Vietnam’s Renewable Energy Boom – part 3
Challenges, Lessons, and the Path to Sustaining the RE Development in Vietnam
Current challenges of the RE sector
Despite lucrative FiT rates offered in RE technologies, concerns regarding grid access and capacity, and complex permitting procedures pose hurdles to independent energy developers. Vietnam does not have a cap in foreign ownership for renewable energy projects; however, with certain challenges in permitting and other pre-development processes, foreign investors mitigate the investment risk and facilitate the implementation by partnering with a Vietnamese corporation.
On the topic of grid access and capacity, the surge in solar power projects are generally concentrated in provinces with high irradiance, which are the south-central provinces of Ninh Thuan and Binh Tuan. 38 projects were commissioned in these two provinces, with a total capacity of 2,027MW. The drastic increase in solar capacity leads to the overloading of several transmission lines and substations in these provinces, while EVN and its distribution system segment, Southern Power Corp, are still in the process of expediting the grid upgrades. To temporarily address this issue, curtailment is being done for up to 64% of the generation. If this curtailment persists, developers may not realize the investments as per their expectations and high irradiation summer months will present major difficulty either to the grid or to the investors. This is because investors are paid only on energy delivered and not on the installed capacity. The government stated that they did not expect the overloading, which meant that they do not anticipate such massive and rapid growth in solar generation.
Aside from the tedious permitting process and grid capacity constraints, another challenge, especially facing wind power development, is the perceived low bankability of the projects. International financing institutions expressed concern on the credit rating of EVN, the sole off-taker of generation. Furthermore, EVN retains a termination clause in the PPA which greatly transfers the risk to the developer. Wind is capital intensive, and it will be evident if such concerns will slow down the uptake of the projects in the coming two years.
Lessons from Solar FiT: What could have been done differently?
The challenges being faced by Vietnam’s RE sector can provide an opportunity for policy improvement for future RE development. One of the key takeaways is the implementation of the capacity limit per region. Vietnam solar FiT operated with a date as the deadline, but there is no limit to the capacity that must be reached before the government says “we have enough”. This led to stellar growth in the solar segment that was unexpected, and beyond the capacity of the existing transmission system. Setting a capacity allocation per region will ensure that investments are spread out, and the design of the system considers both the region’s demand and future growth expectations, and transmission capacity.
Currently, the government is expediting the upgrade in the transmission system to reduce the risk of curtailment. However, this may not be the ultimate solution as it is costly, but not optimal. Solar only generates and peaks at daytime; hence, the transmission system will be sized to address the peak, which only happens for 2-3 hours on a high irradiance day. This means that most of the day, the transmission system will not be optimized. EVN might find merit on doing battery deployments in conjunction with transmission upgrade. The battery will take in the extra generation for solar, store it, and then dispatch it during the night-time peak. In this case, the battery will serve as a way to defer or lessen the transmission investment and do load shifting to help deliver solar power when it is more needed.
More on FiT and the Way Forward
Currently, FiT for other renewable energy sources are in place and the question regarding the ability of the country to fill the target capacity per technology still remains. On the other hand, for solar PV, the final decision on the direction of the second round of FiT is still pending. The latest update was released in September when the Ministry of Industry and Trade (MOIT) issued its proposal for the next phase of solar deployment in Vietnam. Contrary to the previous draft that offers different FiT solar rates per region or zone, the current draft provides a similar FiT rate regardless of location but only considers the type of technology. Table 4 below shows the summary of the suggested FiT rate of each solar technology.
Furthermore, the recent draft removes the incentive associated with a solar-plus-battery system. This, together with the fact that the region-based FiT rate is not considered, may continue to pose an issue with the transmission grid and the congestion on the south-central provinces. There will be less motivation for investors to go to northern Vietnam where there is less irradiance, especially if the rate will be the same. There will also be no concrete financial incentive in integrating battery storage to solar PV, even though this scheme will help alleviate current grid issues. As this remains a draft, the government may still reconsider and follow on a policy that continuously promotes solar PV, but also in consideration with the current operational concerns.
The FiT era may continue for the next two to five years, depending on the results of development for wind and other technologies. Auction scheme for renewable energy is also being considered as a mechanism to sustain the investments in renewable energy. While the FiT is in place and auction scheme is being evaluated, the government is also starting to craft its wholesale electricity market (VWEM). After VWEM, the end phase is a highly liberalized power market with the introduction of the electricity retail market where end-users the choice for their electricity supply. In general, the path that Vietnam is taking in the power sector is in line with its economic approach to a pro-market, pro-competition scheme for the facilitation of private investments.
With its transition to a pro-market system, Vietnam is poised for further growth both on its economy and its energy usage. The country made a solid leap and exemplified the feasibility of massive rapid solar uptake. Through incentive mechanisms such as FiT, renewable energy technologies are given an edge over conventional fossil fuel plants. However, due to the unprecedented growth of solar and its concentration in specific areas, grid issues have emerged. These can be solved by technology and by a commitment from the government to expedite the upgrades.
Further policy must be crafted in a way that it continues to promote renewable energy uptake but with strong consideration to power systems capacity, and concerns of investors and financial institutions regarding the risks of the projects deeming them unbankable. Nonetheless, Vietnam demonstrated that strong policy support can facilitate a change in the energy sector. With its relatively young power market, Vietnam can find several examples and crucial lessons from neighboring countries amidst the market transition and the challenges on sustaining RE capacity growth, especially after the FiT period.
- 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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