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Friday, June 14, 2024

Heavy debt eats into wind energy companies’ profits

The Saigon Times

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HCMC – High financial leverage and negative cash flow are weighing on wind power firms, making their debt five- or six-fold higher than equity.

Trung Nam Dak Lak 1 Wind Power JSC, which owns the largest wind power plants in the country with a designed capacity of 400 MW, incurred a loss of VND860 billion in the first quarter this year, compared to the net profit of over VND1 billion in the year-ago period.

Ia Pet Dak Doa Wind Power Plant No. 1 JSC and Ia Pet Dak Doa Wind Power Plant No. 2 JSC in Dak Lak Province also saw losses topping hundreds of billions of Vietnamese dong. And these are just some cases in point.

Most loss-making wind farms obtained funds from the corporate bond market, with annual coupons ranging from 9-10.75% in the first few years and then turning to floating rates, according to the Hanoi Stock Exchange.

Trung Nam Dak Lak 1, for instance, now sees its debt four times higher than its equity, at over VND12.1 trillion. Outstanding corporate bonds contributed nearly VND9.9 trillion to the total.

As interest rates jumped sharply last year, financial expenses ate into the company’s profit. Last year, it had to pay around VND1,140 billion in bond coupons and principal, equivalent to 40% of its equity.

In addition, projects ineligible to enjoy the Feed-in Tariff mechanism faced greater challenges as the new price framework issued by the Ministry of Industry and Trade (MOIT) was 20%-30% lower than the previous one.

Recently, 23 solar and wind power project developers have proposed the Government remove regulatory bottlenecks to facilitate pricing talks with the Vietnam Electricity Group over the energy price framework of the MOIT.

Though construction has been completed, the projects could not be put into commercial operation due to low electricity purchasing prices, which may put them on the verge of bankruptcy if the situation persists, they said.

According to securities firm ACBS, renewable energy companies now have a yearly negative cash flow of VND1 trillion, excluding maintenance costs, taxes and inflationary factors.

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