ELECTRICITY OF VIETNAM INSTITUTE OF ENERGY Draft Report PRE-FEASIBILITY STUDY OF WIND POWER SUPPLY TO LY SON ISLAND DISTRICT, QUANG NGAI PROVINCE Hanoi, September 2003 I Project summary The PFS Report of Wind Power Supply to Ly Son Island District has contents as follows: - Identifying project size and construction site - Proposing main technical solutions for meeting future electricity demand in compliance with natural conditions, socio-economic development orientation of Ly Son Island district in particular and the whole Quang Ngai province in general - Estimating construction work volume and investment requirement - Determining economic and financial effectiveness of the project The organizations involved in the project are power company No.3, Institute of Energy and Power Utility of Quang Ngai province After calculation and analysis, the project has following results: - The project will be put into operation in 2005 and terminates in 2030 - Reduced CO2 emission over the life span of the project is 97097.2 tons of CO2 - Economic and financial indicators are good if electricity selling price is 10.53 UScent/ kWh and CO2 emission reduction are taken into account, and they are as follows: - FIRR = 7.7 % FNPV = mil.US$ 0.05 EIRR = 0% ENPV = mil.US$ B/C =1.02 B/C = The project will contribute in economic development, job creation, increasing living standards for the people, ensuring reaching socio-economic indicators set out by the Island district such as GDP growth rate of 8% by 2005 and 10% by 2010 II Location map of the project Ly Son Island district is located in northwest of Quang Ngai province with latitude coordinates from 15o32' to 15o58', longitude coordinates from 109 o5' to 109o14' east It lays on the way to Eastern Sea through Central region via Dung Quat, 25 miles from the Dung Quat industrial zone in the west and 18 miles from Sa Ky port of Son Tinh district in the south- west III General introduction 3.1 Electricity demand forecast for Ly Son Island district for 2005, 2010 3.1.1 Legal backgrounds for calculation of electricity demand in 2005, 2010 for Ly Son island district - "Plan of rehabilitation and development of power network of Quang Ngai province for the period 2000-2005 with consideration to 2010" prepared by Institute of Energy and approved by Ministry of Industry - "2001-2005-2010 socio-economic development plan for Ly Son island district" prepared by Quang Ngai Department of Planning and Investment and approved by People Committee of Quang Ngai province - 2001-2005 Socio-Economic Development Plan for Ly Son Island District prepared by people committee of Ly Son district - Resolutions of Third Party Congress Of Ly Son District Party Unit for the period 2001-2005 - Existing electricity demand of sectors and forecast electricity demand for 2005, 2010 for Ly Son Island District - Current status of power network and electricity supply - consumption in 1999, 2001 of Ly Son island district provided by People Committee of Ly Son district 3.1.2 Method of Electricity demand forecast According to Degree No 389/1999/QD-TCTK dated on June th, 1999 of General Directorate of Statistics, electricity demand is calculated with sectors as follows: - Industry- construction - Agriculture- Forestry- Aquatic - Service – commerce - Residential lighting and management - Others: include electricity supplied to schools, hospitals, public lighting and other activities not included in four above groups Electricity demand of Lyson Island is calculated based on direct forecast method According to this method, electricity demands are calculated for sectors based on electricity consumption norms and production scale of each user - Industry- construction loads: are calculated based on existing load statistic data and expected enlarging scale in the forecast period New users’ demands are based on capacity and production scale or electricity consumption norm per product - Agriculture - forestry – aquatic loads : mainly used for services for breeding and aquatic activities and for irrigation pump machines - Commerce – service loads: are calculated based on the capacity of consumption equipment in service and development rate in this sector - Residential lighting and management loads are calculated based on Document 7647/EVN/DNT-MN dated on Dec, 29th, 1998 of Electricity of Vietnam Residential consumption norm is 275 kWh per household in 2005 and 470 kWh per household in 2010 For administration agencies, electricity demand in coming years are based on existing electricity consumption considering annual development rate as well as electrical equipment modernization level 3.1.3 Electricity Demand For Ly Son Island District In The Periods Up To 2005, 2010 Table 3.1 : Power Demand Up To 2005, 2010 Unit : kW No Sector 2000 2005 2010 Industry - construction 23 380 Agriculture - forestry - fishery 60 60 Services - commerce 35 60 Lighting and management 268 973 1972 Other demand 15 82 140 Pmax 273 900 1780 Table 3.2: Electricity Demand up to 2005, 2010 2005 No Sector Annual growth rate (%) 2010 A (103 kWh) % A (103 kWh) % 20002005 20062010 Industry - construction 405 23.8 760 22 13.4 Agriculture - forestry fishery 60 3.5 60 1.7 Services - commerce 35 2.1 72 15 Lighting and management 1080 63.4 2366 68 33.3 17 Other demand 123 7.2 210 6.1 52.0 11.3 Total sales 1703 100 3468 100 44.4 15.3 Loss + owned use 277 14 428 11 Electricity production 1980 41.5 14.5 3896 Therefore, average electricity consumption per capita for Ly Son district is 78 kWh in 2005 and 149.5 kWh in 2010 Due to the low start point , although electricity consumption growth rate in coming years is rather high (44.3% in the period 2001-2005 and 15.3% in the period 2006-2010), but electricity consumption per capita is still low 3.2 Introduction of Ly Son Wind Power Project This is a project using wind turbines to produce electricity for Ly Son island district Participating agencies : - Power Company No 3, the Investor and Owner of the project - Institute of Energy, Consultant - Power Company No and Institute of Energy will look for foreign investment - Power Utility of Quang Ngai province under Power Company No is responsible for operation, management of the project and power network on the island after project has been completed and put into operation IV Rationale 4.1 Current status of wind energy application for electricity generation Wind power generator-turbine was studied and applied in Vietnam since early 80 th years under the framework of one national research program on application of new and renewable energies The organizations involved in this program were : Institute of Energy, Ministry of Transport, Engineering Institute of Ministry of Defense, Renewable energy Research Centers of Hanoi and Ho Chi Minh City Universities Most of these organizations carried out research, experiment of wind turbines with capacity from 150 W to kW However, the wind turbines with capacity above kW were failed As of the end of 1999, about 1000 family-sized wind turbines were installed and used in the coastal areas from Da Nang towards the south In 1999, one wind turbine with capacity of 30 MW sponsored by Japan has been installed in Hai Thinh commune, Hai Hau district, Nam Dinh province This wind turbine has the largest capacity in Vietnam so far, however, unfortunately, it almost doesn't work The reason may be due to too low wind tower (only 12 m) and it was shadowed by trees and topography around The second large wind turbine (2 kW) was installed in the end of 2000 in Dac Ha district, Kon Tum province, sponsored by To Ho kV company (Japan) So far this turbine is well operating - Wind power project in Khanh Hoa : Total installed capacity is 20 MW to be invested by VENTIS - FRG under scheme of BOT The procedures at Vietnamese side were completed, however, so far the project is not yet implemented - Wind power project in Quy Nhon : total installed capacity is of 30 MW, to be invested by the Clean Energy Joint stock Company under the scheme of BOT At present the feasibility study of this project has been completed - Wind power project in Ninh Phuoc district, Ninh Thuan province: Capacity of 625 kW This is a pilot project based on the cooperation with Indian Government The India will sponsor 55% and Electricity of Vietnam will bear remainder 45% The FS report of the project has been completed - Wind power project in Bach Long Vi Youth Island district : Capacity of 800 kW This project is invested by the Government of Vietnam At present, the project is at stage of equipment procurement bidding 4.2 Difficulties and problems pertaining to wind power projects - Technical aspects : For Vietnam, hybrid system of wind - diesel power generation is very new, requiring high technology needed to be imported Therefore, installation works must be carefully discussed between Vietnam machine installation company and equipment supplier and the supplier must be responsible for instructions on operation and maintenance later - Regarding transport : The equipment is heavy and large, the island is far from main land, therefore, transportation of equipment will meet many difficulties It needs to enhance some ports and roads from ports to the project site - Regarding investment : it needs to have policy to support investment and policy on subsidy for electricity prices on the island 4.3 The objectives of sustainable development The Island district will mobilize all resources for promotion of sea economic development, integrating expansion of fishery services, tourist services, commerce, stabilization of economic development in order to ensure high economic growth rate, eradication of hungry households and alleviation of poor households, changing rural aspects and maintaining national defense security Particular objectives : - GDP growth rate in 2001-2005 is - 8% / year, in 2006-2010 is 10% / year - Average income capita per year will be 403 US$ in 2005; 540 US$ in 2010 - Natural population growth rate : 1.6% in 2005 and 1.4% in 2010 - Annual increase of ship quantity is 10 - By the beginning of 2005 there will be a clean water system for living and production - By 2005, there will be no hungry households and 70% of poor houses will be reduced Table 4.1 : Targets of Sustainable Growth Rates of Ly Son Island District No Indicator Unit 1996-2000 20012005 2006-2010 1.6 1.4 I Growth rate Population %/year GDP %/year 7.6 7-8 10 GDP Industry Craft %/year 15.8 24.0 14 GDP Agriculture %/year 10.3 8.4 GDP Sea economy %/year 8.6 11.1 11 No Indicator Unit 1996-2000 20012005 2006-2010 %/year 7.4 8.4 2000 2005 2010 997 997 997 people 19500 21110 22630 mil.VND 121601 200714 294900 US$ 192 403 540 Structure % 100 100 100 Industry, crafts % 2.2 4.0 5.0 Agriculture % 12.8 11.6 8.6 Sea economy % 57.9 60.0 63.0 Services, commerce % 27.1 24.4 23.4 GDP service, commerce II Indicator Natural land area Population GDP Average in come III 4.4 Policies of Vietnam Government on Wind Energy Development of renewable energy must be based on the objectives of economy, society, environment and living standards in each ecological area The Government can provide financial assistance for renewable energy projects based on average income of rural and mountainous households 100% tax exemption for import of renewable energy equipment and technologies Efforts should be focused on study and application of renewable energy technologies in areas which are impossibly connected to national power grid due to difficult topographical conditions or too expensive investment Wind energy should be used in island and mountainous areas where are impossibly connected to the national power grid and encouraging use of self-made small wind turbines and developing grid connected large wind generator turbines 4.5 Benefits of The Project - Electricity cost is reduced in comparison with case of using only diesel power generator - Saving fossil fuels, contributing in ecological environment protection - Contributing in improvement of sprit and material life of people living on the island V Geographical Location And Natural Conditions of Ly Son Island District 5.1 Geographical Location and Topographical Features Ly Son district is an island district which was separated from Binh Son district in 1993 Ly Son island district has also name of Cu Lao Re existing from end of XVI century and Name of Ly Son began from 1998 This is one of 13 districts, towns of Quang Ngai province Location : Ly Son Island district is located in northwest of Quang Ngai province with latitude coordinates from 15o32' to 15o58', longitude coordinates from 109o5' to 109o14' east It lays on the way to Eastern Sea through Central region via Dung Quat, 25 miles from the Dung Quat industrial zone in the west and 18 miles from Sa Ky port of Son Tinh district in the south- west Area : Ly Son island district has natural land area of 997 including two islands (big and small) namely Ly Vinh and Ly Hai communes Population : total population of the district as of June 2001 was 19500 people living in 3995households, of which 700 people are belonged to military forces Topography : In general, the topography is even with elevation from 20 to 30m over the sea surface (there are no big rivers or streams on the island There is only small stream which flows in rainy season) Most lands have slope less than o, suitable for agricultural production and residential settlement Climate : The climate is tropical with monsoon wind The rainy season lasts from September to February with rainfall accounting for 75% of whole year rainfall Dry season is from March to August subject to south - east wind Average annual temperature is 26.4 oC Average annual rainfall is 2000 mm Natural resources : The land is surrounded by sea, therefore the district has favorable conditions for raising aquatic products Total reserve of seafood of Quang Ngai sea is about 80000 tons of which exploitable potential is of 33000 tons/year Ly Son island district alone can exploit 6500 tons/year b) Based on data of system of meteorological stations uniformed in terms of observation medium, observation time calculation methods and self-registering devices, Meteorological Institute carried out calculation of average annual and monthly wind speeds for the whole network of meteorological stations and average hourly wind speeds for those station which have self - recording devices According to data measured in Ly Son hydro-meteorological station over 13 year period from 1985 to 1997 at height of 12 m above ground surface, monthly and yearly average wind speeds are as follows : Table 5.1 : Monthly and yearly average wind speeds Month 10 11 12 Whole year Vave (m/s) 4.84 4.61 4.23 3.13 2.74 2.64 2.8 3.55 5.39 6.54 6.33 4.32 The data in the above table indicate main wind directions in months The north east wind direction accounts for 40  45%, from September to February Southeast wind direction accounts for 52  68% from March to August The northwest wind direction is also important, accounting for 19  27%, from October to April Therefore, when selecting site, the attention should be paid so that after installation, wind turbines can catch wind from all above three directions Other than in mainland, on island day, wind is steadier, however, it is weakest at time after sunset Based on data of monthly and yearly average wind speed at height of 12m measured at meteorological station, we can calculate monthly and yearly average wind speed at height of 50m by using the following formula: V1/Vo = (H1/Ho)n Where: V1/Vo = (H1/Ho)n V1 : wind speed at height of H1 (height at which wind turbine is located) Vo: wind speed at height of Ho (Ho = 12 m at meteorological station) N: exponent ( =0.2  0.4) depends on topographical conditions of wind turbine site (on Ly Son Island, if site is selected in the field with obstacles lower than 2m, n can be higher than 0.3) Energy features must be considered as follows: If Vi is wind speed measured at even time intervals (hourly or every 30, 20, 10 minutes…) in time duration t, the average wind speed in t duration is: Vat=nVi/n (m/s) with i=1,2,3 ….n Energy produced by wind in t time: 10 a) Average interest rate of 6% and equity participation with expected interest rate of 10%, it is anticipated to have capital resources of project as follows: Sources of Fund Weighted Loan Interest rate 70% Among which ADB Loan 25% 6.5% Other preferential foreign loan 35% 5% Domestic loan 10% 8% 30% 10% Equity participation From the above sources of fund and interest rates , WACC is equal to 7.2% This study analyze with some of electricity selling prices, 4.9 UScent/ kWh is the price with out subsidy of Government, 10.5 UScent/ kWh is the price with 53% subsidy and 11 UScent/ kWh is the price with 56% subsidy Analysis results are as follows: Indicators Electricity selling price With CO2 emission taken into account 4.9 cent/kWh FIRR 10.5 cent/kWh 11 cent/kWh 7.7% 9.3% Without CO2 emission taken into account 4.9 cent/kWh 10.5 cent/kWh 11 cent/kWh 6.3% 7.8% NPV(mil.US$) -4.57 0.05 0.21 -5.46 -0.09 0.07 B/C 0.27 1.02 1.06 0.22 0.97 1.02 b) Average interest rate of 7% and equity participation with expected interest rate of 10%, it is anticipated to have capital resources of project as follows: Sources of Fund Weighted Loan Interest rate 70% Among which ADB Loan 25% 31 6.5% Other preferential foreign loan 35% 7% Domestic loan 10% 8% 30% 10% Equity participation From the above sources of fund and interest rates , WACC is equal to 8% Analysis results are as follows: Indicators With CO2 emission taken into account Without CO2 emission taken into account Electricity selling price 10.5 cent/kWh 11 cent/kWh 10.5 cent/kWh 11 cent/kWh FIRR 6.9% 8.5% 5.5% 7.1% NPV(mil.US$) -0.09 0.06 -0.22 -0.08 B/C 0.97 1.02 0.93 0.98 Project is feasible when FIRR is higher than WACC Project of supplying electricity for Lyson Island District using hybrid of wind turbines and diesel generators is financially feasible with electricity selling price from 10.5 UScent/ kWh to 11 kWh depending on the value of WACC and CO2 emission reduction taken into account In case of without CO2 emission reduction taken into account, benefit of the project will decrease and in order to ensure the feasibility of the project, electricity price will be increase higher The above results indicate that wind power project supply electricity for Ly Son island district is feasible with GHG emission reduced credit taken into account and above electricity price levels If GHG emission reduced not taken into account, benefits of the project will be lower and not ensure the feasibility, therefore, electricity price will be higher Existing electricity price to end users is 4.93 UScent/ kWh, with this price, the project is not feasible In order to ensure the feasibility of the project, it is very necessary to get subsidy from the Government 32 Table 9.3 Revenue with electricity price of 10.53 UScent/ kWh, WACC of 7.2% Unit: US$ Fiscal Year I Electricity effect Sales (GWH) 2.Electricity selling price without VAT(USD/kWh) 3.Net Revenue(excluded VAT ) Other Benefits (GHG emission reduction) II Costs Total direct cost 1.1 O&O cost 1.2 Fuel cost 1.3 Depreciation Interest payment Total cost Income before tax Income tax Income after tax Total 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 2030 2033 1.70 1.70 1.70 1.70 3.47 3.47 3.47 3.47 3.47 3.47 3.47 3.47 3.47 3.47 3.47 3.47 3.47 3.47 90.09 0.11 0.18 0.11 0.18 0.11 0.18 0.11 0.18 0.11 0.37 0.11 0.37 0.11 0.37 0.11 0.37 0.11 0.37 0.11 0.37 0.11 0.37 0.11 0.37 0.11 0.37 0.11 0.37 0.11 0.37 0.11 0.37 0.11 0.37 0.11 0.37 9.48 0.01 0.01 0.01 0.01 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.55 0.09 0.04 0.12 0.04 0.13 0.05 0.19 0.06 0.22 0.06 0.22 0.06 0.22 0.06 0.22 0.06 0.22 0.06 0.22 0.06 0.22 0.06 0.22 0.06 0.22 0.06 0.22 0.06 0.22 0.06 0.22 0.06 0.22 0.06 0.16 0.06 0.03 0.03 0.03 0.03 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.06 0.06 0.10 0.11 0.10 0.10 0.23 0.23 0.29 -0.04 -0.04 -0.10 0.00 0.00 0.00 -0.04 -0.04 -0.10 0.10 0.09 0.31 0.08 0.03 0.05 0.10 0.09 0.30 0.08 0.03 0.06 0.10 0.08 0.30 0.09 0.03 0.06 0.10 0.07 0.29 0.10 0.03 0.06 0.10 0.07 0.28 0.10 0.03 0.07 0.10 0.06 0.28 0.11 0.03 0.07 0.10 0.05 0.27 0.12 0.04 0.08 0.10 0.05 0.26 0.12 0.04 0.08 0.10 0.04 0.25 0.13 0.04 0.09 0.10 0.03 0.25 0.14 0.04 0.10 0.10 0.02 0.24 0.15 0.05 0.10 0.10 0.00 0.22 0.17 0.05 0.11 0.10 0.00 0.22 0.17 0.05 0.11 0.04 0.00 0.16 0.23 0.07 0.16 5.61 1.70 1.38 2.52 0.96 6.57 3.47 1.17 2.30 0.02 0.09 0.10 0.03 0.07 Table 9.4 Capital resources balance with electricity price of 10.53 UScent/ kWh, WACC of 7.2% Unit : US$ Fiscal Year Total 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 2030 2033 Balance from last year 0.00 0.00 0.00 0.09 0.04 0.00 0.00 0.06 0.13 0.19 0.24 0.30 0.35 0.40 0.45 0.50 0.54 1.16 2.24 Equity capital 0.15 0.29 0.09 0.02 0.13 0.21 0.15 0.16 0.16 0.17 0.17 0.17 0.18 0.18 0.19 0.20 0.20 0.22 0.22 2.86 24.34 0.20 5.58 2.1 Income after tax 0.00 0.00 0.07 -0.04 -0.04 -0.10 0.05 0.06 0.06 0.06 0.07 0.07 0.08 0.08 0.09 0.10 0.10 0.11 0.11 0.16 2.30 2.2 Depreciation 0.00 0.00 0.02 0.06 0.06 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.04 2.52 2.3 Capital stock 0.15 0.29 0.00 0.00 0.11 0.21 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.76 Total loan 0.36 0.67 0.00 0.00 0.29 0.56 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.88 Total capital 0.52 0.96 0.09 0.11 0.45 0.77 0.15 0.22 0.29 0.35 0.41 0.47 0.53 0.59 0.64 0.70 0.75 1.37 2.45 3.06 31.80 Annual investment 0.52 0.96 0.00 0.00 0.37 0.68 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Annual interest payment Blance Total capital used 0.00 0.00 0.00 0.08 0.08 0.09 0.09 0.10 0.10 0.11 0.11 0.12 0.13 0.14 0.14 0.15 0.16 0.00 0.00 0.00 0.00 0.09 0.04 0.00 0.00 0.06 0.13 0.19 0.24 0.30 0.35 0.40 0.45 0.50 0.54 0.58 1.37 2.45 0.52 0.96 0.09 0.11 0.45 0.77 0.15 0.22 0.29 0.35 0.41 0.47 0.53 0.59 0.64 0.70 0.75 1.37 2.45 I Capital resources II Capital uses 34 2.52 0.00 1.88 3.06 27.39 3.06 31.80 Table 9.5 Financial Analysis from the point of view of EVN- investor with electricity price of 10.53 UScent/ kWh, WACC of 7.2% Unit : US$ Fiscal Year 2004 2005 Net Income (excluded VAT) Environmental Benefit 0.00 0.00 Total benefit 0.15 0.29 Investment 0.00 0.00 O&M cost 0.00 0.00 Fuel cost Interest payment 0.00 0.00 0.00 0.00 Loan payment 0.00 0.00 Income tax 0.15 0.29 10 Total cost -0.15 -0.29 Net Income FIRR = 7.7% NPV = B/C = 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 2030 2033 Total 9.48 0.18 0.18 0.18 0.18 0.37 0.37 0.37 0.37 0.37 0.37 0.37 0.37 0.37 0.37 0.37 0.37 0.37 0.37 0.01 0.19 0.00 0.04 0.03 0.00 0.00 0.03 0.10 0.09 0.01 0.19 0.00 0.04 0.03 0.11 0.08 0.00 0.25 -0.06 0.01 0.19 0.11 0.05 0.03 0.10 0.08 0.00 0.37 -0.18 0.01 0.19 0.21 0.06 0.03 0.10 0.09 0.00 0.48 -0.29 0.02 0.39 0.00 0.06 0.05 0.09 0.09 0.03 0.32 0.06 0.02 0.39 0.00 0.06 0.05 0.09 0.10 0.03 0.32 0.06 0.02 0.39 0.00 0.06 0.05 0.08 0.10 0.03 0.33 0.06 0.02 0.39 0.00 0.06 0.05 0.07 0.11 0.03 0.33 0.06 0.02 0.39 0.00 0.06 0.05 0.07 0.11 0.03 0.33 0.06 0.02 0.39 0.00 0.06 0.05 0.06 0.12 0.03 0.33 0.05 0.02 0.39 0.00 0.06 0.05 0.05 0.13 0.04 0.33 0.05 0.02 0.39 0.00 0.06 0.05 0.05 0.14 0.04 0.34 0.05 0.02 0.39 0.00 0.06 0.05 0.04 0.14 0.04 0.34 0.05 0.02 0.39 0.00 0.06 0.05 0.03 0.15 0.04 0.34 0.04 0.02 0.39 0.00 0.06 0.05 0.02 0.16 0.05 0.35 0.04 0.02 0.39 0.00 0.06 0.05 0.00 0.00 0.05 0.17 0.22 0.02 0.39 0.00 0.06 0.05 0.00 0.00 0.05 0.17 0.22 0.02 0.55 0.39 10.03 0.00 0.76 0.06 1.70 0.05 1.38 0.00 0.96 0.00 1.88 0.07 1.17 0.19 7.85 0.20 2.19 0.05 1.016 35 X Economic Analysis 10.1 Content Economic analysis is poverty and social analysis of the project with aims to evaluate project's effectiveness for the whole country 10.2 Reduction of hunger and poverty The project will bring in social benefits such as creating jobs for society, contributing in development of other sectors, making economic growth Inhabitants living on Ly Son have favorable conditions to develop agriculture and fishing, therefore, the project will promote handicrafts, agriculture, fishing, services The project also increases life quality for people, raising political awareness and contributing in construction and defending the country Therefore, investment costs which are put into economic analysis are deducted by labor costs and taxes 10.3 Impacts on society and environment The wind potential of Ly Son Island is relatively good, therefore, using wind energy for generating electricity is realistic and necessary because wind is renewable energy resource infinite, clean, not making environmental pollution Using wind energy will save fossil fuels such as anthracite, oil and gas which become exhausted - Impact on land use : This impact is very small because each wind turbine occupies only 10 - 15 m2 Total construction area is about 300 m2 - Relating immigration and resettlement : Area of wind turbines on Ly Son Island is far from residential areas This is cultivate land therefore there is no resettlement necessary 10.4 Economic Analysis of the Project Economic Analysis is aimed to evaluate feasibility of the project to national economy, to calculate and compare economic indicators for selecting solution and the best way of implementation Economic analysis is to analyze social efficiency of the project to national economy Economic indicators bring social benefits such as creating new jobs, making the development of other economic sectors, contributing to development of country Therefore, it is necessary to consider social- economic benefits when defining economic electricity selling price and reduce labor cost and taxes in initial investment cost Economic analysis also considers costs of damages by project impacts to other sectors, to environment and to national economy Contents in economic analysis include cash flow table and economic indicators with each of technology and construction plans In case of this project, economic analysis also compares to benefits of other power resources In case of no wind turbine generators, there are diesel generators with equivalent capacity to replace This power resource has high fuel cost in total annual O&M cost During its lifetime, a great amount of fuel is consumed, so fuel cost reduces economic and social benefits of project Therefore, when estimating economic benefit of this project, besides defining economic efficiency of project itself, it is necessary to compare two benefit of two cases: with or without wind turbine generators If using diesel generators, net present value of economic cost and income flows have to be defined between two cases Expenditure flow : + Investment costs in Economic analysis : This is investment costs without labor costs and taxes (benefits for society, brought jobs for society) This eliminated potion is estimated of about 10% of total investment cost of the project - Operation and maintenance cost (O&M cost) and other costs as in financial analysis Income flow : + Turnover from electricity sales + Other benefits gained from the project : reduction of negative impacts on economy, environmental protection… Output of economic analysis is a statement of economic cash flow and economic indicators got from technology and construction option set out for selection of best alternative Economic effectiveness is determined through following economic indicators : - EIRR - ENPV 37 - B/C - Discount rate of 10% This study will analyze with two electricity selling prices as in financial analysis and a price equal to avoided cost when using diesel generator if there is no project Cost price of diesel generator in Lyson district is rather high, about 13.2 UScent/ kWh Economic analysis results are presented in the table below With CO2 emission reduction Without CO2 emission taken into account Indicators reduction taken into account 10,5 11 13,2 cent/kWh cent/kWh EIRR 10% 11% 13.7% 9% 10% 12.9% NPV 0.14 0.57 -0.14 0.44 1.06 1.23 0.94 1.18 cent/kWh 10,5 11 13,2 cent/kWh cent/kWh cent/kWh (mil US$) B/C Economic indicators of the project are rather high if electricity selling price equal to avoided cost Economic analysis results with CO2 emission reduction taken into account, compare differential benefits between this project and replaced diesel generators case are as follows: EIRR = 34% ENPV = mil US$ The project is economically feasible with electricity selling price at least of 10.53 UScent/kWh and CO2 emission reduction taken into account If compared with replaced diesel generator case, economic benefit of the project will be rather high * Conclusions on financial and economic analyses Ly Son island district is one district offshore with economic difficulties Electricity is an important motive force for socio-economic development and improvement of living quality 38 Project of wind power, backup diesel generators and power network supplying electricity to Ly Son island district is feasible, when taking electricity price of at least 10.53 UScent/kWh and with CO2 emission reduction taken into account Hence, the project financial effects will be higher with preferential conditions of borrowing loan from ADB and other preferential loans Therefore, in order to facilitate favorable conditions for economic development of Ly Son island district and encouraging people to use electricity, it is recommended that the State should have policy on financial assistance for the project such as preferential loans and subsidy for residential electricity prices on the island 39 Table 10.1 Economic Analysis – electricity selling price of 10.53 UScent/ kWh Unit: US$ Fiscal Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 Net revenue (excluded VAT)0.00 Other Benefit (environment) Capital Investment 0.46 O& M cost 0.00 Fuel cost 0.00 Net Income -0.46 EIRR = NPV = B/C = 10% 0.0 1.00 0.00 0.86 0.00 0.00 -0.86 0.18 0.01 0.00 0.04 0.03 0.13 0.18 0.18 0.18 0.01 0.01 0.01 0.00 0.33 0.62 0.04 0.05 0.06 0.03 0.03 0.03 0.13 -0.22 -0.52 0.37 0.02 0.00 0.06 0.05 0.27 0.37 0.02 0.00 0.06 0.05 0.27 0.37 0.02 0.00 0.06 0.05 0.27 2013 2014 2015 2016 2017 2018 2019 2020 2025 2030 2033 Total 0.37 0.02 0.00 0.06 0.05 0.27 0.37 0.02 0.00 0.06 0.05 0.27 0.37 0.02 0.00 0.06 0.05 0.27 0.37 0.02 0.00 0.06 0.05 0.27 0.37 0.02 0.00 0.06 0.05 0.27 0.37 0.02 0.00 0.06 0.05 0.27 0.37 0.02 0.00 0.06 0.05 0.27 0.37 0.02 0.00 0.06 0.05 0.27 0.37 0.02 0.00 0.06 0.05 0.27 0.37 0.02 0.00 0.06 0.05 0.27 0.37 0.02 0.00 0.06 0.05 0.27 9.48 0.55 2.27 1.70 1.38 11 The main factors affecting the project 11.1 Regarding policies, laws There are some laws and policies of Vietnam as basic factors impacting feasibility of the project as follows: The Government of Vietnam has signed the Frame Convention on Climate Change (FCCC) on 11 June 1992 and FCCC was approved by the National Assembly on 18 November 1994 The Kyoto Protocol was also signed on November 1998 and approved in August 2002 Vietnam committed to implement the contents of Protocol including promotion and development of renewable energies… to reduce green house gas emission The law on environmental protection in Vietnam has been promulgated and effective from 1993 The law is aimed to sustainable development integrating economic development with environmental protection at national and international levels The measures will focus on the following issues: - Determine long-term objectives of energy environment in compliance with regional environmental standards - Establish financial regulation for energy environment and ensure adequate calculation of all costs of all factors pertaining to environmental protection - Implement reasonable technical measures to reduce emission in exploitation, transport, processing and use of energy Draft national energy policies have been prepared and now are awaiting consideration and approval of the Government Its related contents as specified as follows: - Exemption of 100 % for import of RE technologies and equipment - Efforts should be focused on study and application of renewable energy technologies in areas, which are impossibly connected, to national power grid due to difficult topographical conditions or too expensive investment - Wind energy should be used in island and mountainous areas where are impossibly connected to the national power grid and encouraging use of selfmade small wind turbines and developing grid connected large wind generator turbines The above policies of Vietnam Government will positively effect the implementation of the project of wind power on Ly Son Island Apart from the above there are also other positive factors such as political stability, policies preferential and assisting for the remote areas in Vietnam and wind power technology in the world becomes more perfected and cheaper 11.2 Regarding the project risk: Apart from positive factors, there are also negative factors impacting the project such as: If Kyoto Protocol is not effective: At present some concrete articles in the Protocol are not yet approved So far, the US, the country with largest amount of green house gas emission, accounting for 36.1 % of total GHG emission in 1990, still didn't sign the Kyoto Protocol Therefore, as long as Kyoto Protocol has not been passed, CDM is still difficult to implement and this factor also negatively impacts the project 42 CONTENT I Project summary II Location map of the project .2 III General introduction 3.1 Electricity demand forecast for Ly Son Island district for 2005, 2010 3.2 Introduction of Ly Son Wind Power Project IV Rationale .5 4.1 Current status of wind energy application for electricity generation .6 4.2 Difficulties and problems pertaining to wind power projects 4.3 The objectives of sustainable development .7 4.4 Policies of Vietnam Government on Wind Energy 4.5 Benefits of The Project V Geographical Location And Natural Conditions of Ly Son Island District 5.1 Geographical Location and Topographical Features .9 5.2 Necessity Of Project Construction 16 5.3 Objective, Scope of Study and Outputs to be Gained from The Project 17 5.4 Reduction of Hunger and Poverty 17 5.5 Technology Transfer 17 VI Project Implementation Plan 19 VII Contribution To Sustainable Development 20 7.1 Benefits brought in for economy, society and Environment 20 7.2 Other Effects of The Project 20 VIII Calculation Of Amount Of Reduced Green House Gas Emission Due To Replacement Of Old Diesel Power Generators With Wind Power Units .21 IX Project Financial Analysis .22 9.1 Calculation of Total Investment Cost 22 9.2 Select form of investment 28 9.3 Financial analysis 29 43 X Economic Analysis 37 10.1 Content 37 10.2 Reduction of hunger and poverty 37 10.3 Impacts on society and environment 37 10.4 Economic Analysis of the Project 37 11 The main factors affecting the project 42 11.1 Regarding policies, laws 42 11.2 Regarding the project risk: 43 44 LIST OF TABLE Table 3.1 : Power Demand Up To 2005, 2010 Table 3.2: Electricity Demand up to 2005, 2010 Table 4.1 : Targets of Sustainable Growth Rates of Ly Son Island District Table 5.1 : Monthly and yearly average wind speeds 10 Table 5.2 K coefficients of some meteorological stations 11 Table 5.3 Occurrence frequency of wind class at LySon meteorological station 12 Table 5.4 : Wind energy potential of LySon island district: 13 Table 5.6 Electricity production of three and six wind turbine generators Fuhslaender 250 kW in 2005 and 2010 respectively .14 Table5.7 Electricity demand generated by diesel power generator on big island 15 Table 8.1 Calculation of GHG emission reduced by using wind turbines replaced for diesel generators 22 Table 9.1 Aggregate Table Of Investment Costs For Wind Power Project For Ly Son Island District .24 Table 9.2 Cost Estimates For Installation Of Wind Towers And Wind Turbines 27 Table 9.3 Revenue with electricity price of 10.53 UScent/ kWh, WACC of 7.2% 34 Table 9.4 Capital resources balance with electricity price of 10.53 UScent/ kWh, WACC of 7.2% 35 Table 9.5 Financial Analysis from the point of view of EVN- investor with electricity price of 10.53 UScent/ kWh, WACC of 7.2% .36 Table 10.1 Economic Analysis – electricity selling price of 10.53 UScent/ kWh 41 45 ... wind turbine and back-up diesel power generator: wind turbine can start at wind speed of m/s (wind of second class) When wind speed increases, electricity generated also increases Wind turbine... and bringing economic effectiveness in Vietnam - Determining suitable unit capacity of wind turbine - Accessing to new technologies for using wind energy for electricity generation - Using abundant... for laborers, increasing income for people, eliminating hunger and alleviating poverty, contributing in stable economic sustainable development, improving rural areas, strengthening defense security