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|Solar and wind project developers are racing to begin operations to capitalise on the appealing FiT Vietnam offers|
With his 40-year experience of planting grapes, Nguyen Van Moi, director of Ba Moi Services and Trading Production Private Enterprise, proudly said that his farm in the south-central province of Ninh Thuan is one of the first to have installed a solar rooftop and drip irrigation system as well as developed a closed chain from garden to table.
“The solar rooftop system helps our farm save energy. The province is seeking more investment for solar power, especially rooftop projects. We hope our project will inspire other investors, especially small and medium-sized enterprises,” Moi told VIR.
Solar rooftop systems are nothing new for farmers like him. Besides Ba Moi, hundreds of local co-operatives have been operating green farms in the central provinces which boast the highest potential of renewable energy.
In 2018, the prospects of the Vietnamese renewable power sector looked rosy as a series of projects – especially solar and wind projects – were registered and started construction to benefit from government incentives aimed to spur the development of one of the most promising sectors which remains largely untapped so far.
According to the latest report of state-owned Electricity of Vietnam (EVN) at the recent Vietnam Power Summit, 332 solar projects have submitted applications to be added to the country’s power master plan with the total capacity of 22,300 megawatts (MW), including 121 solar farms that have been approved with 6,000MW and commercial operation date (COD) before June 2019. Meanwhile, 4,000MW of wind projects have been approved.
“The developments in both wind and solar power show Vietnam’s efforts to meet the targets set in the Revised Power Development Master Plan VII to produce 10.7 per cent of the country’s electricity from renewable sources by 2030 as well as reflect the recent positive government policies on renewable energy,” said Tran Viet Anh, director of EVN’s Strategy Department.
The incentives that must be mentioned include Decision No.11/2017/QD-TTg of the prime minister dated April 11, 2017 on mechanisms for the encouragement of the development of solar power projects that set the feed-in-tariff (FiT) for solar projects at 9.35 US cent, Decision No.39/2018/QD-TTg to revise the mechanisms supporting the development of wind power projects to set the previous 7.8 US cents per kilowatt-hour (kWh) to 8.5 US cents for onshore wind power projects and 9.8 US cents for offshore projects, and Resolution No.115/NQ-CP extending the application of an FiT of 9.35 US cents for solar power projects in Ninh Thuan by one year, after the deadline to reach COD in order to enjoy the FiT had previously been set for June 30, 2019.
Andrew Affleck, renewable energy investment expert from Singapore’s Armstrong Asset Management Pte Ltd, said, “Vietnam is in the midst of a solar rush, and is now watching the wind rush start.”
The huge demand
Energy thirsty Vietnam, one of Asia’s fastest-growing economies and a production hub for global companies, needs to raise up to $150 billion by 2030 to develop its energy sector as it is facing a 10 per cent annual increase in energy demand. To meet the growing demand, Vietnam is required to boost its installed capacity to 61 gigawatts (GW), 97GW, and 127.7GW by 2020, 2025, and 2030, respectively, according to the revised Power Development Master Plan VII.
As for the renewable energy sector, the funding required would be around $23.7 billion by 2030. For energy efficiency, a further $1.5-3.6 billion would be sought during the same period, according to a report by the United Nations Development Programme.
At present, hydropower holds the largest share amongst all renewable energy sources, followed by solar and wind power. The government aims to increase the electricity output of renewables from approximately 58 billion kWh in 2015 to 101 billion kWh in 2020, and 186 billion kWh in 2030.
Southern Vietnam, the country’s largest economic hub which includes Ho Chi Minh City, faces a particularly critical situation with the current imbalance between supply and the increasing electricity demand. There is therefore an urgent need for the development of power generation infrastructure in the region.
Deputy Minister of Industry and Trade Tran Quoc Vuong at a recent energy forum stressed that Vietnam has and will continue paying due heeds to various solutions to achieve the country’s goals of energy security and sustainable development.
“First, Vietnam should attract private investment into the energy sector. The question is how can the private sector take a more integral part in power sector financing. Previously, only state-owned companies such as EVN, PetroVietnam, or Vinacomin could invest in the power sector,” Vuong said.
Antonio Castellano, partner at law firm McKinsey & Company and co-lead of electricity and natural gas practice in Southeast Asia, told VIR, “The future could be quite rosy, but I think at the moment it is lagging behind in the renewable energy market in Asia.”
He added that there is a growing demand for huge capacity, and thus the power sector will become a major area for attracting foreign direct investment in Vietnam.
McKinsey & Company’s review of available market data and interviews with industry experts suggests that, even without factoring in externalities, “renewable energy have become the cheapest form of new power generation in the country on a levelised cost of electricity (LCOE).”
This is partly due to Vietnam’s remarkable natural endowments of solar and wind power as well as the significant drop in capital costs. The company’s review showed that over the past five years, solar costs decreased by 75 and wind by 30 per cent, which have made the LCOE for new renewable energy cheaper than traditional thermal generation.
There is no silver bullet that will solve Vietnam’s energy challenges, according to Castellano. The ability to meet the rapidly-growing demand while keeping costs low will depend on the creation of financial and regulatory infrastructure that makes the market attractive to capable developers. Besides, planners should explore demand-side reduction and load-control measures, imports through interconnection with China and Laos, and opportunities to make natural gas a more important part of the energy mix.
“Building a cheaper, cleaner, and more secure energy future for Vietnam will not happen overnight,” said Castellano, pointing out the importance of government support. “Without exception, governments played a critical role in jump-starting the market, generally through legislation or a public commitment. In addition, governments often help to accelerate investment through strong incentives and a well-planned, transparent project approval process.”
Meanwhile, new financial sources, particularly from the private sector, will help Vietnam further develop its energy industry, according to a new World Bank report on maximising finance for Vietnam’s energy development.
Power investors said that mobilising loans with power-purchasing agreements (PPAs) for power projects depend on many factors, such as regulatory frameworks and the PPA itself, with the latter playing an important role in making projects bankable. The same has happened to renewable projects, despite the high FiT and investment incentives, only few projects have made it to the construction stage and began operations so far.