Vietnam’s Renewable Energy Boom – part 2
The Solar Rush and the Feed-in Tariff era
Unprecedented growth in renewable energy, particularly solar photovoltaics, was seen in 2019. This section will provide the background on how such growth occurred, the key drivers and investment motivations, challenges after the influx of solar, and the next steps of the government.
Feed-in Tariff in Vietnam
Feed-in Tariff (FiT) is an incentive strategy employed by various countries that want to stimulate investment growth in emerging renewable energy technologies. It is usually the first policy implemented by developing countries to attract local and foreign energy investors before transitioning to a highly competitive auction scheme. It is not impossible, however, that with the maturation of RE technology and price decline of capital equipment, we can see some developing countries leapfrog to RE auction schemes. In fact, Vietnam’s neighbor Cambodia recently conducted its auction for solar PV and received a record-low bid of only 3.9 US c/kWh.
In 2016, Vietnam revised its National Power Development Master Plan (PDP7) for the period 2011 to 2020, with provision until 2030. The PDP7 mandates the prioritization of power generation from renewable energy, and energy security in general. For hydropower, the focus is given on research and development of pumped hydro storage, with a target hydropower capacity of 27,800MW in 2030, with 2,400MW for pumped hydro storage. Target wind capacity by 2030 is 6,000MW from 140MW pre-FiT. In the case of biomass, the planned implementation is through co-generation and power generation, however, the target capacity was not mentioned.
Lastly, for solar, the target for 2030 is 12,000MW of new capacity. With these massive additional capacity targets, PDP7 also included the power grid augmentation and upgrade projects to accommodate the growth in power generation. Table 2 below shows the duration of FiT contracts of various technologies and the associated electricity rates. Electricity Vietnam (EVN) will be the sole buyer of power generated from the FiT plants.
With it being the forefront of the RE boom, it should be mentioned that the 2020 target for solar is only 850MW and as of writing, this was already surpassed with more than 4,400MW installed capacity in the current year. These plants qualified for the first round of solar FiT. Related to this, in Figure 3 we can observe the massive influx of investment in 2018. This signifies the year when solar developers started most of the procurement and construction works to ensure they can finish the solar project on 30 June 2019 to qualify for the 9.35c/kWh first round of solar FiT.
Vietnam is also active in wind power development. However, due to the higher capital cost and longer development and construction periods, only a few wind power projects were erected as of date. It is expected that a considerable increase in wind power capacity will occur in 2020 until 2021 approaching the 01 November 2021 wind FiT deadline, but this may not be as high as the solar PV growth. Currently, there is more than 130MW aggregate capacity under construction, while around 150MW is in the advanced stage and will begin construction by 2020. The country also recognized the huge potential of offshore wind, with its long stretch of coast to the east, and offered a slightly higher off-shore wind FiT rate of 9.8c/kWh.
For the other renewable energy technologies with the existing FiT scheme, the development is mainly limited due to a relatively low FiT rate against high capital investment. Small hydropower, biomass, and waste to energy require higher investments and potentially longer development periods. For small hydro, there might be the risk of seasonal flow variation, while the other two technologies have significant consideration on the availability and logistics revolving the fuel source (feed-stock and wastes).
Currently, top investors and developers in Vietnam for renewable energy are mostly the developers of FiT-qualified solar plants. The list includes Vietnamese companies Trung Nam Group, Xuan Cau Holdings, Thanh Thanh Cong Group, Vietnam Electricity Group. Major Thai developers, B.Grimm Power and Super Energy Corp, and Philippines’ Ayala Corp are also active in the Vietnamese renewable energy scene. Most of the RE investments and Independent Power Producers’ interests, at the moment, are focused on wind and solar development as presented in Figure 3.
Key Drivers of Renewable Energy Growth
Feed-in Tariff indeed played a major role for the growth in renewable energy, specifically solar power, within the last year. This, coupled with the start of the transition of Vietnam to a pro-market economy, paved the way for local and foreign investors to enter the energy sector. The projects in Vietnam also reflects the relatively decreasing price of capital equipment and overall project costs. Cheaper local labor, and proximity to China where most solar panels and other balance of plant equipment comes from, also ensured competitive pricing of large-scale PV projects. Table 3 below shows some of the completed, FiT-qualified solar projects in Vietnam and their corresponding project cost.
The capital cost of the completed projects mentioned above are well within the range of the 2018 benchmark price for fixed-axis utility-scale solar. With the continuous decrease in PV panel price and balance of plant, this projection can already be on the conservative side starting 2019.
- Six years of working for a renewable energy developer in the Philippines
- Received a Master’s degree in Energy Systems from the University of Melbourne, 2018
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