In the last decade, Vietnam has witnessed a rapid growth in its energy industry on the back of rising demand for electricity. According to the Vietnam National Load Dispatch Centre data, the average daily electricity consumption of electricity in the country was 615 million kWh per day in the first few months of 2020, an increase by 7.5 percent compared to 2019. The energy demand in Vietnam is also expected to increase by 10 percent annually by the end of 2020 and by 8 percent annually between 2021 and 2030. For that reason, Vietnam has adopted renewables as a source of its energy.
Renewables offer the country the prospect of a less expensive, cleaner, and more secure energy pathway. Vietnam is aiming to boost its power output produced from renewable sources to nearly 23 percent by 2030, according to Andreas Cremer, director of energy and infrastructure for Europe, Middle East and Asia at German investment firm DEG. He pointed out that 10.7 percent of the energy mix will be sourced from renewables and 12.4 percent will be generated from hydro.
In this context, Vietnam has invested heavily on solar. In fact, wind and solar power sectors are anticipated to reach a capacity of 19.9 GW by 2030 in the country. Solar will play an important role in helping Vietnam achieve its ambitious targets of producing 23 percent of its energy mix from renewables. It was reported that Vietnam aims to have a solar power capacity of 0.5 percent of national output by 2020, 3.3 percent by 2030 and 20 percent by 2050. Over the years, Vietnam has also undertaken a significant number of solar projects, most notably, The Dau Tieng Solar Power Complex, which is Southeast Asia’s largest solar project.
Vietnam is an ideal destination for solar investment
Compared to other Southeast Asian countries, Vietnam gets between 2,000 and 2,500 hours of direct sunlight annually, making it one of the best located countries in the region to capitalise on solar energy. In the last decade, Vietnam has established itself as an ideal destination for solar investments. The growing demand for electricity has helped the country to establish itself as a renewable investment destination. To boost the development of solar energy, authorities in Vietnam have introduced policies such as the flexible FITs system, focusing on solar projects with solar-cell efficiency greater than 16 percent or solar-module efficiency greater than 15 percent. A FIT will be fixed at 2,086 Vietnamese dong/kWh for generating electricity at the delivery point. It is argued by many experts that Vietnam might become the largest solar power installer in the Southeast Asian region two years after introducing the FITS system. Wood Mackenzie said in a report that Vietnam’s cumulative solar installation will reach 5.5 GW this year, which accounts for 44 percent of Southeast Asia’s total capacity.
The decision to shift its focus on solar was taken by the Vietnamese government in 2017 when it decided to prioritise solar over other energy sources. In 2018, solar accounted for only 134 MW of renewable capacity, equivalent to 3 percent of Vietnam’s total renewable capacity. According to data released by state-owned utility company Electricity Vietnam (EVN), Vietnam’s solar generation in the first quarter of 2020 surged by 28 times to 2.3 billion KWh compared to the same period in the previous year. The company further revealed that around 91 solar farms, with a total capacity of 4,550 MW, began operation in 2019, bringing the aggregate capacity of solar plants to 25,000 MW. This impressive feat allowed Vietnam to achieve its 2020 solar target of 4,000 MW, which is provided for in the Revised Master Plan and simultaneously overtake Thailand as the largest solar market in Southeast Asia.
Earlier this year, Vietnam announced a new 550 MW solar project which will be developed by China Power Construction Group in collaboration with Thailand’s Super Energy. The project called the Luning Photovoltaic Project will be developed in Vietnam’s Pingfu province. The development of the project will be completed in three phases: design, procurement and construction along with support facilities. This is not the first time China Power Construction in overseeing a development of a solar project in the country. The company previously completed over 70 projects totalling approximately 2.5GW of renewable energy capacity in Vietnam. China Power Construction said in a statement that its power projects in Vietnam represent approximately 65 percent of the country’s total installed capacity.
Similarly, Hexagon Peak also signed a long-term power purchase agreement with New Wing Interconnect Technology (NWIT) for the largest rooftop solar system in Vietnam. Reports suggest that the project will have a nominal power output of 6 MWp and will be located at New Wing’s manufacturing facility near Hanoi, Vietnam. The project is part of the efforts of NWIT to reduce carbon emissions footprint and transition into sustainable and green manufacturing. The project will cut 113,520 tons of greenhouse gas emissions and will power around 25 percent of NWIT’s current manufacturing operations. It is worth mentioning that the Asian Development Bank (ADB) signed a $37 million agreement to finance the 47.5 MW facility at the 175 MW Da Mi hydropower plant in Vietnam. The project will be Vietnam’s first large-scale floating solar power plant and also the first on a hydropower reservoir.
Southeast Asia’s largest solar power farm is underway
Vietnam is not only leading Southeast Asia’s renewable energy market, it also boasts the region’s largest solar power farm which has the capacity to produce 688 million kWh of electricity annually. The Dau Tieng Solar Power Complex was constructed on the Dau Tieng Reservoir which is also the largest artificial lake in Vietnam. The mega project is expected to generate 10 percent of the country’s solar energy and have the capacity to power 320,000 Vietnamese homes. The project was developed as a joint venture with the Thai industrial group B.Grimm Power Public Company. The complex has been developed with an investment of around $391 million and occupies 540 hectares in Tay Ninh province, which is 100 km from Ho Chi Minh City.
The complex comprises 3 projects which are Dau Tieng 1, Dau Tieng 2 and Dau Tieng 3. It is reported that the project is designed with solar photovoltaic technology which includes the main components of PV panel array, inverter, monitoring or control system, booster station system and transmission system. The general layout of the Dau Tieng Solar Power Plant, specifically the distance between equipment rows, angle and configuration of equipment, direction of equipment installation, is designed and calculated efficiently to reduce the cost and maximum the productivity from the plant. According to reports, the project will help Vietnam cut carbon emission of 595,000 tons each year. The project will also play an important role in meeting Vietnam’s ambitious plan to produce 20 percent of its energy needs from solar sources. While the project is Southeast Asia’s largest solar project, it will also help the country attract foreign investors and put Vietnam on the list of top green investment destinations.
The renewable sector is challenged with complexities
Despite a booming renewable energy sector, there are a number of challenges for the country to overcome and ensure a greener power supply. In Vietnam, rapid economic development has led to a surge in demand for energy, however, it has posed challenges in front of the Vietnamese government in terms of primary sources of energy such as coal, oil and gas. Vietnam’s deputy minister of Industry and Trade, Hoang Quoc Vuong, while speaking at the Vietnam Energy Forum 2020 held in Hanoi, said that energy has an extremely important position and a big impact on global sustainable development.
During the energy forum, he pointed out that Vietnam’s energy sector has seen strong development, basically meeting with demand for production and people’s lives as well as contributing to the national defence and security. Demand in the past decade increased by 14.6 percent. Electricity alone saw an average growth rate of 9.5 percent. However, the current capacity was 6,000 MW, causing a need for further 5,000 MW to 7,000 MW annually. This has proved to be a challenging task for the government. Raising concerns, Hoang Quoc Vuong said that even though the Power Development Master Plan VII has been revised since 2016, it is further delayed. That said, there is a lot of work to be done by the Vietnamese government when it comes to solar development.
Large scale renewable energy development Vietnam is still limited despite the booming solar sector. This could be attributed to the fact that power energy has not been synchronised with the development speed of renewable energy sources. This also brings us to the point that more investment is required from the government’s end to not only promote solar energy, but to attract foreign investment in the sector. Against this background, the government needs to develop a mechanism to attract investment capital for renewable energy development, especially in solar. Many experts argue the role of the private sector in renewable energy. They believe the participation of the private sector could create markets and accelerate the growth of the sector which will help Vietnam achieve its energy targets.
Private sector participation in Vietnam’s energy sector would not only improve its energy security, but also create a transparent environment which would contribute to its sustainability.Wood Mackenzie in its report issued a warning that EVN, Vietnam’s only utility company will need to find more free space in the grid or their plants will not be producing to their designed capacity. In many of Vietnam’s important provinces, the installed capacity has already exceeded the grid capacity by 18 percent and the approved capacity for the Ninh Thuan and Binh Thuan provinces stand at 5 GW, which is more than double the grid usable capacity.
It is leading Asean’s solar PV market
Vietnam is one of the fast growing economies in the Southeast Asian region. The International Monetary Fund (IMF) forecasted its economy to grow by 6.5 percent this year, prior to the coronavirus pandemic. Despite the pandemic, Vietnam is expected to have economic growth unlike many emerging economies who anticipate a negative economic outlook for 2020. The country is expected to push ahead with its plans for renewable energy, especially in solar. The pace in which Vietnam has taken up solar photovoltaic (PV) installations has surprised many and currently Vietnam has emerged as a leader in the Southeast Asian region. What is even more surprising is that Vietnam had only 134 MW in 2018, but reports suggest the country’s cumulative installed solar PV capacity to hit 5.5 GW this year. This could be around 44 percent of Southeast Asia’s total capacity, Wood Mackenzie said in its research report.
During the period between June 2018 to June 2019, Vietnam added 4.45 GW of new solar PV capacity. According to Rystad Energy, the average time for construction and commissioning a solar PV project in Vietnam is around 275 days, which is quite impressive. The 4.45 GW of new solar PV capacity added in the last 24 months or so easily exceeds the 1 GW target set for solar PV electricity generation by 2020, according to Vietnamese media. EVN, the state-owned utility company stated that as many as 82 plants with a combined capacity of 4.45 GW were connected to the national grid as of 30 June. As a result, the plants qualify for the feed-in tariff (FIT) programme.
A positive outlook despite the pandemic
Despite the Covid-19 pandemic, the renewable energy sector in Vietnam has a positive outlook. This is because investments are considered less risky compared to other forms of investments. And as a result of the global recession, investors may continue to invest in safe options such as renewables. There is significant potential in the Vietnamese renewables market and the country seems committed to adopt renewable energy as a primary source of energy in the future. Its commitment is clear from the recent development we have seen in the solar industry. The development in the sector will continue despite the limitations driven by the pandemic. However, the rate of development may slow down.
To help the sector grow in the future, the country should make significant changes to its policies. In Vietnam, the higher cost of capital is limiting its ability to attract significant foreign direct investment, therefore limiting potential renewable developers. For that reason, it needs to create a financial and regulatory infrastructure that would not only attract foreign investors, but also make them invest in its green projects. A report by Mckinsey published last year suggested that Vietnam needs to develop a more attractive Power Purchase Agreement (PPA) for renewable energy. The current PPA forces project developers to shoulder the majority of the risk. Many project developers in Vietnam find it difficult to raise capital because of the higher risk associated with it. So what they really need is an agreement that favours them and allows for both foreign and domestic investments to flow seamlessly into the renewable energy sector in Vietnam.
Along with an upgraded Power Purchase Agreement, authorities in Vietnam need to design an easy-to-navigate, transparent and replicable project-approval process, Mckinsey said. The current approval process in place in Vietnam is confusing, lengthy and usually requires a large amount of stakeholder engagement with a variety of government agencies. This necessitates a transparent process which is smooth, seamless and encourages confidence among potential investors. While Vietnam has taken the bold step to rely on renewables for its energy needs, the country will develop large-scale renewables projects. For that reason, it will need experienced developers to oversee these projects. The country needs to also invest in having a local workforce ready which can undertake massive projects. This will simultaneously help Vietnam create jobs in the sector as well.