning of 2023, based on calculations from state utility Vietnam Electricity (EVN), the Ministry of Industry and Trade issued the electricity price bracket for transitional solar or wind power plants in Decision No. 21/QD-BCT after a long time being stagnant.

However, this price bracket is 21-29% lower than the FiT price mechanism, while not all projects record effective profitability.

Transitional wind and solar projects are those that missed the government's deadlines to obtain its favorable pricing policy, better known as FiTs.

ACBS Securities believes that the new price level for transitional renewable energy falling too deeply will lead to negative cash flow and profits.

ACBS noted that as interest rates remain high and the USD/VND exchange rate has not shown any signs of cooling down in the long term, unstable financial models would discourage private capital to flow into renewable energy projects in the future. This would significantly affect the target of emission reduction toward net carbon zero by 2050 as committed by the government at COP26 and 27.

Leading broker VNDirect argues that the new price bracket provides the first rescue signals for energy developers, as projects have been stalled for a long time after expiration of the FiT incentive. "However, with this price bracket, not every project will record effective profitability."

"Given Vietnam's strong commitments at COP26 as well as significant adjustments in the draft power development plan VIII with the proportion of renewable energy power capacity increasing, we still expect an enough attractive pricing policy, luring qualified investors to participate in this field," VNDirect added.

VNDirect believes that businesses with the ability to improve development and operating costs, as well as the ability to mobilize cheap capital would have the advantage in this period.