Vietnam: Solar sector waits on FiT power-up

Vietnam: Solar sector waits on FiT power-up

Vietnam should develop incentives to attract more capital to attain its
solar energy goals

Representatives of six German firms recently came to Vietnam to explore the
potential of the country's solar photovoltaic (PV) market.

The firms include IBC Solar AG, M+W Group GmbH, Droege Energy GmbH, CARERA
Solar/Hydro UG, ILF Consulting Engineers GmbH, and Syntegra Solar
International AG. They introduced their products and services to 150
Vietnamese companies during bilateral co-operation meetings.

Peter Cattelaens, deputy programme director of German-backed GIZ Energy
Support Programme in Vietnam, said that "German firms in the solar PV sector
can now seize a number of attractive business opportunities in Vietnam."

Not only German firms, companies from the UK, South Korea, the US, and
Canada are also eyeing solar power projects in the Southeast Asian country.

The UK's Kimin Power Company is working with the south-central province of
Quang Ngai's authorities on a $227.3 million, 150 megawatt (MW) solar power
project, on a 250 hectare plot in the province's Pho An commune.

In the south-central province of Ninh Thuan, local company Thien Tan Group
is co-operating with the US' Black & Veatch Group to make a feasibility
study for implementing a $2 billion, 1,000MW solar power project.

Also in this province, Canadian company CMX Renewable Energy planned to
construct a 150MW solar power plant worth $150 million over an area of
250ha.

In another case, in the nearby province of Binh Thuan, US-based ACO
Investment Group also expressed an interest in building a 50MW solar power
farm.

Meanwhile, Vietnam's private-owned firm Kinh Bac City Development Holding
Corporation recently signed a land leasing agreement with China's JA Solar,
which will invest $450 million into a 40ha solar cell plant in the northern
province of Bac Giang. The capital is expected to be raised to $1 billion in
the future.

Besides, the Central Highlands province of Dak Lak's authorities are waiting
for the Ministry of Industry and Trade (MoIT) to offer higher
feed-in-tariffs (FiTs) for two major solar projects floating on water, the
first of their type in Vietnam.

The investors include South Korea's SolarPark Korea Co. Ltd., who wishes to
build a 620MW solar PV plant in Ea Sup district. The project's investment
capital is estimated to be in the range of €600 million ($673.1 million)
and €900 million ($1 billion).

Dak Lak authorities are also negotiating a 120MW solar power project with
another South Korean firm and Vietnamese private firm Long Thanh
Infrastructure Development and Investment Company. This $200 million project
is expected to be built in the district's Cu M'Lan commune.

"We want to receive the decision from the MoIT soon, because the investors
are urging us. [Until the MoIT's decision,] we can't decide on the FiTs for
them," said Huynh Van Tien, deputy director of the Dak Lak Department of
Planning and Investment.

Great potential

At the recent Global Green Growth Week 2016 organised by Global Green Growth
Institute (GGGI) on South Korea's Jeju island, Gavin Smith, director of
Dragon Capital's Clean Development Fund and vice chair of Eurocham Vietnam,
said Vietnam is becoming a magnet for foreign investors interested in solar
PV power projects. The fund has invested in solar, small hydro, waste, and
clean water projects.

According to a GIZ draft report on solar PV investment opportunities in
Vietnam released last month, the potential for development of solar energy
in Vietnam is massive.

Solar resources are expansive, with an average solar irradiation of 4-5
kilowatt hours (kWh) per square metre per day in most regions of southern
and central Vietnam, and a total of 1,400-3,000 sunshine hours every year.
This makes the country comparable to developed solar markets in the region,
including China, Thailand, and the Philippines, as well as to mature
international solar markets, such as Spain and Italy.

While calling upon international investors to invest into Vietnam's solar PV
market, Deputy Minister of Industry and Trade Hoang Quoc Vuong told the
Global Green Growth Week 2016 event that "The potential of solar energy in
Vietnam can be utilised for water heaters, generators, and other types of
applications such as drying and cooking."

However, the MoIT admitted that despite such potential, over the past few
years, only 7MW of PV capacity has been installed in Vietnam, with around
2MW drawn from rooftop solar arrays. In August 2015, Thien Tan Group
co-operated with Indian and Thai partners to begin construction of the first
solar project in Vietnam, in the central province of Quang Ngai. This $37.54
million, 24ha project has a designed capacity of 19.2MW.

Several investors have come to Vietnam in search of solar power investment
opportunities, but have run into a wall.

"Currently, policies for renewable energy projects, including solar power
ones, are too unattractive to lure investors," Vuong said.

Awaiting incentives

The Vietnamese government has recognised this potential, and aims to
significantly increase its renewable energy production, including that from
solar power. Solar PV power generation capacities are set to rise from the
current 7MW to 850MW in 2020, 4,000MW in 2025, and 12,000MW by 2030.

To reach these targets, the government is currently preparing solar PV
support legislation. First drafts released in 2015 and developed further in
the first half of 2016 include a FiT of $0.112/kWh for large-scale
grid-connected free-field PV power plants, and a net metering credit for
excess solar power fed into the grid set at $0.15/kWh for rooftop systems.

In addition, there are supplementary instruments in preparation, such as
import tax exemptions, land incentives, and corporate income tax reductions
incentivising the development of the sector.

According to the UNDP, one of the biggest hurdles for Vietnam to attract
investors into its solar PV market is the low FiTs. The average retail price
of electricity in Vietnam was $0.076/kWh in 2015.

"The retail price of power in Vietnam remains artificially low by
international comparison. This is thanks to pricing policies that lead to
indirect subsidies to the power sector," said the UNDP's report on policies
for expanding solar PV power in Vietnam.

"Meanwhile, power generators depend on adequate financial returns on their
investments. They need predictable and assured revenue, which means that
perceived risks for getting a good return on their capital investment must
be low," said the report.

A FiT of $0.15/kWh is proposed by the UNDP for mainland solar power plants,
which should be paid over the 20-year lifetime of the investment project. A
lower initial FiT may not attract any investors.

Meanwhile, power plants on islands, with 25 per cent more investment cost
per kWh installed capacity, would require a FiT of $0.19/kWh for a 20-year
period.

Smith of Dragon Capital said not only German firms, but also many other
foreign investors, will come en masse to Vietnam for renewable energy
projects, including solar power ones, "if Vietnam removes barriers and
raises FiTs".

This recommendation is echoed by GGGI, that has also urged Vietnam to raise
the FiTs.

"Higher FiTs will be key for Vietnam to lure more solar investors," said
GGGI's director general Yvo de Boer. "It can also help Vietnam build a
low-carbon economy."

Tien from Dak Lak said that in addition to SolarPark Korea Co. Ltd., many
other Japanese and South Korean investors are working with the provincial
authorities on their plans to build major solar, photovoltaic, and wind
power plants in the province, with capacities of up to 630MW each.

"If the FiTs fail to rise, the government will not be able to attract more
solar power investors. Solar power projects need the investment capital at
least 30 per cent higher than coal-fired projects," Tien said.

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Ref: http://www.vir.com.vn/solar-sector-waits-on-fit-power-up.html

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com