Vietnam’s renewable energy: Key guidance to investors

Solar power capacity is increasing thanks to significant changes in feed-in-tariff.

Vietnam’s renewable energy has attracted an increasing number of investors who bet for a higher stake in the market that is one of the world’s most potential destinations for solar and wind power.

Vietnam’s renewable energy: Key guidance to investors
Da Mi solar project in central Vietnam. Photo: JICA

The Southeast Asian country, which possesses more than 3,200 kilometers of coastline and high solar radiation, has been on a way to tap potential by preparing both regulatory framework and investment in transmission network.

Given the advantages, Vietnam has issued a number of policies and planning to attract investors and facilitated their investment in the sector that is designed to become a major component in the country’s power mix by 2030 and beyond.

Notably, foreign investors can own up to 100% of the equity in renewable projects that include three types namely floating solar PV, ground-mounted solar PV, and rooftop solar PV.

Global law firm Norton Rose Fulbright analyzes both advantages and disadvantages in the sector.

Role of renewables

In March 2016, the government of Vietnam issued the revised National Power Development Plan for 2011-2020 (Power Master Plan VII), in which renewable energy will account for 9.9% of installed capacity by 2020 and 21% by 2030 as well as make up 7% of Vietnam’s electricity production by 2020 and 10% by 2030.

Accordingly, the authorities have licensed a large number of renewable projects on wind, solar, small hydro, and biomass power. Solar and wind are expected to dominate new investment despite the dominance of small hydro currently.

Solar power

According to Vietnam Electricity (EVN), as of end-August 2020, total wind and solar capacity added to the plan reached 23 gigawatts (GW), including 11.2GW of solar.

So far, about 102 solar projects capacity more than 6,314 megawatt-peak (MWp) has been connected, including nearly 90 projects capacity 4,000MWp within the second quarter 2020. Reports suggest that as much as 7,000MW (7GW) of new solar capacity has been approved and an additional 13GW awaits approval.

Many projects are behind schedule and have not yet secured financing.

Vietnam’s renewable energy: Key guidance to investors
 Renewables in Vietnam's energy sector. Source: British Business Group Vietnam (BBGV)

To understand more about the market, it’s better to provide electricity industry structure for investors. EVN is the state-owned electricity utility and the sole buyer of power generated from renewable sources.

The government plans to implement a competitive power market, which is intended to be implemented at the wholesale level by 2021 and at the retail level by 2023.

Meanwhile, consumers are allowed to own and operate power generation facilities for their own use and may sell excess power to EVN.

Sale of power direct to consumers is not currently permitted but the Vietnamese government is planning to pilot a direct power purchase agreement (DPPA) for renewable energy in 2019. The DPPA will allow the sale of electricity from generators direct to consumers. Reports suggest that this might be in the form of a synthetic PPA, with 100% of the power output to be sold through the market.

Before getting involved in the investment in Vietnam’s energy market, project procurement will help investors to address difficulties.

To date, projects have been procured under a feed-in tariff (FiT) scheme. However, based on the prime minister’s Decision No. 39/2018/QD-TTg dated September 10, 2018, the Ministry of Industry and Trade (MOIT) is required to submit a policy introducing an auction process for the selection of new wind power projects and tariffs from November 1, 2021 onwards. This policy has not yet been released.

 

Before developers are permitted to proceed with solar projects, the project must be included within the relevant power development plan, namely the national master plan on solar power development, the approved national power development master plan, a provincial master plan on solar power development or a provincial power development master plan.

MOIT has the authority to approve additions to such master plans for any solar power project with capacity of 50MW or less. For projects with capacity of greater than 50MW, MOIT must submit the project to the Prime Minister for approval and inclusion within the applicable plan.

Regarding FiT, there are some applicable incentives including (1) FiT; (2) tax incentives; (3) exemptions from the land use fees as well as land and water surface rents; (4) preferred rate loans from the Vietnam Development Bank (VDB) or the Vietnam Environment Protection Fund (VEPF), or interest support from the VEPF; (5) the VEPF also offers subsidies for renewable electricity generated from solar, wind, geothermal, tidal or methane sources where production costs exceed the sale price.

The current Vietnam Renewable Energy Development Strategy suggests further incentives may be introduced including a Renewable Portfolio Standard (RPS). This is expected to mandate that large power generation and distribution companies must source at least 3% of their energy output from renewable sources by 2020, 10% by 2030 and 20% by 2050.

In terms of tariff, EVN must purchase all power generated by renewable energy projects at the 20-year FiT set by law.

The current FiTs are as follows: (1) Grid connected and rooftop solar - 9.35 US cents/KWh assuming the project achieves the commercial operations date (COD) before June 30, 2019 or December 31, 2020 for Ninh Thuan province; (2) Onshore wind - 8.5 US cents/kWh assuming the project achieves the COD before November 1, 2021; (3) Offshore wind - 9.8 US cents/kWh assuming the project achieves the COD before November 1, 2021; (4) Biomass 5.8 US cents/kWh; (5) Waste-to-energy - 10.05 US cents/kWh; (6) Landfill gas - 7.28 US cents/kWh.

On April 12, 2019, MOIT issued the third draft of a Decision by the prime minister in respect of solar power projects (Draft Decision). The Draft Decision proposes a new tariff structure for solar power projects achieving COD between July 1, 2019 and December 31, 2021 and applies for a 20-year period.

The FiT varies based on the geographic region in which the project is situated with areas of lower irradiation receiving a higher FiT. The Draft Decision also introduces three project types, with the FiT varying based on assumed variable projects costs.

Based on the region and project type, the proposed FiT ranges from 6.67 US cents/kWh to 10.87 US cents/kWh.

The FiT remains fixed for 20 years and is not indexed for inflation.

The FiT is denominated and paid for in Vietnamese dong but is adjusted for the Vietnamese dong / US dollar exchange rate announced by the State Bank of Vietnam on the invoice date. Availability of US dollars is not guaranteed.

In case of solar power projects, investors are required to maintain an equity ratio of at least 20% of the total investment. The period over which the 20% must be maintained is not clearly specified, but in practice tends to be the duration of the project. This limitation was recently removed for wind projects.

In terms of lending, there has been limited lending from international banks given the bankability challenges in relation to the PPA for renewable projects. Existing lenders to renewable projects include Vietnam Bank for Agriculture and Rural (Agribank); Asian Development Bank (ADB); EKF, the Danish Export Credit Agency; Vietnam Development Bank (VDB); Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank); Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank); Ho Chi Minh City Development Joint Stock Commercial Bank (HDBank); Joint Stock Commercial Bank for Investment & Development of Vietnam (BIDV).

Power purchase agreements (PPAs) will last for 20 years. MOIT has issued model forms of PPA for small hydro, wind, biomass, waste-to-energy and solar.

By way of Circular No. 02/2019/TT-BCT of MOIT regulating the implementation and development of wind power projects and a model power purchase agreement for wind power projects (Circular No. 2), MOIT released the final form of the wind PPA effective from February 28, 2019. Circular No. 2 also includes the procedural steps for developers to follow in order to secure a PPA with EVN.

The model solar PPA is expected to be amended and released in 2020.

Parties may agree on limited clarifications to the model PPA but they cannot vary its basic contents, which are mandatory.  Hanoitimes

Linh Pham

Vietnam's energy sector a magnet for foreign investors

Vietnam's energy sector a magnet for foreign investors

National electricity demand is expected to increase by 8.5 per cent a year until 2025 and 7 per cent until 2030, making Vietnam an attractive market for foreign energy investors.

Solar power grows 28-fold in Vietnam's energy mix

Solar power grows 28-fold in Vietnam's energy mix

In the first three months, EVN mobilised 2.76 billion kWh of renewable energy, including 2.31 billion kWh of solar power, signifying a 28-fold increase on-year.

 
 

Other News

.
Largest-ever support package to strengthen farmers
Largest-ever support package to strengthen farmers
BUSINESSicon  11/01/2022 

The Government has just submitted a support package of VND350 trillion (US$15.43 billion) for socio-economic recovery and development to the National Assembly.

Real estate market anxiously awaits new regulations
Real estate market anxiously awaits new regulations
FEATUREicon  10/01/2022 

The National Assembly this morning began discussing the amending of eight laws.

Tet online sales kick off one month before Tet
Tet online sales kick off one month before Tet
FEATUREicon  10/01/2022 

Everything now can be purchased online, from food for Tet parties to smartphones.

Banks begin to hike deposit interest rates
Banks begin to hike deposit interest rates
BUSINESSicon  11/01/2022 

In October, the average interest rates on bank deposits for six months and 12 months were 4.7 per cent and 5.5 per cent, down half a percentage point from a year earlier, according to Bao Viet Securities Company.

Garment and textiles face reality of fierce global rivalry
Garment and textiles face reality of fierce global rivalry
BUSINESSicon  11/01/2022 

Vietnam’s garment and textile sector has reached the 2021 export target, but is confronted with ever-growing competition from the Asian continent as well as other markets.

Positive indicators light up footwear trade to US
Positive indicators light up footwear trade to US
BUSINESSicon  10/01/2022 

Vietnam is emerging as one of the largest suppliers of footwear and leather accessories to the United States, opening more opportunities for domestic companies to exploit the world’s largest market for these goods.

Goods congestion at border gates needs to be solved before Tet: Deputy PM
Goods congestion at border gates needs to be solved before Tet: Deputy PM
BUSINESSicon  10/01/2022 

Deputy Prime Minister Le Van Thanh has requested ministries, sectors and localities to closely coordinate with Chinese agencies to speed up customs clearance, striving to have no congestion of cargo trucks at border gates before Tet.

HCM City businesses overcome economic 'storm'
HCM City businesses overcome economic 'storm'
BUSINESSicon  10/01/2022 

Many enterprises in HCM City have successfully contributed to the economic recovery and development of the city after the pandemic.

VIETNAM BUSINESS NEWS JANUARY 10
VIETNAM BUSINESS NEWS JANUARY 10
BUSINESSicon  10/01/2022 

Gov’t sets deadline for completion of Long Thanh airport

Positive outlook for insurance stocks as 2022 arrives
Positive outlook for insurance stocks as 2022 arrives
BUSINESSicon  09/01/2022 

State capital divestment planning and the removal of limitations on foreign ownership are expected to drive insurance stocks to flourish in 2022.

AmCham Vietnam to promote increased trade and investment ties in Vietnam
AmCham Vietnam to promote increased trade and investment ties in Vietnam
BUSINESSicon  09/01/2022 

AmCham will continue to work on lowering barriers to trade and creating a high-standard, transparent, and stable business environment in Vietnam.

Economic prospects for the world and Vietnam
Economic prospects for the world and Vietnam
BUSINESSicon  09/01/2022 

The severity and persistence of inflation worldwide have surprised most central banks and organizations that offer economic forecasts. 

Hanoi completes nearly 546,000 square meters of floor area in 2021
Hanoi completes nearly 546,000 square meters of floor area in 2021
BUSINESSicon  09/01/2022 

Despite the ongoing impacts of the Covid-19 pandemic, housing development is still being promoted.

Vietnam's seafood exports beat yearly target, rake in US$8.9 billion
Vietnam's seafood exports beat yearly target, rake in US$8.9 billion
BUSINESSicon  08/01/2022 

Thanks to large-scale production in the last months of 2021, the seafood export value for the whole year rose 6% compared to 2021 reaching more than US$8.9 billion.

First US firm orders 100 VinFast electric cars at CES 2022
First US firm orders 100 VinFast electric cars at CES 2022
BUSINESSicon  08/01/2022 

Artemis DNA has become the first US firm to place an order to purchase 100 electric cars of VinFast following the Vietnamese automaker’s new model debut at the technology exhibition CES 2022 in Las Vegas (USA).

Vietnam becomes major manufacturer of Nike sports shoes
Vietnam becomes major manufacturer of Nike sports shoes
BUSINESSicon  08/01/2022 

Vietnam has surpassed China to become the major manufacturer of Nike sports shoes.

Vietnamese banks facing bad debt increases
Vietnamese banks facing bad debt increases
BUSINESSicon  08/01/2022 

Despite the negative impacts of the Covid-19 pandemic, the credit of the country economy in 2021 witnessed an increase of 13 percent compared to last year. The bad news is an unavoidable rise of bad debts in many banks.

Prices escalate, people rush to hunt for land in hot market
Prices escalate, people rush to hunt for land in hot market
FEATUREicon  10/01/2022 

Price escalation is occurring everywhere, from rural to urban areas. People are buying land at surprisingly high prices.

After 10 years of ups and downs, major players return
After 10 years of ups and downs, major players return
FEATUREicon  10/01/2022 

Dang Thi Hoang Yen, Dang Thanh Tam, Doan Nguyen Duc (Boss Duc) and Nguyen Duc Huong all have made impressive comebacks after a period of difficulties.

Drug trader, businesswoman, and young PhD pay heavy price for crimes
Drug trader, businesswoman, and young PhD pay heavy price for crimes
FEATUREicon  08/01/2022 

Many well-known businesspeople have ended up in prison.

 
 
 
Leave your comment on an article

OR QUICK LOGIN