On the 12th of September 2017, the Ministry of Industry and Trade in Vietnam officially released Circular No.16 with the aim to provide guidelines for Decision 11. The purpose of Circular 16 is to offer regulations on formulation, approval and amendment of Vietnam’s provincial and national power development plans. Furthermore, Circular 16 also provides the solar Power Purchase Agreement (PPA) as an obligatory template for future on-grid and rooftop solar power projects. The PPA is expected to remain as specified under the new government circular with the possibility to experience minor changes during the contract negotiations.
Classification and requirements for PV projects
Circular No.16 classifies solar PV projects into three categories: grid-connected projects, residential rooftops and commercial/industrial rooftop projects. Furthermore, the specific projects are required by Circular No. 16 to meet certain technical specifications before the project reaches commercial operation date. Projects that do not exceed 50 MWp can be approved by the Ministry of Industry and Trade, while projects with a larger capacity than 50 MWp must report their plans to the Prime Minister for approval.
Specifications for grid-connected projects include requirements such as ratio of equity owns capital, land area used, investor responsibilities and information systems.
First of all, the ratio of the equity owner’s capital is set at a minimum of 20% of the project’s total investment capital. This will ensure that PV projects have a strong project sponsor, which increases the viability of projects. Furthermore it increases opportunities and/or the need for co-development and opens the door for acquisition of early stage projects that lack capital.
Second of all, the use of permanent land may not surpass 1.2 ha per one (1) MWp of output produced. This avoids and unbundled growth where arable land gets usurped by power projects.
Third of all, it is the responsibility of each investor to deliberate with the electricity system in the relevant region in order to assess the impact of their plan and how it will affect the electricity system when the project is connected to the grid. This measure limits the chances of an unbalanced growth of renewable energy projects that could destabilize the grid and capital position of the utility.
Lastly, each project is required to instal a solar supervisory control and data acquisition system (SCADA) or an information system to generate and send daily forecasts to the relevant load dispatch centre or dispatch agency.
When it comes to rooftop projects, the new government circular makes clear that there are different registration requirements for projects with a capacity of 1MWp or lower and for projects with a capacity greater than 1MWp. For rooftop projects with a capacity less than 1MWp, the investor has the obligation to register an interconnection with the provincial-level electricity company. The government wants investors to register details such as an estimate of the capacity installed, technical indications of PV solar modules, as well as the indication of the inverters.
For grid-connected projects, the official PPA approved the FiT rate of VND 2,086 per kWh, which is equivalent to USD cents 9.35 per kWh. This FiT is only applicable to on-grid projects and rooftop projects with an commercial operation date (COD) before the 30th of June 2019 and will be limited to a period of 20 years from the COD. The PPA mentions that FiTs will be adjusted to the real exchange rate levels at the end of the year.
Circular 16 states that rooftop projects equipped with bi-directional meter systems will be provided with a net-metering scheme. The net-metering scheme allows rooftop projects that generate an output higher than the power amount consumed to be transferred to the subsequente payment cycle.
This system resembles more of a net billing scheme because, instead of banking the excess electricity to the project’s account for future consumption, the excess of electricity can be sold at the end of the year or upon the termination of the PPA to Vietnam Electricity (EVN) at the FiT rate of VND 2.086 per kWh, which is, as mentioned above, equivalent to 9.35 USD cents per kWh. The mentioned FiT for rooftop projects with an excessive power output generated will remain exactly the same during the first year of operation. The following year’s FiT will be adjusted using the VND/USD central exchange rate provided by the State Bank of Vietnam on the last working day of the previous year.
Rights and obligations of EVN
Circular 16 makes clear that EVN or its authorized member entity is responsible to purchase all power output generated from solar power projects according to the FiT at the delivery point. It is still unclear if by “delivery point” is meant as the connection of the solar project to the substation or the consumption point.
Other details worth mentioning in the new government circular are the certain circumstances where EVN is not obliged to purchase power as negotiated with the seller. Those circumstance include: EVN being in the process of installing equipment or making repairs, replacement, inspection or examination of the grid connected to the seller’s power plant; problems with EVN’s grid equipment or transmission/distribution grids; EVN’s grid being in need of support in order to recover after a grid problem in accordance with the provisions of operation of the national power system and the standards/technical regulations of the electric industry.
Challenges for the future of solar development
Solar development has many crucial challenges in Vietnam that will have a massive effect on investors. Some of those challenges are high interest rates and limited domestic funding sources, partially due to the unfamiliarity with PV projects in the country. International funding sources are also a challenge to acquire since a government guarantee is preferred in emerging markets to offset the credit risk of utilities.
Another challenge for solar development is that the standard electricity tariff is relatively low compared to the levelized cost of electricity of PV and wind. All of these reasons, together with inaccurate data in the current renewable energy field and a lack of skilled and experienced workers in renewable energy technology make developing solar energy in Vietnam challenging.
According to Dr. Nguyen Tuan, director at the Renewable Energy Centre, Institute of Energy, Ministry of Industry and Trade (MOIT), Vietnam, EVN will not play a dominant role when it comes to PV development. The national electricity company will allow other private companies to acquire a much larger amount of PV capacity. When asked about the possibility for foreign firms to enter Vietnam alone, Dr. Tuan stated that he does not think it is possible to enter Vietnam without a local partner. He does emphasize that Vietnam already has a local manufacturing base from foreign investors with the purpose of contributing to some of the downstream deployment. It still needs to be seen to what extent is the local manufacturing base going to supply the domestic market, as it has been known to focus more on exporting to projects abroad than distributing to local projects.
The government does envisions a substantial increase in solar if there is a continuous support for solar under the current feed-in-tariff. The solar energy market in Vietnam is still very young and there is definitely room for improvement, however there are no current plans to change the policies. For the PV industry it proves a test of capabilities and capacities to move forward under the existing scheme in the coming months. With expectations high, only to be exceeded by interest, the forward momentum has started and shows sign of a success story to be.
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