Monday, July 17, 2017

Renewables in Vietnam: Current Opportunities and Future Outlook

Renewables in Vietnam: Current Opportunities and Future Outlook

Vietnam is one of the most efficient power market in Southeast Asia, driven
by low-cost resources such as hydro and coal. The country has achieved
almost 99 percent electrification with relatively low cost in comparison to
neighboring countries, leading it to be a net energy exporter.

With energy demand projected to increase by more than 10 percent annually in
the next five years and required power capacity to double; the government is
moving forward to develop the renewable energy sources to ensure energy
security and addressing the growing power demand.

Current supply and future demand

Supply

Energy sources are diverse in Vietnam, ranging from coal, oil, natural gas,
hydropower, and renewable energy. According to the 2016 Vietnam Electricity
Annual Report, hydropower and coal fired power led amongst the power
generation sources. Renewable energy, which includes wind, biomass, and
solar accounted for less than half a percent of power generated in the
country.

Demand

With growing industrialization and modernizing of the economy, energy demand
is predicted to increase by over 10 percent annually during 2016-2020 and by
eight percent per annum during 2021-2030. Electricity consumption is
projected to increase four-fold by 2030 compared to 2014.

In the short term, coal and hydro will continue to be major sources of
electricity but under the government's Power Development Plan, share of
nuclear energy and renewable energy especially solar and wind will be
increased in total electricity production.

Renewable energy - current state and potential

At present, hydropower holds the largest share amongst all renewable energy
sources, followed by wind and biomass. Solar energy, biogas, and
waste-to-energy technologies are picking up slowly while geothermal energy
and tidal energy are in a very early stage. In the government's recently
revised Power Development Plans, the government has laid out their goals for
the renewable energy until 2030.

Current state and potential

Small Hydro - Small Hydropower projects account for 1914 MW of total energy
with a potential of further 7,000 MW.

Wind Energy - At present, wind energy provides 146 MW of energy with a total
potential of 8,000 MW for areas with wind of >=6m/s. For winds below 6m/s,
the energy potential is much larger.

Biomass - Total biomass potential stands at 2000 MW, with current installed
capacity accounting for 352 MW.

Solid wastes - Solid wastes have a potential of 320 MW, but energy generated
currently from solid wastes is at a nascent stage, accounting for a mere 2.4
MW.

Solar - Solar energy has a potential of 4-5 kWh/m2, depending on the area
allocated for solar panels. Currently, only four MW is generated by
households and pilot projects.

Geothermal - There are over 300 hot mineral water resources with the
potential of generating 200 MW of power.

Recent Investments

Private sector investments continue to rise steadily in the electricity
market. Most of the investments are in the form of build-operate-transfer
projects (BOT), where a foreign investor builds a power generation project,
operates it for a period, and then transfers it to the Vietnamese
government. There is no restriction on foreign ownership for such projects.
With continued liberalization of policies, Vietnam has seen a steady
increase in foreign investment in power projects. The total capacity of
foreign-invested power producers accounted for 2,800 megawatts in 2015.

In one of the most recent investments, General Electric (GE), Mainstream
Renewable Power, and Phu Cuong Group are working together on a 800 MW wind
farm in the Soc Trang province. The agreement worth up to $2 billion was
signed in early June 2017. Other recent investors include US based AES
Corporations, Vietnamese firm Xuan Thien Daklak, Long Thanh Infrastructure
Development and Investment Company, Japanese firm Fujiwara, and South
Korea's Solar Park Global investing in renewable energy projects worth US$45
million to US$ 2.2 billion.

Barriers to development

Although the foreign and domestic investment is on the rise in the renewable
energy sector, much more needs to be done. In spite of the liberalization of
the policies in the last few years, investors are facing numerous obstacles
such as:

Lack of sufficient funding
Low tariffs coupled with high investment costs in newer technologies
Lack of qualified human resources
Underdeveloped supporting industries

Regulatory Framework

In 2016, the government approved the Revised National Power Development
Master Plan for the 2011- 2020 Period, with a vision for 2030. The plan aims
to increase the share of renewable energy to around seven percent in 2020
and above 10 percent in 2030 and reduce the use of imported coal-fired
electricity to ensure energy security, climate change mitigation,
environmental protection, and sustainable socio-economic development.

Until 2020, 2025, and 2030, the government aims to increase the power plants
capacity to 60,000 MW, 96,500 MW, and 129,500 MW respectively.

Feed in tariffs

Feed-in-tariffs in Vietnam is one of the lowest in the world. Electricity of
Vietnam (EVN) purchases all power from renewable projects. Tariff is
currently set for biomass, wind, waste-to-energy, and solar projects.

Wind - VND equivalent of 7.8 US cents/kWh
Solid waste-to-energy - VND equivalent of 7.28 US cents/kWh to 10.05 US
cents/kWh
Solar - VND equivalent of 9.35 US cents/kWh
Biomass - VND equivalent of 7.34 US cents/kWh to 7.55 US cents/kWh
Small hydropower (below 30 MW) - Avoided cost tariff is set at around 5 US
cents/kWh, depending on season and daily peaks.

Investment Considerations

Vietnam would be requiring around USD 8 billion/year until 2020 and USD 10.8
billion/year from 2021 to 2030 for grid expansion (excluding BOT) and
development of power sources. With such high capital requirements, the
government has allowed 100 percent foreign ownership of Vietnamese companies
in the energy sector. Foreign investors can choose among permitted
investment forms; 100 percent foreign invested company, joint venture or
public private partnership ("PPP") in the form of BOT contract. With low
feed-in-tariffs and high production costs, PPP is the most effective means
of entering the market to minimize risks.

Renewable energy projects benefit from import duty exemption for imported
goods to establish fixed assets, materials, and semi-finished products. Tax
holidays are applicable in the case of corporate tax, which is 0 percent for
the first four years, followed by a 50 percent reduction in the next nine
years. Financial incentives also include preferential credit loans, land
use, and fees for environmental protection activities.

To ensure consistent returns for investors, the government has also approved
electricity prices (avoided-cost tariffs, Feed-in Tariff) for on-grid
renewable energy, including standardized power purchase contracts (20 years)
for each renewable power type. EVN, the sole buyer of electricity in Vietnam
has also been mandated to prioritize renewable energy in grid connection,
dispatch, and purchasing electricity at approved tariffs.

Recommendations

Vietnam has immense potential for wind and solar-based projects and is
sufficient enough to address the growing power demands. However, low
feed-in-tariffs (FIT) have deterred foreign investors due to large
investment costs. For project to be feasible, investors believe FIT should
be increased to 10.4 US cent/kWh for wind projects and 15 US cent/ kWh for
solar power. Apart from FIT's, negotiating standard power purchasing
agreements (PPA) with EVN, the sole buyer of power is time-consuming, which
leads to an increase in the total project costs. PPA negotiations have to be
more efficient to reduce overall costs to investors due to delays. In
addition, relevant government authorities should reduce timeline in
formulation of guidelines and regulatory approvals, which in some cases has
been years. Lack of clarity and delays in approvals often leads to execution
delays or complete abandonment of projects.

Additionally, quality and sourcing of data for renewable energy sub-sectors
has to improve to ensure clarity for investors about available locations,
infrastructure capabilities, and government's targets. As the renewable
energy sector picks up pace in the coming decade, the government should
continue to focus on developing the human resource capability. In the last
few years, EVN has been conducting various training programs for technical
experts, typically for power plants and similar training should be
introduced for the renewable energy sub-sectors as well, in order to meet up
with new requirements.

Last but not the least, supporting industries plays a crucial role in
development and quicker adoption of renewable energy technologies. The
government should promote domestic SMEs through capital subsidy and
incentives such as tax breaks and preferential loans. A competitive
supporting industry will help in reducing the tariff and investment costs
for renewable projects, which are cost-intensive.

--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---

Link to Original Article:
http://www.vietnam-briefing.com/news/vietnams-push-for-renewable-energy.html
/

--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---

John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.