There is growing optimism that Vietnam is poised to move forward with developing its renewable energy resources. The publication in November 2015 of a Renewable Energy Development Strategy and the priority given to alternative energy in the revised Power Development Plan 7 (PDP 7) suggest rising government appreciation of the role renewables can play in meeting power demand growth, strengthening supply security, reducing greenhouse gas emissions and providing decentralised power to rural communities.
The revised PDP 7 for 2016-20, adopted in March 2016, foresees the share of electricity generated from renewable energy rising to 6.5% in 2020 and 10.7% in 2030, compared to 4.5% and 6%, respectively, in the original PDP 7 of July 2011. Its share of installed capacity is forecast to rise to 9.9% in 2020 and 21% by 2030, compared to the original 5.6% and 9.4%.
A range of policy initiatives has been implemented since 2008, along with an avoided cost tariff (ACT) for grid-connected power plants up to 30 MW and standard power purchase agreements (PPAs) with the state power utility Vietnam Electricity (EVN). However, the ACT of $0.05/KWh failed to draw investment in most forms of renewable energy with the exception of small hydropower developers, which have been able to secure additional revenue streams from the sale of Certified Emission Reductions under the Kyoto Protocol’s Clean Development Mechanism.
To promote wind and biomass projects, feed-in tariffs (FiTs) were introduced in 2011 and 2014-15, respectively. A range of tax benefits have also been offered to wind and solar developers, including exemptions from Customs duties for equipment, a preferential corporate tax rate of 10% for the project lifespan, and income tax and land use fee exemptions.
The introduction of a FiT for wind power in 2011 was hailed as a turning point for its development, yet the $0.078/KWh tariff has proved insufficient to entice investment. The scheme was intended to help achieve 1 GW of installed wind capacity by 2020. However, Vietnam today has just four operating wind farms with a total capacity of 138 MW, three of which have negotiated PPAs with EVN at higher offtake rates than the FiT due to their special status.
The first project, a 30-MW wind farm developed by Renewable Energy Vietnam in Binh Thuan province, was commissioned before the FiT came into force. The second, meanwhile, a 6-MW wind and diesel hybrid on the island of Phu Quy, benefits from a special tariff. The largest and most recent project, at Bac Lieu, was developed by local private developer Cong Ly in the Mekong Delta, allowing it, too, a special offtake rate. It has been developed in two phases, with the first 30 MW coming on-line in August 2013 and a further 48 MW commissioned in 2016. A 300-MW third phase is planned. The country’s fourth wind park in the province of Binh Thuan was commissioned in November 2016. The 24-MW, $46m Phu Lac project was built by HydroChina International on behalf of Thuan Binh Wind Power Joint Stock Company (TBW), and was part financed by German development bank KfW, which provided a low-interest loan of over €35m. TBW plans to expand the wind park to 50 MW.
Under the revised PDP 7, installed wind power capacity is forecast to rise to 800 MW by 2020, 2000 MW by 2025 and 6000 MW by 2030, accounting in succession for 0.8% of total electricity production in 2020, 1% in 2025 and 2.1% in 2030. While there is no doubt about Vietnam’s wind potential given its coastline of over 3000 km and location in a monsoonal zone, the industry is sceptical that these modest targets will be achieved without several changes, beginning with an increase in the FiT. “Technically the target is realistic but the economic feasibility of projects largely depends on the policy framework and the FiT,” said Peter Cattelaens, project manager at the German development company GIZ. “The current FiT is considered too low by most project developers.”
GIZ has been heavily involved in the development of the current regulatory framework for the wind sector, as an advisor to the Ministry of Industry and Trade (MoIT), and is currently studying the costs of production of the operational wind parks as the basis for an eventual rate increase. Based on studies carried out in 2014, GIZ recommended a FiT of $0.104/ KWh but to date the government has resisted any increase. “I cannot see the government not releasing a new tariff given their commitment to wind in the revised PDP 7, albeit it with reduced targets. They know that the current tariff has led essentially to no commercial development to date,” he said.
Numerous other issues still need to be addressed, in the view of Thuy Nguyen, government affairs and policy leader at GE. “We need to work with EVN and the regulator to make the PPA more bankable,” she told OBG. “One issue is the banks and investors’ concerns over the creditworthiness of EVN as the offtaker.” Another concern for lenders is the mismatch between the PPA with EVN, which is valid for 20 years, and the generation licence that is awarded for a period of 10 years with the promise of renewal.
While wind has been the main focus to date in terms of non-hydro renewable energy, it could soon be eclipsed by solar, especially if the proposed support scheme is adopted as expected in 2017. According to the revised PDP 7, the combined capacity of utility-scale projects and decentralised rooftop panels is forecast to rise from 4 MW at present to 850 MW by 2020, 4000 MW by 2025 and 12,000 MW by 2030. Its share of production will increase from 0.5% in 2020 to 1.6% in 2025 and 3.3% in 2030.
Vietnam has average solar radiation of 4.5 KWh per sq metre per day, according to a study financed by the Spanish government. The sharp fall in the cost of solar photovoltaic (PV) technology, which has made it increasingly competitive with conventional electricity sources, led the government in 2015 to request the MoIT to draft legislation to support its development. The draft decree proposes a FiT for large grid-connected solar power projects of $0.11/KWh, payable over 20 years under a PPA with EVN. It also provides for a net metering approach for rooftop installations, allowing surplus production to be sold to the grid for $0.15/KWh. The proposed rates are below those offered by neighbours such as the Philippines, where the average is $0.21/KWh, and Thailand, which pays $0.157-0.19/KWh. Nevertheless, they are considered sufficient given the market’s size and potential.
At the forefront of Vietnam’s foray into solar power will be the local Thien Tan Group, which plans to develop 2 GW of capacity in the coastal province of Ninh Thuan. Three 300-MW phases are listed in PDP 7 to be commissioned starting from 2019, and the company announced in December 2015 that it had applied to the government for an additional 1 GW. In February 2016 it signed an MoU with US-based First Solar to provide its advanced thin-film PV modules for its project development pipeline. Its and the country’s first large-scale project is already in operation: the 19.2-MW Thien Tan park in the province of Quang Ngai was completed in July 2016 at a cost of $40m.
Meanwhile, EVN is set to develop a 250-MW pilot project with the support of the World Bank, and has requested financing from the Asian Development Bank and KfW for further projects, according to Franz Gerner, energy sector coordinator at the World Bank. “The government is very serious about solar, seeing it as a technology that fits nicely into its tariff plans, considering price and potential,” he told OBG.
Numerous other investors are preparing to enter the market. In May 2016 Canada’s CMX Renewable Energy said that it had applied for a licence to build a 150-MW project in an estimated investment of $150m also in Ninh Thuan province, while Korean solar cell and module maker Hanwha is reportedly planning to build a 100-200-MW solar farm in Thua Thien-Hue province. Growth prospects for the solar market have meanwhile seen Canadian Solar secure a financing package of up to $70m from International Finance Corporation towards construction of a 300-MW-capacity solar module manufacturing facility in the Vietnam Singapore Industrial Park in Hai Phong.
Vietnam also expects the proportion of power produced from biomass in pure wood-firing plants, co-generation in sugar mills and food processing factories and co-firing at coal-fired power plants to reach 1% in 2020, 1.2% in 2025 and 2.1% in 2030. With abundant agriculture, Vietnam has huge potential to generate power from its biomass resources. To support its development, a FiT of $0.058/KWh was introduced in 2014 for CHP plants, with the ACT available for other forms of biomass power generation.
According to the revised PDP 7, total hydroelectric power capacity will be increased from 17,000 MW at present to 21,600 MW by 2020, 24,600 MW in 2025 and 27,800 MW in 2030. However, its share of production is expected to fall from the current 40% to 29.5% in 2020, 20.5% in 2025 and 15.5% in 2030.