- Green Growth
- Your Consultant
|The Vietnamese government is currently reviewing an FiT rate of 7.8 cents per kWh for wind power Photo: Le Toan|
Mergers and acquisitions (M&A) in renewable energy are on an upward trajectory, as much of it is driven by traditional energy businesses scrambling to acquire new capabilities and institutional investors looking for stable and predictable returns. In addition, the landscape is diversifying, with new players like wind and solar power companies throwing their hats in the ring.
Last week, Thailand’s B. Grimm Power Plc. announced its completion of a $35.2 million acquisition of a solar photovoltaic (PV) power project in Vietnam, as part of an expansion of its portfolio of overseas renewable power projects.
B. Grimm, through subsidiary B. Grimm Renewable Power 2 Ltd., acquired an 80-per-cent stake in Phu Yen TTP JSC, which invested and developed a 257 megawatt (MW) PV project in the south-central province of Phu Yen.
The remaining part of the project will be developed by locally invested Truong Thanh Vietnam Group JSC (TTVN). At the same time, TTVN Group completed the sale of an 80-per-cent stake in another project, the Binh Nguyen solar power project, in the central province of Quang Ngai to Sermsamg International Co., Ltd. for $17.6 million.
In June, B. Grimm teamed up with locally-owned Xuan Cau Group to develop the largest solar power plant in Southeast Asia in the province, with a combined capacity of 420MW.
B. Grimm’s plan is to raise the proportion of energy generated by renewable power plants in its portfolio from 12 to 30 per cent. The company aims to have 53 projects with a capacity of 2,938MW by 2022 and is seeking another 2,000MW in additional projects. The new projects are going to be located in South Korea, Laos, Vietnam, and Thailand.
In a related move, Thai power producer Gulf Energy Development Plc. is planning a 48MW solar farm in the southern province of Tay Ninh, in co-operation with Thanh Thanh Cong Group (TTC Group). Gulf Energy’s Board of Management has authorised the company to enter into a shareholder agreement with the partner for the purpose of investing in the project, the company said in a statement. TTC Group is expected to hold a 51-per-cent stake in the project.
The parties are also expected to co-operate on other energy projects in Vietnam, including projects using other fuel sources like wind, natural gas, coal, waste, hydropower, and thermal energy. They will sign a memorandum of understanding to cement the partnership, the statement said.
Previously, the International Finance Corporation (IFC) and Armstrong South East Asia Clean Energy Fund from Singapore decided to acquire 16 and 20-per-cent stakes, respectively, in Gia Lai Electricity JSC (GEC). These are the first steps taken by these institutions in Vietnam’s renewable energy sector, though they have invested in many power projects around the world before. IFC invested $1.75 billion in 75 hydropower projects in 25 countries over the last 10 years. Armstrong has 50 recycling energy projects throughout the world. The main target of the fund is Southeast Asia, with projects with investment scales larger than Vietnam’s GEC.
International players like IFC and Armstrong co-operating with Vietnam create high hopes for Vietnam’s power sector, especially when it is coming to clean energy. The predecessor of GEC was Gia Lai Hydropower Company, which was equitised in 2010, and GEC has implemented several M&A deals to acquire companies in the same field since 2013. IFC and Armstrong also plan to hunt for opportunities in future solar power projects in Vietnam.
As an experienced lawyer with a portfolio of many energy and infrastructure projects, Duong Anh from law firm VILAF stressed the key factors in structuring a successful energy development deal. In greenfield investments, foreign investors usually have clear insights into current policy through their legal consultants and are willing to take the risks.
He added that in brownfield investments, it is very important to choose the right business partner and consultants to provide legal and technical support, to overcome challenges including obtaining financial support, land clearance, and power purchase agreement (PPA) negotiations with state-run Electricity of Vietnam. Given the tight timeline to achieve commercial operation by June 2019 in order to enjoy the feed-in-tariff (FiT) of 9.35 cents per kilowatt-hour (kWh), it is even more difficult for all the parties to be involved in the transaction.
Dang Chi Lieu, partner at Baker McKenzie (Vietnam) said that the appropriate investment method or structure should be determined on a project-by-project basis. Generally speaking, foreign investors can invest in renewable projects in Vietnam by way of greenfield or brownfield/M&A investments.
“While there have been certain large-scale projects proposed by foreign investors, in many cases foreign investors choose to start with a smaller-scale project (50MW or less) first to test the market and to gain momentum for further investments,” Lieu said.
According to Stoxplus, a leading financial and business information corporation in Vietnam, renewable energy is expected to be a busy field for M&A in the near future. Under its estimation, total required investment in renewable energy until 2025 is $5.1-6.7 billion, which means potential opportunities for global and regional investment funds and energy-specialised funds to tap into.
In September 2017, the Ministry of Industry and Trade issued Circular No.16/2017/TT-BCT on the detailed mechanism for encouraging the development of solar power projects in Vietnam, which included a template PPA and a FiT rate of 9.35 UScents per kWh. As for wind power, the Vietnamese government is currently reviewing an FiT rate of 7.8 UScents per kWh to further incentivise the development of wind power projects and push forward the country’s wind energy target of 800MW by 2020.