Solar sector waits on FiT power-up

As Vietnam looks to raise the nation’s renewable energy sources, foreign investors are sensing an opportunity for solar energy projects. But low feed-in-tariffs are slowing this movement, to the dismay of both local and international organisations.

          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.

Thanh Thu/ vir