In bittersweet move, Vietnam approves second feed-in-tariff scheme for solar

Vietnam has signed off its much-anticipated solar support scheme, bringing developers bittersweet relief amid the ongoing coronavirus pandemic. Meanwhile, solar’s future in the country hinges on Hanoi’s next move.

Vietnam, solar farm, 2020
Dau Tieng solar project, located 100 km from Ho Chi Minh City in the south of Vietnam. With a total capacity of 600 MW, the project is Southeast Asia’s largest solar farm. Image: Tammy Le, CC BY-SA 4.0 via Wikipedia Commons

In a move anticipated by the solar industry, the Vietnamese government yesterday approved the second round of its feed-in-tariff scheme for solar energy in the country, bringing relief to developers whose projects are now guaranteed financial support.

Under the new scheme, solar projects that become commercially operational by the end of 2020 will receive a fixed rate for each kilowatt-hour (kWh) of electricity produced and exported to the grid for 20 years.

However, tariffs paid will be lower than under the previous scheme. Firms will also be hard-pressed for time to deliver their projects as the coronavirus pandemic brings the world to a standstill, disrupting global renewable energy supply chains.

“This is good news. The new scheme brings certainty and visibility for the industry, and people now know what they can work with in the coming months. Project developers and investors can now get their projects off the ground,” said Nicolas Payen, chief executive officer at Singapore-headquartered clean energy investment firm Positive Energy Limited.

“But developers are also concerned that it will only last until the end of the year. That’s a small window of opportunity to execute a project timeline, especially in the face of the Covid crisis,” he told Eco-Business, adding that the virus could drive up costs, putting financial pressure on projects already receiving lower rates for the electricity they will eventually generate.

Experts voiced their concerns last year that lower tariffs could discourage investors and make life more difficult for domestic developers already struggling to attract financing for their projects.

The new tariff programme is the second round of an immensely successful support scheme for solar energy launched in 2017. The first scheme ushered in a golden era for solar power in Vietnam, incentivising developers to install more than 4.5 gigawatts (GW) worth of photovoltaic projects. This far exceeded the original government target of bringing 1 GW online by 2020.

Power grid problems

The new policy is 10 months overdue. While a draft policy was submitted to the government earlier last year, the nation’s power grid struggled to keep up with the flood of clean energy projects coming online.

There was a controversial debate last year whether Vietnam had approved more renewable energy projects than the country could handle, forcing Hanoi to put the new scheme on hold, said Luu Hoang Ha, partner at Vietnam International Law Firm (VILAF).

“Transmission lines take much longer to get approval and build compared to solar farms, and developers started losing money when the existing grid could not accommodate all the electricity they produced,” he said.

However, while significant progress has been made in strengthening the grid, the government overruled the original policy proposal late last year, signalling its ambition to shift to an auction scheme instead.

But due to regulatory and practical challenges as well as earlier commitments with developers, the government decided to go forward with the second round of its feed-in-tariff scheme, Ha said.

He added that the government still intended to go ahead with a competitive selection of developers after the new scheme’s deadline. By letting developers bid on solar projects, Vietnam not only hopes to spur competition among solar energy companies, but also to better manage clean energy development across the country, he said.

Auction schemes enable countries to issue a call for tenders to install a certain renewable energy capacity. That way, only the most price-competitive firms can participate in the market.

In March, Vietnam’s Ministry of Industry and Trade submitted a proposal for the auction programme to the government, which stipulated a cap for tariffs paid to generators that was equivalent to the new feed-in-tariff, and listed a number of potential projects for consideration, Ha said. However, the government has yet to deliberate on the details of the scheme.

What’s next?

Under the new tariff scheme, different projects are to receive different rates, although all rates are guaranteed for a period of 20 years.

A tariff of 7.09 US cents per kWh will be paid to all ground-mounted solar farms installed anywhere in the country, except for Ninh Thuan province. Around 3 GW worth of projects with power purchase agreements already signed are expected to be paid this rate.

Projects in Ninh Thuan boasting a total capacity of 1 GW will receive a higher tariff of 9.35 US cents per kWh to support the province’s economy, Ha told Eco-Business. Ninh Thuan is not only one of Vietnam’s least developed provinces, it was also hit hard when the national assembly decided to abandon plans to build two nuclear power plants in the province after the local authorities had already started preparing for construction.

A separate and higher rate will be paid to rooftop solar projects (8.38 US cents/kWh), while project developers can now sell power directly to roof owners or to Vietnam Electricity (EVN), the country’s largest power company. This reflects Vietnam’s efforts to boost distributed solar development in the country, which eases stress on the country’s electricity grid, said Ha.

The approval of the new scheme comes on the heels of a new energy strategy released by the Communist Party’s decision-making politburo in February. Geared towards energy security and sustainable socio-economic development, the plan calls for a much larger share of clean energy in Vietnam, with ambitions to source up to 20 per cent of the country’s electricity from renewables by 2030.

One of Asia’s fastest-growing economies, Vietnam urgently needs more power. The nation’s demand for energy, pushed up by its booming industry and burgeoning population, is expected to outstrip the construction of new power plants in the coming years, causing severe power shortages. By 2030, the country is expected to require about 130 GW of electricity by 2030, more than double the 54 GW currently.

Welcome though it was, the new scheme brings developers only temporary relief. Whether the country can keep investors on board hinges on the government’s ability to deliver its auction scheme on time, said Payen.

“The new scheme will be in place until the end of the year, but after that there is uncertainty over what is going to happen. The more visibility the government provides, the more investment appetite there will be,” he told Eco-Business.

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