1. Market Overview
The market outlook for solar energy in Vietnam is bullish. We expect a gradual, steady expansion of capacities. Important market drivers and obstacles include:
- Long-term power purchase agreements (PPAs) with adequate feed-in tariffs
- Favorable climatic conditions, especially in the southern part of the country
- New requirements could lead to a boom in rooftop solar applications
- PPAs are generally not internationally bankable
- Cumbersome approval procedures make project development more difficult
- Power grids are not yet adapted to handle large quantities of solar electricity
2. Political Objectives
Coal remains important
Vietnam’s electricity consumption is growing by more than 10% annually. The government and the state-owned utility Electricity of Vietnam (EVN) are forced to invest massively in the expansion of power generation. Although the government is focusing primarily on the expansion of the coal-fired energy sector, renewable energies (RE) are also expected to gain in importance. The government’s energy development plan (Master Power Plan VII, revised) envisages a substantial increase in the share of renewable energies in the overall electricity mix in the coming years. By 2030, they should cover almost 11% of the total energy produced.
According to the National Load Dispatch Center, in 2017 net electricity generation of around 198.2 terawatt-hours (TWh) was divided among the three energy sources of hydropower (44%), coal (34%) and oil/gas (21%).
First solar parks go online
As of the end of 2016, solar energy was still insignificant in Vietnam. According to the Ministry of Industry and Trade (MOIT), total installed capacity was only 3 MW. But the government’s 2016 energy development plan provided for the expansion of solar power. Due to the lack of fundamental regulatory requirements, however, energy companies were hardly able to reliably plan solar projects. With the introduction of feed-in tariffs in June 2017, the industry received an important impetus.
The government plans to expand installed solar energy capacity to 900 MW by 2020 and 12,000 MW by 2030. However, the targets of the current master plan are likely to be exceeded. Observers assume that between 1,500 and 2,000 MW will be connected to the grid by June 2019. The first solar projects, such as the 35 MW Phong Dien solar power plant in the Central Vietnamese province of Thua Thien Hue already has gone online. The public power company EVN reported that by the end of the third quarter of 2018, 35 PPAs had been signed, totaling almost 2.3 GW capacity.
The expansion of solar energy is controlled mostly by local electricity and solar development programs, which are continuously adjusted. Projects must be included in the current development plan in order to be able to go through the further approval procedure. A tendering system is planned for the future. According to industry experts, integration will take several years.
3. Market Organization
Electricity generation is also open to foreign companies
The public utility company EVN dominates the Vietnamese electricity market. In the first nine months of 2018, EVN, with an installed capacity of 28,000 MW, accounted for 59% of the country’s total generation capacity.
EVN is also the sole owner of the transmission grids and is so far the only market participant entitled to supply electricity to end customers. The electricity market will be converted into a competitive wholesale electricity market (Vietnam Wholesale Electricity Market) by 2022 and into a free electricity market by 2023. However, industry observers expect delays.
In contrast to electricity transmission and distribution, electricity generation is open to governmental and non-governmental local and foreign companies. So-called Independent Power Producers account for a total of 31% of electricity generation capacity. In addition to PetroVietnam, which operates mainly gas-fired power plants, various domestic and foreign investors operate coal-fired power plants. Solar energy is open to foreign project operators as well. Up to now, independent electricity producers are only allowed to sell the electricity generated to EVN.
Planning, project development and component delivery are in demand
With the feed-in tariff for solar power established in June 2017, the Vietnamese government has created one of the most important foundations for the development of a solar industry. From a climatic point of view, the southern part of the country is particularly suitable for the generation of solar power due to its consistently good radiation values. Both South and Central Vietnam, as well as the cloudier northern part of the country, have a natural potential of up to 4 to 5 kilowatt-hours per square meter per day (kWh/sqm/day).
The feed-in tariff introduced in 2017 is attractive. Solar projects ready for operation before 30 June 2019 will receive fixed feed-in tariffs of 9.35 US cents per kWh for up to 20 years. However, this tariff will expire on 30 June 2019.
Accordingly, investors are rushing to implement approved projects in order to be ready for operation before the deadline expires. Experts foresee solar parks with capacities of 1,500 to 2,000 MW to be ready by the end of June 2019. The first projects, such as the TTC Phong Dien solar power plant in the province of Thua Thien Hue with 35 MW, and the BP Solar 1 power plant, are already connected to the grid.
A draft by the MOIT from February 2019 describes new, graduated feed-in tariffs, some of which are lower than the current tariffs. Depending on the region and project type (floating/rooftop-mounted/ground-mounted), the proposals vary between 6.67 US cents per kWh (ground-mounted in sunny zones) and 10.87 US cents per kWh (rooftop-mounted systems in less sunny regions of the northern part of the country). According to the new regulation, the remuneration period will remain at 20 years.
Project financing remains a sticking point
Investments are currently being made mainly in ground-mounted solar plants. The projects are huge, with hardly any project not reaching the 50 MW limit. However, since project approval by the Prime Minister is required for projects with more than 50 MW, project development is slow.
According to observers, the development of solar parks in Vietnam is cost competitive, both internationally and compared to other power generation technologies inside the country. However, project financing is problematic. High interest rates make project development harder for investors who have to resort to local financing. It is difficult as well to obtain foreign financing, as the Power Purchase Agreements (PPAs) are hardly bankable outside Vietnam. For that reason, large local companies with sufficient equity, often from the real estate sector, have so far been predominantly involved in solar projects.
Because solar projects are difficult to finance internationally, investments by foreign companies are scarce. Foreign companies can be found primarily in areas that Vietnamese companies are not able to cover for technical reasons. Project consulting, technical planning and supply logistics are related fields of interest.
Complex control specifications for roof-mounted systems
Roof systems could gain in importance in the future, although the possibility of generating its own electricity has been used rather cautiously up to now. According to industry experts, the majority of companies are shying away from the high upfront costs of roof-mounted solar power.
The market segment could gain momentum if MOIT’s solar design is to be implemented. The bill envisages loosening EVN’s monopoly on the supply of electricity. This would make it possible for private investors to install photovoltaic systems on commercial roofs, for example, and sell the electricity to third parties (e.g. the building user) at freely agreed-on prices. Non-producing companies in particular – such as shopping centers or the operators of large warehouses and cold storage – could benefit from the new investment model.
Vietnam: Current solar projects
|Project (Location)||Capacity (MW)||Company||Status||Investment (US$ millions)|
|Solar Farm Tay Ninh||420||BGrimm Power, Xuan Cau (Vietnam)||Commissioning: June 2019||420|
|Solar Farm Ninh Thuan||258||Trung Nam Group (Vietnam), Siemens (Electrical Engineering Components), Arctech Solar||Not provided||204|
|BIM Solar Power Plant (Ninh Thuan)||237||BIM Group (Vietnam), AC Energy (Philippines), Rizal Commercial Banking Corporation (Financing, Philippines)||Not provided||300|
|Sao Mai Solar PV Project 1 (An Giang)||210 (Phase 1: 104)||Sao Mai Group, HDBank (Financing)||Section 1: Completion June 2019, Sections 2 to 4: Completion by 2020||242|
|Dakmi 2 (Quang Nam)||98||HDG Ha Dong||Commissioning: Q3 2020||137|
|Cat Hiep Solar||49.5||Truong Thanh Vietnam Joint Stock Company, Quadran International (France), Juwi Renewable Energy Company (EMC Contractor, Germany)||Commissioning: June 2019||49.3|
Source: author’s research
5. Market Barriers
Electricity purchase agreement makes market access difficult for foreign investors
The largest solar projects are usually in the hands of local investors and project developers. The reason for this is the Power Purchase Agreement (PPA) model, which regulates the terms of EVN’s power purchase for all solar projects and is not readily negotiable. Foreign investors criticize the PPA’s lack of international bankability. In particular, the lack of compensation claims (if EVN refuses to purchase electricity), the lack of state guarantees and a complex dispute settlement procedure have been mentioned.
Local investors are having fewer problems with the contractual provisions and are quite able to finance projects with the help of large local banks or international, often Asian, investors. Generally, large Vietnamese companies and banks are well networked with key players in the local business and political elite.
Development of projects with under 50 MW can generally be completed within one year. According to industry observers, the most protracted aspect is the approval process, which is described as cumbersome. Projects designed for a capacity of over 50 MW must be approved by the Prime Minister, which prolongs the approval phase.
EVN is under pressure to expand its electricity grid. In areas favored by solar projects, the grid has so far predominantly served to supply these regions with electricity and is not well suited to receive and feed in large quantities of solar electricity.
6. Local Industry Structure
Real estate companies expand into the renewable energy sector
Due to the difficulties in obtaining financing for projects in Vietnam, there are still relatively few foreign investors involved in the market. But Vietnamese companies, especially large real estate companies, have discovered renewable energies for themselves.
For example, the real estate company BIM is investing massively in solar expansion. In cooperation with the Philippine investor AC Energy Holdings, BIM plans to build solar parks with a total capacity of 1,000 MW by 2025. The Vietnamese developer Sao Mai is constructing a 210 MW project in the An Giang province. The power purchase agreement with EVN has been signed, and the local bank HDBank is providing financing (total investment: US$ 242 million). The real estate group TTC Group is increasingly focusing on renewable energies and connected one of the country’s first solar power plants to the grid in October 2018.
According to observers, local investors are generally well positioned for the design and construction of ground-based solar power plants. Particularly real estate companies expanding into renewable energies, such as BIM and TTC, have experience in project development and own their own construction companies that can handle the construction work.
Foreign companies are mainly needed where there is still a lack of technology and know-how. German company Juwi, for example, recently signed its third EPC (Engineering, Procurement and Construction) contract with Vietnamese project sponsors and will install a total capacity of 130 MW by June 2019. The Swiss solar company Syntegra is working closely with the Vietnamese developer TTC on project planning and engineering. Siemens is supplying the technical components for the Trung Nam Group’s 258 MW solar project in Ninh Thuan.
In northern Vietnam, the industrial zones around Haiphong and Hanoi are home to significant component production. Vietnamese companies such as BK Solar and Red Sun produce solar panels and modules. The Hong Kong Flat Group operates a solar glass factory in Haiphong with a capacity of 580,000 tons of glass per year. The Chinese company Trina Solar has a production facility near Hanoi. It supplies the solar panels for the US$ 420 million BGrimm project in Tay Ninh.
|New Energy and Renewable Energy Department (Ministry of Industry and Trade)||http://www.moit.gov.vn|
|Institute of Energy||http://www.ievn.com.vn|
|Vietnam Energy Association||http://www.nangluongvietnam.vn|
|Vietnam Clean Energy Association||http://www.nangluongsachvietnam.vn|
|The Solar Show Vietnam 2019||http://www.terrapinn.com/exhibition/solar-show-vietnam/index.stm|