Vietnam has made headlines in 2021 for a recent solar boom that pushed it into the top global solar-power rankings in the space of months late last year.
Regionally, Vietnam today has more installed solar capacity than any of its neighbors, but the latest ramp-up has been in rooftop solar panels that feed into the grid. “The Southeast Asian nation,” Bloomberg reported, “now ranks seventh in the world in terms of capacity, according to clean energy research group BloombergNEF, and in 2020 the only countries that installed more solar panels were the US and China.”
According to an Institute of Energy Economics and Financial Analysis report, 2020 saw a “25-fold increase in installed capacity compared to just a year earlier” that “beat even the wildest expectations.”
The question is whether Vietnam’s electrical grid is ready for it and whether government reform can liberalize a state-dominated market sector and allow private capital step in. Rollout solar booms like the one late last year can lead to busts when, for example, an underdeveloped grid cannot deal with sudden surges of new supply – particularly supply that is time-specific – and when regulatory bottlenecks stifle follow-up development.
Unlike its regional neighbors – notably Indonesia, Malaysia and Thailand, where rooftop solar is largely deployed residentially for self-consumption – Vietnam’s new solar feeds into the grid, encouraged by a feed-in tariff (FiT) scheme.
By 2020 yearend, 7.4GW of rooftop capacity had been connected to the national grid, including “101,000 rooftop solar systems deployed over residential, commercial and industrial premises,” the IEEFA reports. This explosion of rooftop solar in Vietnam has come about due to an April 2020 government decision to award a feed-in tariff (FiT) USD 84 per megawatt hour (MGh) to on-grid rooftop solar over the next 20 years. The FiT expired on December 31 2020, resulting in a surge of rollout that Vietnam’s electrical grid is ill-prepared to deal with, industry analysts caution.
Blue skies, energy security
All the same, the headline-making explosion of rooftop solar should be viewed through the prism of Vietnam’s somewhat remarkable uptake in renewable energy, which has made Vietnam Southeast Asia’s leading renewable energy market. As recently as 2017, solar played next to no role in Vietnam’s energy mix, which was predominantly powered by coal and hydro. But by the end of 2019 it had overtaken regional solar leaders Malaysia and Thailand by installing 4.5GW, far outstripping the national target of 1GW by yearend 2020.
Renewable energy is not just cleaner; it offers a fast-developing country like Vietnam an alternative to being dependent on fossil-fuel imports for power. A shift to renewables would also provide easier access to foreign investment that is increasingly reluctant to fund fossil-fuel based sources of power while also fostering energy security by turning to domestically available sources of energy rather than depending on imports.
The target of the 2011 National Power Development Plan (PDP) VII (2011–2020) by the Ministry of Industry and Trade (MOIT) was to increase renewable energy-generated electricity to 4.5% in 2020 from 3.5% of the total electricity production. The drafted National PDP VIII (2021–2030, with a long view to 2045), which is currently awaiting approval by Vietnam’s new government envisions onshore and offshore wind and solar power increasing by 50 GW, outstripping growth in coal, gas and liquefied natural gas (LNG), which is expected to increase by 30 GW. The new plan hopes to roll out a further 14 GW of solar, but by competitive selection processes such as by auctions, which will require that the government delivers, providing guidelines and regulations on transparent auction processes.
The government is shifting policy incentives from rooftop deployment to utility scale solar photovoltaic (PV) deployment by allowing developers to turn to funding from foreign sources and exempting them of taxes for the first four years of operations and then reducing taxes to 50% for a further 15 years. Land-lease exemptions are being applied to PV projects, ranging from 15 years to project lifetimes, and import tariffs will be exempted on imported equipment.
Nevertheless, problems remain, probably chief among them the country’s underdeveloped power grid, or transmission infrastructure, which is subject to overloads, cuts in power delivery and financial losses to project developers and operators because EVN only pays for electricity that the grid can cope with.
Revamping the grid
“Vietnam’s electricity grid is the elephant in the room,” Giles Cooper, a lawyer at Allens, a law firm in Vietnam, told Eco-Business, adding that upgrading the grid at the scale required, given Vietnam’s demand for electricity and the rapid rollout of renewable solutions, would be enormously expensive and complex.
The draft version of the PDP8 calculates that, over the next 15 years, USD 52 billion of investment will be required to upgrade the Vietnam electricity grid.
The Vietnam government response has been to cautiously signal that the grid infrastructure requires private sector investment. However, among the hurdles in making that happen is the fact that, legally, under current government regulations, EVN alone is responsible for power transmission and distribution.
This year has seen the introduction of a Public-Private Partnership (PPP) Law aimed at allowing the private sector to play a role in enabling grid expansion and increased efficiency via direct PPP agreements (DPPA) that would make it possible or energy producers to sell and deliver power to corporate consumers as opposed to selling to the state provider, EVN. A pilot program, at this time limited to two years, the DPPA proposal allows for deals between developers and private power consumers involving projects of between 400 and 1,000 MW.
A precedent has, at least theoretically, already been set. In October last year, Trungnam Group was approved to invest in Trung Nam Thuan Nam, a 450 MW solar power plant with a 500 KV transformer station and 220KV / 500KV, 17 km power transmission system in Ninh Thuan Province.
One of the chief challenges looking ahead include the fact that solar rollout in Vietnam will be inevitably clustered in Vietnam’s sunny South, rather than countrywide. The government is promoting research into a “smart grid” to resolve local transmission congestion, but balanced power development will still have to play a major role in Vietnam’s energy strategy.
In the meantime, despite recent moves by the government, numerous barriers still stand in the way of market forces reshaping Vietnam’s power supply – among them legal and administrative procedures governing everything from national and local land planning and the environment to licensing, all of which require local support and can take up to two years before reaching a ready-to-build status.
Even when projects are operational, risks still abound. For example, investors have no guarantee that EVN will purchase electricity and Vietnam’s power purchase agreements (PPAs) – a standard form that is difficult to amend – do not allow for impartial arbitration beyond Vietnam’s borders in the event of disputes.
More conducive market conditions are required to Vietnam to further exploit its renewable energy potential given the government’s ambitious plans. The National PDP VIII envisions renewables supplying the bulk of Vietnam’s energy needs – some 32% – by 2045. To implement such an ambitious goal, the government will have to mobilize private capital in a market traditionally dominated by state enterprises. That will be a challenge far greater than the recent rooftop solar revolution but will be essential to Vietnam’s long-term energy security.