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Wind power companies suffers losses as bond interest rates soar

Many companies in the wind power industry are suffering losses after raising capital by issuing bonds whose interest rates have surged.

Failing to qualify for the feed-in-tariff (FIT), a policy to support renewable energy production by providing a guaranteed, above-market price, has been a double whammy for some.

To be eligible for the FIT, power plants had to begin commercial operations by December 31, 2020.

Some of the losses have been big, leaving companies in debts of five or six times their equity.

According to the Hanoi Stock Exchange most of the losing projects are in the south-central region comprising the Central Highlands and the coast, which saw a wind power boom a few years ago.

Trung Nam Dak Lak 1 Wind Power JSC, operator of the Ea Nam wind power plant, the largest in the country at 400 MW, in Dak Lak Province reported a loss of VND860 billion ($36.7 million) last year after making a marginal profit in 2021.

For many other companies too the losses run into billions of dong.

A common theme among them is that they all issued bonds worth large sums at high interest rates (9-10.75% a year) in the beginning and then floating rates.

Trung Nam Dak Lak 1, the biggest loss maker, now has debts of VND12.1 trillion, four times its equity, including VND9.9 trillion from bonds. It redeemed VND1.14 trillion worth of bonds last year.

After the floating interest rates soared last year, companies had to shell out hundreds of billions of dong extra.

Analysts warned about this right in the beginning, saying even those projects that qualified for the FIT have electricity prices fixed for 20 years while bonds have floating interest rates, which could cause losses by spiking.

A wind power plant in Ninh Thuan. Photo by VnExpress/Quynh Tran

A wind power plant in Ninh Thuan. Photo by VnExpress/Quynh Tran

The risk is even higher for projects not eligible for the FIT after failing to begin commercial operations by 2020.

The new price for renewable electricity is 20-30% lower than before.

There are 84 renewable energy projects with a total capacity of 4,676 MW that are behind schedule.

Of them, 28 wind and six solar power projects with 2,091 MW capacity are in the testing stage.

Recently 23 investors in wind and solar power projects that are not yet operational have voiced concern about the cut in prices to the government.

ACB Securities estimated that the 34 projects in the testing stage would incur interest and principal expenses of VND10 trillion and an annual negative cash flow of VND1 trillion, excluding other costs such as repairs and maintenance, price slippages, taxes, and inflation.

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