Vietnam’s Solar Power Market
Vietnam’s energy demand is predicted to increase by over 10 percent by 2020, while energy consumption is projected to increase four-fold by 2030 compared to 2014. To meet the growing demand which cannot be fulfilled by sources like coal and hydro, the government is promoting other renewable sources such as biomass, solar and wind to reduce the gap between demand and supply.
Solar power industry
The potential for solar energy in Vietnam is between 60 and 100 GWh per year for concentrated solar power, while for photovoltaic (PV) systems, it is around 0.8 to 1.2 GWH per year. With around 1,600 to 2,700 hours of sunlight per year and an average direct normal irradiance (DNI) of 4-5 kWh/m2, the country has huge potential for solar power. DNI is the amount of solar radiation received per unit area by a surface perpendicular (normal) to the rays.
Ninh Thuan province in south-central Vietnam has the highest potential for solar power generation. The region has already attracted over 140 projects. Other potential areas include Binh Thuan, Daklak, and Khanh Hoa which have attracted 100, 13, and 12 projects respectively.
Solar power accounts for only 0.01 percent of the total output, and the government aims to increase this to 3.3 percent and 20 percent by 2030 and 2050 respectively.
The government’s target by 2020 and 2025 is to install 850 MW and 4 GW respectively. By 2030, it aims to increase it to 12 GW.
The government has approved more than 70 new projects, with a total capacity of over 3,000 MW that needs to begin operations before June 2019. As of July 2018, projects with a total capacity of 12,622 MW were in the pre-investment phase, while 1,432 MW were in the development and feasibility phase. Around 1000 MW are under construction, while only 8 MW is in the operating stage.
As of July 2018, 748 solar roof-top projects are in operation with a total capacity of 11.55 MW peak. Major companies that installed roof-top systems include Intel, Avery Dennison, and Deutsche Bekleidungswerke. In addition, government buildings of the MoIT, National Assembly, and UN have also installed roof-top solar systems. According to government estimates, rooftop solar projects can reduce monthly power bills by over 50 percent.
Major investors in the solar power industry in Vietnam include German ASEAN Power, B.Grimm Power Public Co Ltd, Trina Solar, Siemens, Schletter Group, JA Solar, Sunseap International, Nippon Sheet Glass, Ecoprogetti, Tata Power, Shapoorji Pallonji Infrastructure Capital, Gulf Energy Development, InfraCo Asia Development, and ACWA Power.
Although there is no foreign ownership restriction in the industry, PPP projects in the form of BOT contracts are usually preferred due to government guarantees and incentives.
Investors are entitled to exemption from the land use fee for a period of 11 years and 15 years in case of rural areas. In addition, during the construction of the plant or building, investors are entitled to exemption from land and water surface rents.
Corporations can also avail a reduction in corporate income taxes (CIT). A CIT of 10 percent is applicable for renewable energy producers for the first 15 years. Under certain conditions, CIT exemptions are also provided for investors.
Import duties are also exempted in case imported goods are raw materials or are used in the manufacturing of components.
In 2017, the government issued Decree No.11/2017/QD-TTg on mechanisms for encouraging the development of solar power in the country. Guidelines on PPA for solar projects were set out in Circular 16/2017/TT-BCT. Together, these include guidelines on the approval process, power development plans, technical requirements, and tariff structures and covers both commercial as well as rooftop projects. In Vietnam, the Electricity of Vietnam (EVN) is the sole buyer of energy generated from solar power projects.
Feed-in-tariffs (FIT) for commercial and rooftop projects have a commercial operation date (COD) of June 2019. Investors have recommended the government to increase the COD beyond 2019 as it is a tight deadline that can deter long-term investments. Based on the feedback, the government extended the COD to 2020 through Resolution No. 115/NQ-CP, but only for the Ninh Thuan province. The government is planning to do the same for other provinces as well.
The government is also planning to introduce a direct power purchase agreement (DDPA) for renewable energy in 2019. DDPA is an agreement between a power generator and a corporate consumer, which will allow power generation companies to sell their electricity directly to corporations.
The FIT for utility solar power plants is VND2,086 (9.35 US cents/kWh) for a period of 20 years. For rooftop projects, the net-metering is 9.35 US cents/kWh. This rate will also apply for excess power generated from rooftop solar projects that begin their operations before the 2019 deadline and sell it to the EVN
The FIT will be applicable for projects beginning operations before 30 June 2019, except for ones in Ninh Thuan province, which have a 2020 deadline. Once the COD deadline expires, new FIT rates will be finalized, which may be lower than current rates.
The major challenges facing investors are government policies on solar prices and COD deadlines. Government policies need to be more consistent and COD deadlines need to be extended beyond 2019, as permitting processes and land acquisitions in Vietnam take time which can lead to project delays. Other challenges include lack of financing, technical expertise of the local developers, and grid infrastructure quality.
The government needs to increase transparency, provide financial support, reform administrative processes related to permits and land acquisitions, create consistent pricing policies, and develop the grid infrastructure to meet the growing energy demand.