On the 21st of September 2017, Solarplaza organized its second webinar on the Vietnamese PV market: “PV for distributed generation: a winning case?”. It served as preparation for the 5-day Solar PV Trade Mission to the Southeast Asian country, taking place from the 27th of November to the 1st of December, 2017. Rik Teeuwen, project manager at Solarplaza, was joined by Rainer Brohm, an Independent Renewable Energy Consultant. The webinar provided an in-depth look at the opportunities PV holds for embedded generation schemes in Vietnam and how real business cases work out. Both also discussed the finalized PPA that was just released. The entire video recording of the webinar and the speakers’ slides can be freely accessed here.
Rainer Brohm, an independent consultant with over 15 years of experience in the environmental and renewable energy sector and 3 years of experience in Vietnam, finds the development of solar PV in the Vietnamese market very promising, especially with the massive buzz surrounding it lately. This was intensified even more so with the recent release of Circular no.16, which will be the official template for the country’s PPA, which will come into effect from October 16th, 2017 until June 30th, 2019.
The energy situation in Vietnam is constantly growing in a way that has caused the government to change the way it usually does business. Different factors contributed to a growing need for change: the government not able to keep up with the amount of new capacity additions in the power sector; the electricity demand increasing annually over 10%; recent experienced droughts; and new coal power plants underperforming on their capacity factors.
It has proven to be a challenge for the government in Vietnam to keep up with the pace of these developments, especially because the government has relied on a traditional way of doing things. For energy it entailed building new coal plants to counter the increase in demand.
However the country is currently discovering renewable energy and opening up for the opportunities they offer. To truly fulfill its potential the country has to develop new capacities, knowledge and raise awareness. These developments have to happen not only in the country’s national government, but also in provincial governments, administration bodies and market stakeholders.
Requirements of the PPA
On the 12 of September 2017, Circular No.16 was issued by the Ministry of Industry and Trade (“MOIT”), in order to implement the previously released Prime Minister’s Decision No. 11 on solar power projects in Vietnam. Circular No.16 will enter into force on the 16th of October of this year.
The Circular diversifies between utility scale projects, residential rooftop and C&I projects. It also sets the stage and the processes for getting a PPA and the actual rules of engagement under that PPA. Key points of the circular include a feed-in tariff of 9.35 USct/kWh for ground-mounted PV systems that will be adjusted regularly to the changing VND-USD exchange rates, the sale of solar energy via a standard PPA with a duration of 20 years, a net metering scheme for rooftop PV systems, a minimum requirement of 16% of cell efficiency and 15% on module efficiency, as well as tax and land lease exemptions for projects and investors. Remarkably, Vietnam Electricity (“EVN”), the state-owned electricity company, will be the one and only electricity buyer and will have to purchase the entire solar power generated from the PV system.
Other important details include the responsibility on the power seller’s side for the transmission line up to the connection point. And the PPA reiterated the deadline for COD on the 30th of June, 2019. Overall, the PPA does not leave many possibilities for big changes or amendments. For a more in-depth description of the PPA, the addendum to our Vietnam White Paper, Guidelines on Project Development and PPA Model for Solar Projects, goes more into detail on the specific requirements for utility-scale and rooftop projects.
For future energy market reforms, Rainer states that there is still a potential option to move towards a wholesale power market that is accessible for renewables. He also states that work is underway on a scheme for direct PPAs and that the utility EVN might deploy renewable energy portfolio standards for its daughter companies. These reforms could result in a increased push for more solar projects in Vietnam.
Snapshot of the Energy and Solar PV Market in Vietnam
To cope with the growing demand, Vietnam’s power development plan has been revised in order to facilitate a capacity of 850 MW of solar energy by 2020 and in 2030 they expect an installed capacity of 12 GW. Rainer noted that these plans look quite ambitious for a pioneer market and for a government that does not have much experience with renewable energy in general.
The biggest challenge Vietnam faces is to grow its current installed power capacity of around 40 GW to 130 GW by 2030. Looking at the energy mix in 2030 shows that Vietnam will still be heavily dependant on coal for over 40% of their energy production. This has caused major problems for the government of Vietnam, not only because its domestic market cannot produce enough coal, meaning that it would need greater quantities of imported coal, but also because of international pressures since Vietnam is part of the Paris agreement and is one of the most vulnerable countries for the effects of climate change. As a result immense pressure is put on Vietnam which caused a dilemma for the government. They need to ramp up energy production, while at the same time lowering their GHG emissions.
With a variety of interests and stakes involved, the approach of the government towards renewables and solar has been one of slow progress. The influence of the state-owned energy company, EVN, also has a big effect on the government’s perspective on energy, because the utility cannot fail or be harmed by governmental decisions. The role of EVN should not be underestimated when it comes to its social economic and political position, since it runs for example a subsidized energy program for war veterans.
Vietnam has one of the lowest electricity tariffs in the whole Asian region. Rainer claims that this cannot be maintained mainly because of the increase in coal imports. Most likely prices will go up, however it is very difficult to predict how fast it will increase and in what ways due to the political nature of the tariffs.
The current solar PV capacity in Vietnam is around 10 MW, a precise figure cannot be given because installations are not officially registered. Traditionally, there have been a lot of small applications for off-grid systems that proved very useful in remote areas, for example on some islands and in mountainous areas. Now, Vietnam is seeing much more public demand for grid-connected residential rooftop systems and commercial/industrial rooftop systems. For some there has been a small but growing residential market for tiny systems from 1 KW to 5 KW of capacity, which have historically been combined with battery capacity. It still needs to be seen how the market will react to the new net metering system.
When it comes to the private sector, as a potential off-taker of solar energy, Vietnam has a large amount of international companies, making it a true FDI market. The first rooftop systems have been installed without a clear policy in place, no rules on feed-in tariffs or net-metering systems.
For commercial and industrial companies with a core business different from solar energy, the biggest challenge in rooftop PV projects is the high upfront investment costs. Usually these off-takers are big factories that are neither used to investing in solar nor procuring kWhs from another source than the utility. Other challenges in the market include policy limitations, such as the absence of a legal framework for direct PPAs and no competitive power market with EVN being the only authorized buyer of electricity in the country. While there has been some progress in the preparatory work for direct PPAs, its not yet clear when or in what form this will be reach the market. This peculiar situation together with EVNs financial state are key issues to take into consideration for utility scale and large rooftop systems.
For rooftop systems, the payback period of around 6 to 8 years, especially in the South of Vietnam, offers an attractive case for international companies, according to Rainer. Albeit that Vietnamese companies have very short investment horizons of up to 3 years, mainly because of the general insecurities in the market as well as the high inflation rates that they have experienced in the past.
Although the market is still young and will need quite some time to mature, there are ways to improve market conditions for future investments. The Vietnamese market has seen the launch of leasing models for PV and also the local track record of ESCO-models offers opportunities for rooftop solar. A third model that has been explored is an equity model under long-term payment schemes, that can work around the grey zones in regulation.
Utility scale projects
For utility-scale projects, there are various projects in the pipeline that have to abide by different rules than the rooftop projects. According to the MOIT, which is the main body in charge of utility-scale projects in Vietnam, there are approximately 110 projects under development, with a capacity of 17 GW still in the pipeline. Projects with a capacity over 50 MW need approval from the Prime Minister to get included in to the country’s power development plan, while projects with a capacity under 50 MW only need approval from the MOIT.
When discussing the market’s potential for utility-scale, the number one concern on the list is the bankability of the PPA, followed by limited access to financing and guarantee schemes, followed by land availability due to land use conflicts with agriculture and fishery/seafood production. As an expert in the market, Rainer underlines the opportunity that therefore lies in agro PV or aqua PV projects. These projects enjoy a higher favorability from local and regional authorities and communities.
The encountered challenges for rooftop projects are slightly different. The low electricity price and short investment horizon of potential buyers pose hurdles for anyone interested in installing these types of projects. Another concern that only applies to rooftop projects over 1 MW, is the mandatory energy generation license. It remains to be seen if this is a feasible path to take or if this will push the market to opt for projects below the stated threshold. Rooftop projects that stay below 1 MW can reap the full benefits of the net metering policy through a very simple annex in their electricity contracts. In Rainer’s view this should lead to an increasing demand for these projects, with relatively little bureaucracy involved.
Rainer notes that the most positive aspect of Circular No.16 is the net-metering details. He expected it to come out much more complex and difficult as a result of pressure from EVN. Though the current scheme is regarded quite favorable. In contrast, the most negative aspect for Rainer was that there have been no major changes to the PPA, in comparison to the previous draft. The private sector did make an assessment for the MOIT providing insights on what local and international organizations think are strong points for improvement, but with little to no effect on the final version of the Circular.
When it comes to the present situation of Vietnam, Rainer explains that he is positively surprised about where solar has come in the last 3 years. He claims that everyone in Vietnam thought that the wind market was going to take off, while nobody was expecting anything for solar. For the next 3 years he expects a similar trend, with a tremendous growth in installed capacity of MW, especially in rooftop C&I projects.