2020 Champion, Vietnam Offers a Cautionary Tale On Renewable Growth

Highlights :

  • While assured incentives drove massive investment and growth till 2020, the subsequent challenges underscore the need for better planning.
  • The country is likely to spend more on wind power to balance out the solar capacity.
2020 Champion, Vietnam Offers a Cautionary Tale On Renewable Growth

Just when Vietnam has emerged on the global map as a ‘solar hotspot,’ after a stupendous 2020, the government has declared that no solar energy will be added in 2022 as the grid system is failing to accommodate the solar power produced. Vietnam may not repeat the success of yesteryears but there is credible evidence that its fabulous solar run is far from over.

The Solar Dash

At the end of 2020, the country’s rooftop solar installations added 9.3 gigawatts (GW) to its national grid.

There was an eight-fold increase in rooftop solar in just one month, December 2020,  from only 378 megawatts (MW) in 2019. This  6 GW out of the 9.3 GW was built in the last month of 2020 as the solar rooftop feed-in-tariff from the government was about to expire.

Vietnam had first surprised with an unexpected solar boom in 2019 when the country added 4.5 GW worth of installations in less than two years after the feed-in-tariff was launched. By 2020, the hectic additions had made the country the third largest solar market globally, someone no one had predicted as recently as two years earlier. The move also encouraged more manufacturing facilities to be set up in the country.

The Dampener- Grid Resilience

The latest news from Vietnam, that the country will not add any solar or wind energy in the year 2022 as the power grid and the transmission lines are just not flexible and smart enough to uptake the power generated in these plants. This means that the extraordinary renewables’ run of Vietnam is halted for a reason that was fundamentally avoidable. Thanks to the country adding about 10 GW of solar energy in two years between 2018 and 2020, coming both from farms and rooftop sources , it remains on course for its 2030 target of 18.6 GW.

The success is principally attributed to favourable and constant regulatory and supportive policies from the state. The government came up with the Feed-in-Tariffs (FiT) policy in 2018 to encourage investment in renewable energy – mainly the solar and wind sector – by guaranteeing an ‘above-market price’ for power producers. The inherent risks in the renewable sector are automatically mitigated by formulating long-term contracts. The result was that by the end of 2019 – in a period of less than two years – Vietnam amassed 4.5 GW solar capacity.

Even in the new FiTs that were brought in April 2020 and the tariffs lowered by 10 to 24 percent than before, their effectiveness did not decline as they were uniform across the geographies of Vietnam and also differentiated by the nature of projects to make it feasible for varied projects – ground-mounted, floating and rooftop.

Even Covid was no hindrance in 2020, as Vietnam carried on its solar expansion surpassed players like Thailand and Malaysia and emerged as a top spot for foreign investors in the solar sector. Another key reason for Vietnam’s surprising rise is that while other ASEAN players pushed for rooftop solar using a net-metering scheme aimed at self-consumption or residential usage, Vietnam dealt with rooftop under Feed-in-Tariff policy, placing the rooftop at par with the ground-mounted solar.

Policy intervention opened doors for massive private investments. Out of the total investments made since 2018, about 45 per cent was private and about 35 per cent is foreign investment. The interest rates remained favourable – kept in mid to high single digit – and both public and private banks were involved in easy lending.

Fault – Lines 

While the electricity production in 2021 has increased by about 7.9 per cent from all sources including renewables  the National Load Dispatch Centre (NLDC) has held that the present system has failed to transfer renewable energy produced in most of the solar plants to the grid system for further transmission due to insufficient input facilities.

NLDC informed that the grid system has suffered mainly because of the large numbers of solar and wind energy sources commissioned in the past three years. There is an acute challenge of stabilizing the power system in real time. And this has been the key reason as to why the government was forced to cut down the FiT of late and no addition of solar or wind energy will be made unless the grid system is rationalized.

Now to ensure a constant power supply, the government will be forced to fall back on traditional power sources. Hence, in 2022, traditional power plants worth 3,400 MW will be added that will include two big thermal plants of 600 MW capacity each. The natural gas from the southeast and southwest sources will rise to run the gas-led power plants.

Solar energy sources were put into operation at an increasing rate without giving an equal impetus to grid modernisation which is an inalienable part of smart systems. Vietnam’s power grid has been designed for large power sources like those of hydro and thermal. Hence, the grid or transmission system simply failed when it came to solar power systems at scale but was distributed into just too many smaller projects.

Correspondingly, the solar energy is intermittent which means that the energy availability is not consistent. In high solar output periods, it led to overload on the grids; most of the time at provincial level. This led to an acute strain on the north-south transmission line which is the backbone of the power supply line. Hence, Vietnam Electricity (EVN) had no option but to curtail solar production of late. In the same period, less emphasis was given to storage technology and infrastructure. The grid overload conundrum was common in cases where new power projects have been developed in a short period of time.

The solar sector turned ‘from a virtuous to a vicious cycle’ in quick time. Now the cut in power delivery is resulting in immediate financial losses for project firms. The government utility pays only for the electricity that its grid can accommodate. Now more than anything else, smart grid systems are the need of Vietnam if it wishes to fulfill its global renewable commitments.

The future of Vietnam’s solar sector now entirely rests on energy planners’ ability to integrate renewables into the power system. Vietnam’s Ministry of Industry and Trade in its Eighth Power Development Plan (PDP-8) has held that $52 billion of investment is required for grid infrastructure upgrades over the next 15 years. The industry says that a multi-billion investment is needed immediately to fix the grid offtake problem and relieve the existing solar power generators.

But the real challenge is that Vietnam requires private sector capital to fuel the development of its grid infrastructure but the electricity legislation of the country puts Electricity Vietnam (EVN) in a monopolistic position over power transmission and distribution. Just recently the government has opened a window for the private sector to invest in the grid system as Vietnam has introduced its first uniform Public-Private Partnership (PPP) legislation allowing private sector participation in the nation’s grid expansion. The Politburo has also issued a resolution recommending amendments to the electricity law to allow for private sector investment in power infrastructure to the government, which is likely to meet soon.

There is also talk of establishing a ‘Renewable Energy Fund’ through the collection of mandatory fees and fines and funding the grid development while mitigating risks for developers.

Delay is not Dissuasion 

The stoppage of the new solar and wind projects looks temporary and this has not dented the sentiments of investors in a big way. In a crucial meeting on January 24 this year, the government affirmed its seriousness about faster modernisation of the national grid and it created five technical groups including one on ‘Grid Integration and Grid Infrastructure’ for urgent needs that the power sector requires. The Minister for Industry said that Vietnam will continue to develop the local renewable energy market; the government is committed to transition towards clean energy and sustainable development. Country Director of the World Bank, Carolyn Turk, has seconded the government and promised institutional support for the future in reducing greenhouse gas emissions and achieving net-zero emissions by 2050.

Experts and analysts believe that the solar sector will rise after the present spell of temporary halt. The Power Development Plan has not been abrogated. It still operates to cull coal-based plants and allow renewables a bigger role to play up to 2030 and even further to 2045. Hence, a backward trajectory or long term halt is simply out of question. Germany based RE consultant and expert of the Vietnamese market, Rainer Brohm, opines that solar output in the country can increase up to 20 GW by 2030 and up to 72 GW by 2045.

Investors are also familiar with the fact that the clean environment has become an electoral issue in Vietnam and public opinion is dominant in favour of renewables. Residents of Hanoi, Ho Chi Minh and other cities do not want to see the present levels of air pollution. The newly enacted Environment Protection Law has already come into force on the first day of this year.

Vietnam’s first privately sponsored transmission line, funded by Vietnamese renewable energy firm Trung Nam Group, came up recently. Spain based EDP Renewables, Iberdrola, Ireland’s Mainstream Renewable Power and Japan’s Osaka Gas have announced investments in renewables recently. Vietnam has risen as the ‘Poster-boy’ of the solar renaissance in South-East Asia; it doesn’t look like it would delay the grid modernisation and lose its premier position in the comity of nations.

"Want to be featured here or have news to share? Write to info[at]saurenergy.com