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Industry Report: Renewable Energy in Vietnam

Industry Report: Renewable Energy in Vietnam

15 September 2022

Kerry Tran

SPEEDA ASEAN Research & Analysis Team Analyst (Vietnam)

Industry Report: Renewable Energy in Vietnam

Table of Contents:

    1. State of power market
    2. Policy support from the government
    3. Potential for renewables
    4. Challenges

The full video of the presentation can be found at the end of this article.

 

Contents Summary:

1. State of Power Market

As with any growing emerging economy, Vietnam has been experiencing rapidly growing demand for electricity, almost double that of GDP growth. Power generation has been growing at almost 10% for the last ten years, and particularly, even during 2020 with the COVID pandemic, power generation grew 2% YoY, attributable to the country’s early relative successes in handling the pandemic.

To catch up with the fast growing demand, Vietnam’s power capacity has grown at a significant rate of 12.5% for the last ten years. And going forward, the government and various research houses have projected Vietnam’s power demand to continue growing strongly at around 10% until 2025.

Historical 2010-20 (resized).png (73 KB)

Electricity can be generated using several different types of fuel.

1)      Baseload capacity such as coal and natural gas

2)      Hydropower which uses water from a dam or river

3)      solar, wind, biomass, and mini hydro which are referred to as renewable energy.

 

Most of the country’s electricity demand is still being met by coal. As of 2020, coal generation took up 51%, followed by hydro at 30%, and natural gas 15%, whilst generation from renewables only accounted for 4%.

In terms of capacity, coal accounts for the largest share of total installed capacity at 30%, followed by large hydro 25% and solar 24%. Although solar has a high share in capacity, generation contribution is low, this is because most of the capacity only came online towards the end of 2020.

 

generation and capacity by fuel (Vietnam)

2. Policy support from the government

To ensure the country has enough capacity to meet the growing demand, the government issues various Power Development Plans (PDP), to basically chart out the country’s future direction to develop the power industry.

In February 2021, the Ministry of Industry and Trade released the first draft proposal of the PDP8, which as of 2022, has yet to be signed into law. There are 3 main takeaways from this draft PDP:

Firstly, total power capacity will double from 69GW in 2020 to 138GW in 2030.

Secondly, after much anticipation, the government is committed to diversify its capacity mix away from coal and hydro power.

 

Renewables capacity is expected to double by 2030

Coal capacity is only expected to grow by 83% by 2030, compared to almost 200% in the previous plan in 2016. The shortfall in baseload capacity is expected to be filled by liquified natural gas (or LNG)

Despite the effort to increase the share of renewables capacity in the next 10 years, many clean energy pundits have criticised the PDP8 for its continuing reliance on coal and viewed the proposal as “a step backwards”*1.

Another concern is regarding funding for coal projects, as Japan and Korea have halted overseas coal financing from 2019, and China announced its intention to follow suit in 2021. Local news*2 have reported that around 18 planned coal-fired projects (total capacity 20.4 GW) are unlikely to receive funding for development.

*1 energytracker.asia The Proposed Vietnam PDP8 Update and the Risks From the Coal Pivot

*2 The Saigon times 18 dự án nhiệt điện than trong quy hoạch khó tiếp cận vốn

 

3. Potential for renewables

The government focuses on renewables and solar energy in particular. There are 3 factors why we can say that solar energy has high potential in Vietnam:

            1. Being near the equator, the country gets 1,600 – 2,700 hours of sunlight every year
            2. The cost of solar installation for solar energy has decreased significantly more than 50% since 2016.
            3. The country achieved close to 90% of the solar instalment capacity target for 2030 by 2020 alone.

The biggest factor of the country’s success was the introduction of Feed-in-tariffs (FiT). FiT is basically a fixed-price incentive for selling electricity to the grid. The rates are usually locked in for a long-term period of 20 years.

Feed-in-Tarrifs (FiT)

 

Under the Power Development Plan 7 (PDP7), the latest government plan signed into law, the country’s first solar FIT scheme was introduced in April 2017 and was an unexpected success, causing a 4.5 GW solar power construction boom to meet the June 2019 deadline (far exceeding the government target of 1 GW). This was also supported by the increasingly lower cost of installation in Vietnam, which was estimated to be USD 1,054 per kWh, lower than many cost-matured markets and more than halved since 2016, per IRENA. The second FiT scheme for solar was signed into law in April 2020, signalling the government’s continued support for solar projects, albeit with reduced FiTs classified by technology and by province. In total, the solar FiT schemes saw Vietnam’s solar capacity reaching 16.5GW in 2020 (with an estimated 6 GW being built in the last month of 2020 to meet the FiT deadline), from just 0.1GW in 2018.

In contrast, the response for the country’s initial wind FiT scheme was less enthusiastic, due to the perceived low rates proposed of USD 0.078/kWh for both onshore and offshore wind projects.

The government subsequently increased the wind FiT upwards, as you can see in the table, separated into onshore and offshore. The rates were set to expire on 1 November 2021, but were further extended*3 to 31 December 2023.

*3 VASiAN POWER Vietnam extends feed-in tariffs for wind projects to 2023

Renewable Policies (Vietnam)

 

 

Besides the FiT, incentives were given to renewables developers such as: tax exemptions, income tax reductions, preferential loan rates, and import tax exemptions for PV solar. Vietnam does not produce PV solar panels, so it had to import everything.

 

4. Challenges

Renewables developers are allowed to fund their projects with 100% of foreign funding. In fact, the majority of renewables financing has come from foreign sponsors’ equity, using financing from banks in their home countries.

There is still limited debt financing from international banks, due to some constraints regarding the power purchase agreement (or PPA) that was deemed “unbankable” by international standards.

All electricity in Vietnam is bought by EVN (Vietnam Electricity), which is a government-owned entity. Renewables PPA do not have guarantee on the buyer, or EVN, in the event of EVN default.

renewables vs Coal&Gas

 

There is also no obligation on EVN’s part to pay when some of the power generated by renewables capacity is curtailed, meaning, cut off to reduce overload of the grid. In the event of termination of the agreement, the burden of claims lie on the power seller and not EVN. Lastly, any disputes are to be resolved by Vietnamese law, against EVN, which is a government entity.

All in all, despite these bankability concerns, the FiT scheme has still been very successful despite the government not making much clear effort to address this concern.

Aside from the bankability concerns, as most of the solar plants are located in the South, curtailment risks (the risk of output being cut off from the grid due to the grid being overloaded during certain times of the day) is still prevalent.

Lastly, Vietnam is generally still plagued by administrative issues, such as land rights issues, lengthy administrative processes, and general lack of transparency.

 

Video:

 

 

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