TTC Group, a sugar, energy and real estate conglomerate, is planning to sink about $1 billion into as many as 20 solar parks with a total capacity of 1,000 MW by next year. 

The Ho Chi Minh City-based company revealed its plan soon after Vietnam’s new solar energy policy came into effect. 

Having executed a number of clean energy projects using sugarcane waste before moving into the solar sector, CEO Mr. Thai Van Chuyen said that “solar energy is very hot right now, as the recent pricing set by the government is reasonable, development costs are much cheaper, and there are concerns over coal-fired power plants.”

New incentives

It was May this year when the Vietnamese Government issued long-anticipated regulations on solar energy projects. 

A raft of incentives to support renewable energy will be in place until June 2019 and have been dubbed a “landmark” in the country’s solar energy outlook. 

Other than exemptions on import duties and incentives including breaks in taxes and land use fees for solar power projects, raising the bid price to purchase solar energy to VND2,086 (9.35 US cents) per kWh is a key measure, though it’s still lower than the 11.2 to 13.2 cents earlier investors hoped for. 

In a country where fossil fuels still account for more than 65 per cent of energy output, the rise of renewable energy is grounded in sustainable development and Vietnam’s vision for climate change mitigation. 

A commitment to renewable energy development is reflected within the 2011-2020 National Power Development Plan, which foresees renewable energy growing to 9.9 per cent of the country’s total electricity production by 2020, 12.5 per cent by 2025, and to 21 per cent by 2030, while meeting the government’s goal of cutting greenhouse gas emissions by as much as 8 per cent by 2030.

But its continuing high dependence on coal, as reflected in the latest revision to the Power Master Plan VII, sends a contradictory message. 

It simultaneously envisions a greater share of renewable energy and an increase of coal in electricity production from 49.3 per cent in 2020 to 55 per cent in 2025. 

“Even though coal is an established part of the energy economy and will remain so for some time to come via imported coal, the new energy resources needed to fuel sustainable economic growth in Vietnam could easily come from cleaner local resources,” Mr. Gavin Smith, Director of Clean Development at Dragon Capital Group said.

The World Bank’s Energy Evaluation in Asia program has already identified major potential in harnessing wind energy in Vietnam’s south-central region and the Mekong Delta, adding an estimated 513 MW. Equally, solar energy holds great promise to turn things around in a country with up to 2,500 hours of sunshine yearly. 

Still, the purchase price for renewable energy remains the greatest hurdle in ensuring that capital-intensive investments are cost-effective.

The recently-approved solar pricing policy quickly presented a host of new business opportunities. 

Some 30 solar power projects, ranging from 20 MW to 500 MW, are reported to have been registered for licenses. 

Backers include investors from Germany, South Korea, and the US. In early June, Japan’s Fujiwara gained approval for a 64 MW solar plant and a 36 MW wind power project in south-central Binh Dinh province, with combined investment of more than $63 million.

Having established 30 MW of solar operations in Thailand, Dragon Capital is hoping to replicate the achievement in Vietnam, leveraging its local experience. 

While declining to comment on the group’s upcoming solar energy project in Can Tho, Mr. Smith said that work can still be done on clean energy to kick-start it in a much more aggressive manner. 

“The primary barrier is that the standard Power Purchase Agreements (PPA) offered to investors do not provide adequate protection for the rights of investors and banks who finance the projects,” he said. 

In particular, the draft solar PPA, which was circulated for consultation in May this year, allows for the early termination of the PPA, unlimited curtailment of power supply to the grid, and an arbitration clause that deterred banks from offering project finance to support solar power developments. 

“We hope that there is some improvement in these very few key terms, which could open the flow of finance needed to meet the ambitious renewable energy goals,” Mr. Smith added.

Stimulating wind

Unlike solar, high installation costs and relatively low power prices make investors think twice about diving into Vietnam’s wind energy market. 

Projects have been delayed, as wind hopefuls claim that the current purchase price of 7.8 cents per kWh, compared to 20 cents in Thailand, 29 cents in the Philippines, and 30 cents in Japan, would significantly eat into their profits. 

Five wind farms with a combined capacity of nearly 200 MW fall well short of Vietnam’s target of producing 800 MW of wind power by 2020, 2,000 MW by 2025, and 6,000 MW by 2030 under the National Master Plan for Power Development for the 2011-2020 period and vision to 2030.

With the existing barriers, “we all understand that whether the development of the wind power market and the government’s target for wind energy by 2020 are reached depends on the level of feed-in-tariff (FiT),” Mr. Tobias Cossen, Head of GIZ’s project on supporting the upscaling of wind power, told VET. 

Besides, “a number of regulatory and market barriers as well as the lack of capacity have been identified as obstacles for investors in wind projects.” 

From another perspective, “getting land clearance is the biggest risk for foreign investors because disputes with land users can delay projects for several years,” said Mr. Tuan Nguyen, Managing Director of ANT Consulting, an advisory firm active in the domestic energy sector. 

“When the government gives the green light, investors get the land most of the time, but after that, clashes with local people can drag down project development.”

Investors with experience in the country warn that there is little chance of sidestepping this issue by targeting unused real estate. 

Almost all land in Vietnam is either being put to some kind of artisanal economic use or would require the relocation of a large number of people. 

Onshore wind, which typically requires beachfront property, is often considered particularly vulnerable to land-sourcing challenges. 

But solar developers may be the most affected, given the large areas required to spread out an economically viable array of panels.

In better news, Vietnam is working to simplify licensing procedures and raising the tariff for onshore wind power projects, according to Mr. Pham Trong Thuc, Director of the Renewable Energy Department at the Ministry of Industry and Trade (MoIT). 

“The government is keen to go the extra mile to stimulate renewable energy investments in Vietnam,” he said. 

He refused to elaborate on what the new tariff level of wind energy may be, but in a heads-up said “it will not meet investors’ hopes of 10 cents per kWh.”

Expectations are high, however. The formalization of the $2 billion Joint Development Agreement between the US’s General Electric (GE) and Mainstream Renewable Power and local partner Phu Cuong Group on developing the 800 MW Phu Cuong Wind Farm in the Mekong Delta’s Soc Trang province in May is expected to be the main driver of Vietnam’s ambition to deliver 1 GW of renewable energy by 2020. 

The project is to be the largest in the country and will be completed in two phases, with the first phase of approximately 200 MW expected to reach a financial close in 2018.

Would Dragon Capital be interested in developing wind energy projects in Vietnam? 

“It’s a statement repeatedly made in all the ten years that I’ve been lucky enough to live in the country,” Mr. Smith said. 

“We welcome the announcement that the MoIT submitted new recommendations on August 16 and Dragon Capital aims to finally turn wind potential into actual wind energy in a commercial business model that is replicable and scalable.”

Biomass neglected 

Seeing the spotlight fall more and more on solar and wind energy, Mr. Pham Quoc Doanh, Chairman of the Vietnam Sugarcane and Sugar Association (VSSA), didn’t hide his lack of satisfaction with the current biomass energy pricing mechanism. 

Legitimately considered renewable energy, the purchasing price of biomass energy from on-grid biomass power projects has been unfairly discriminated against, he believes.

As an agricultural country, Vietnam holds a range of advantages from rice husks and bagasse being biomass resources with the greatest economic potential. 

But, in contrast, “nearly 40 bagasse-based biomass power plants with a total installed capacity of 150 MW are still unable to connect to the national grid due to low power prices,” Mr. Doanh said, adding that VSSA has proposed increasing the price from the current 5.8 cents to 7.5 cents per kWh since December last year. 

On the other hand, the government has set a target of increasing biomass power to 500 MW by 2020, but “I’m confident that with the current sugarcane output, as much as 840 MW will be produced by that time,” Mr. Doanh said. 

“What we need is a review on the current pricing policy to attract more investors and better technologies.” 

Solid waste-to-energy has stagnated, meanwhile, despite having the highest purchase price among other clean energy sources, of 10.05 cents per kWh. 

The potential for power generation from municipal solid waste is estimated to exceed 320 MW, of which less than 20 MW is currently being exploited. Critics point to the current inadequate management of waste and complicated procedures, while the fact that local governments tend to offer waste management agreements to close acquaintances discourage keen investors from becoming involved.

VN Economic Times