Has Vietnam’s moment in the sun finally arrived?

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A recent series of policy announcements — and looming revisions to Vietnam’s feed-in tariff (FIT) program — have left many investors hopeful that the Southeast Asian country is finally poised to unlock its PV potential in both the utility-scale and commercial rooftop segments. “Under the current FIT, there is tremendous developer activity going on right now. Almost purely in the utility-scale segment,” says Josefin Berg, Research and Analysis Manager for IHS Markit.

The Vietnamese government is expected to officially publicize its new solar FIT rates before the end of the first half of this year, as current rates are set to expire on June 30, 2019. Proposed FIT rates for ground-mounted projects range from VND 1,525 ($0.065) to VND 2,102 ($0.09), depending on the region. Suggested rates for floating PV systems — a key government policy priority in land-scarce Vietnam — have ranged from VND 1,566 to VND 2,159. Solar+storage installations, meanwhile, could receive rates of VND 1,994 in the country’s southern provinces or VND 1,196 in the central highlands.

Berg expects solar developers to install as much as 2 GW of utility-scale PV capacity in Vietnam in 2019, primarily in the first half of the year. “The boom doesn’t stop here. As there have been extensions to the FIT in some zones, we project more than 2 GW of utility-scale PV also in 2020,” she adds. “Then the new proposed FIT would be likely to trigger another 2 GW in 2021, but with development shifting to the north.”

Looking ahead, it remains to be seen how long the revised FIT regime will remain in place, says Berg, noting how other solar FIT markets throughout the world have come to abrupt ends in the past. “The big question is how [state-owned power company] EVN will react to this amount of capacity and the related costs,” she explains.

Measured approach
Oliver Massmann, a Vietnam-based lawyer for Duane Morris LLP, says the proposed revisions to the FIT rates suggest that the Vietnamese government is taking a measured approach to solar development.
“Vietnam does not want to develop solar power projects at any cost,” says Massman, explaining that the government has put strict caps on project capacities.

Massmann’s 2019 installation forecast is considerably more conservative than that of IHS Markit, at just 854 MW. Although 2.24 GW of PV capacity was under construction by June 2018, he believes that many of the developers of those projects will likely miss their commercial operation deadlines to claim the FIT rates currently offered.

The newly proposed FIT rates, he argues, appear designed to strike a balance in order to facilitate significant PV build-out, but at prices that state-owned utility Vietnam Electricity (EVN) will be able to stomach. However, there are other potential obstacles to future solar development looming on the horizon.

“In general, the network is underdeveloped,” says Massmann, arguing that the national grid may not be able to handle the modest 2020 target of 850 MW that the government presented in its seventh Power Development Plan — to say nothing of its long-term targets of 4 GW by 2025 and 12 GW by 2030. It also remains to be seen what will happen to the 8.1 GW of solar capacity that has already been approved for development through the end of the current decade, according to the Ministry of Industry and Trade (MOIT).

“Coal thermal power projects have covered 70% of the total installed capacity, and that limits the available infrastructure, location, and capacity for development of further solar power projects,” Massmann explains. “For example, it is very challenging to find locations near the grid for the development of solar power projects.”

Grid limitations
The limitations of the Vietnamese national grid also make it “very challenging” for solar developers to hit their commercial operation deadlines, Massmann adds. Another issue for utility-scale solar is the Vietnamese government’s draft PPA template. While authorities are now working to revise the template to make it more acceptable to domestic and foreign financial institutions, Massmann says that the draft PPA is not particularly bankable for a number of reasons. For one, the template does not clearly delineate risks for the government and the private sector. It also lacks foreign exchange guarantees, and it remains unclear whether the PPA template is a “take or pay” agreement, according to Massmann. Additionally, PPA negotiations still take an inordinate amount of time and the process is still not sufficiently transparent for foreign investors.

Despite these lingering concerns, the Vietnamese solar market nonetheless offers enormous potential. “There are still many broad opportunities for foreign investors, developers, consultants, and equipment suppliers,” says Massmann, noting that cumulative PV installations remain negligible, with the Vietnamese market still in its infancy.

One encouraging development is that the government plans to introduce a direct PPA for large-scale renewable projects at some point this year. This would allow renewable power generators to sell their electricity directly to corporate consumers. “We believe that foreign expertise in direct power purchase agreement projects is most needed at this point since the pilot direct PPA will be implemented soon,” Massmann says.

Promising C&I outlook
In Vietnam’s fledgling commercial and industrial (C&I) rooftop solar sector, where Massmann expects 19 MW of new capacity to be built this year, the outlook for PPAs is considerably more promising. In March, the MOIT replaced the old PPA model for rooftop PV and extended the FITs to all C&I projects, effective April 25, 2019. The new version of the PPA features a number of notable improvements, including the clarity that the FIT will be applicable for 20 years from a project’s commercial operation date. The new model PPA also includes a detailed but simple formula to calculate power generation and the price that is to be paid to generators, and separate payment and invoice procedures for companies and households.

“The new model PPA has been simplified for the sale of solar power from the rooftop solar generators to EVN/power purchasers,” Massmann explains, noting that it drops the previous net metering structure which mixed the sale and purchase of power between parties. “[This] is expected to address all outstanding issues of rooftop solar power projects.”

German solar specialist Conergy is similarly upbeat about the potential of Vietnam’s C&I solar space. CEO Alexander Lenz says the country could install more than 1 GW of C&I rooftop PV capacity over the next four to five years. He says that Conergy is therefore “very optimistic” about the country’s potential.

Lingering issues
However, Lenz acknowledges that a number of pressing issues still need to be definitively resolved, such as the 1 MW cap that the government has placed on rooftop PV projects, which reduces the potential benefits that can be achieved through economies of scale. A number of other related laws and regulations also need to be clarified, he argues.“[A recent solar policy document] defines four business models for solar rooftop investments, but the exact procedures on how to implement these models are not clear. We are assuming that more detailed procedures will follow,” Lenz explains. “The policies in general are supportive of rooftop solar development. [But] the laws and regulations need to be improved to provide more details and clear guidance, not only for the developers/investors, but also for the local government authorities who are responsible for executing the policies.”

Long-standing grid constraints are another issue that solar developers also need to consider when selecting poten-tial project sites, in order to limit dispatch-related risks, according to Lenz. Despite such lingering concerns, the outlook for rooftop PV is extremely positive in Vietnam. With average annual GDP growth rates of about 5-8% over the past 10 years, the country’s electricity demand is expected to outpace the growth of power generating capacity through the middle of the next decade.