In June 2020, Sharp Energy Solutions Corporation (SESJ) completed a mega solar power plant in Ninh Thuan province, which is expected to generate 76,373 megawatt hour (MWh) per year. The plant is the newest addition to SESJ’s five other existing solar power plants in Vietnam.
Sharp is only one of the many companies that cashed in on Vietnam’s hunger for renewable power by investing in large-scale solar power projects. As the country bounces back from the pandemic-induced downturn, its energy demand is expected to rise by over 10 percent per year by the end of 2020 and by 8 percent per year in the next decade.
For years, Vietnam like many other developing countries relied on coal as the cheapest and easiest option to meet energy needs. However, technological progress and growing environmental concerns have made renewable energies more attractive. In 2017, solar energy played almost no part in Vietnam’s energy strategy. By the end of 2019, Vietnam surpassed Malaysia and Thailand to reach the largest installed capacity of solar panels in Southeast Asia. The country found itself with 5 gigawatts (GW) of photovoltaic projects, far exceeding the 1 GW by 2020 target.
The following article takes a look at Vietnam’s recent solar boom and the future trajectory of solar energy development in the country.
New FiT approved in the midst of uncertainty
Much of Vietnam’s recent success with solar energy can be attributed to feed-in-tariffs (FiT). FiTs encourage investment in renewable energy by guaranteeing an above-market price for producers. Since they usually involve long-term contracts, FITs help mitigate the risks inherent in renewable energy production.
In April 2020, the Vietnamese government finalized the new solar FiTs, ten months after the previous FiT program expired in June 2019. The new tariffs are 10-24 percent lower than before and are still uniform across regions but differentiated by type (ground-mounted, floating, and rooftop).
Under the new decision, solar projects are required to achieve commercial operation by December 31, 2020, to benefit from the new FiT rates. The delay in the government’s approval gives solar developers a very narrow time frame to work with.
With the current supply chain disruptions affecting solar cells and module delivery from China, and other pandemic-induced economic uncertainties, it will be very challenging for firms to become operational before the deadline. Thus, advisory firms like FitchSolutions expect that the new FiT scheme will not be the main driver of investments in solar energy in Vietnam.
Looking forward, Vietnam still intends to implement an auction mechanism in the future. All projects who do not qualify for the new FIT rates will go through a competitive bidding process. By giving the government the ability to issue a call for tenders and select the most price-competitive firms, the scheme will help better manage clean energy development across the country.
However, a transition away from a FiT scheme may take longer than expected given that undeveloped large-scale photovoltaic projects were just approved to receive tariffs. Attracting investment will largely depend on the government’s ability to deliver a clear auction scheme and other incentives on time.
Long-term commitment to boost solar energy
The revised FiT came shortly after the Vietnamese government announced that it intends to double its power generation capacity over the next decade. This will increase the proportion of renewable energy to 20 percent in an attempt to reduce reliance on coal for electricity production.
In late 2019, the Prime Minister approved the outline of the national Power Development Plan (PDP) VIII, expected to be completed before the end of the year. The PDP VIII covers the period of 2021 to 2030 with a vision to 2045 and sets out renewable energy development and investment attraction as two of the key priorities.
In addition to developing the PDP VIII, the MOIT also submitted Proposal No.544/TTr-BCT on January 21, 2020, which outlines a pilot program on direct power purchase agreement (DPPA) mechanisms.
The DDPA program would allow energy producers to sell and deliver electricity to corporate consumers instead of going through a state-owned electric utility company. The proposal sets a two-year timeframe for implementing the pilot program and lays out the criteria for participating developers and private power consumers. It is expected to range between 400-1000 megawatts (MW) and will be available nationwide.
Despite some criticism of the DPPA’s limited scope, the proposal is a positive development for the growth of renewables in Vietnam. It signals that Vietnam is a serious solar player that is willing to implement supportive mechanisms to retain investor interest in the renewable energy sector.
This article is produced by Vietnam Briefing, a premium source of information for investors looking to set up and conduct business in Vietnam. The site is a publishing arm of Dezan Shira & Associates, a leading foreign investment consultancy in Asia with over 27 years of experience assisting businesses with market entry, site selection, legal, tax, accounting, HR and payroll services throughout the region