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Moves afoot in solar energy

Released at: 08:44, 26/11/2018

Moves afoot in solar energy

Photo: Viet Tuan

Both local and foreign investors are flocking to invest in Vietnam's solar power projects to get ahead of the future opportunities.

by Hong Nhung

Local and foreign investors have been racing to register solar power projects in Vietnam to reap the benefits of a feed-in-tariff (FiT) of 9.35 US cents per kWh available until June 2019. Vietnam has seen a boom in renewable energy projects in recent times in a bid to meet the country’s future demands for power, as solar is expected to become the main renewable source in the future and is in line with recent government incentives to attract more investment in clean energy.

Investment race

Given that the timeline to reach the commercial operation date (COD) from the beginning of construction is anything between nine and 18 months, there has been a recent rush to obtain licenses and get construction underway to have a COD in June next year and be eligible for the incentive FiT. “If a project fails to receive the incentive FiT, investors may face uncertainty over their projects, including the possibly of having to participate in FiT auctions,” said Ms. Vu My Dung, Senior Market Analyst at StoxPlus.

Vietnamese conglomerate the TTC Group early last month opened the TTC Phong Dien Solar Power Plant in central Thua Thien Hue province, the first 35 MW solar power project to be put into operation, as part of its ambitious plan to spend as much as $1 billion on establishing one of Vietnam’s largest portfolios of 20 solar power projects and capitalize on growing power needs. It’s also expected that the group will officially put the TTC Krong Pa Solar Power Plant in the central highlands province of Gia Lai into operation in the last quarter of this year. The $32.8-million project has a capacity of 49 MW and will generate and distribute solar power.

Previously, in mid-September, the BCG Bang Duong Energy JSC, a member of the Bamboo Capital Group (BCG), broke ground on its first solar power plant project, in the Mekong Delta’s Long An province. The 50.2-ha plant has total investment of $42 million and a capacity of 40.6 MW and targets to produce 60 million kWh of power each year. Completion and operation are expected by mid-2019. The company is also investing in two other solar projects: the 100-MW GAIA and 50-MW Sunflower plants. “Total investment in these three plants is projected at up to $200 million,” Mr. Pham Minh Tuan, Deputy General Director of BCG, told VET

Together with infrastructure and real estate, renewable energy is one of BCG’s three key pillars. “We are investigating and proposing investment in solar power projects with a total capacity of about 400 MW in central Quang Nam province and we will also develop solar roof-top projects at industrial parks with total output of 50 MW,” he said. 

Meanwhile, infrastructure and renewable energy are also two key investment sectors for the Truong Thanh Vietnam Group JSC (TTVN), with it focusing on developing three solar power plants in central Quang Ngai province and south-central Binh Dinh and Phu Yen provinces, to be completed before the end of next June and with a total capacity of 355 MW. “We proactively participate in pioneering industries with a high intelligence content,” said TTVN’s Chairman Mr. Dang Trung Kien. “Solar power is still a new field in Vietnam so partnerships between local and large foreign investors are evitable and will ensure the progress and sustainable success of solar power projects in the country.”

As at June, there were more than 100 solar power projects being added to provincial and national power development plans, with a total registered output capacity by 2020 of 4.7 GW and an additional 1.77 GW after 2020, all of which are to realize Prime Ministerial Decision No. 11/2017/QD-TTg on mechanisms encouraging solar power projects in the country. By the same time, 748 solar roof-top projects had also been installed, with a total capacity of 11.55 MWp.

Great expectations

Under the government’s targets, to meet the surging demand for power resulting from urbanization and industrialization the power sector must generate 265 billion kWh of electricity by 2020 and 570 billion kWh by 2030. “This will trigger a stronger investment wave from both local and foreign investors into the country’s clean energy development in the years to come,” Mr. Tuan believes.

The government in September issued Resolution No. 115/NQ-CP allowing solar power projects in south-central Ninh Thuan province to enjoy the current FiT for a period of 20 years, as long as they begin commercial operations by the end of 2020. This is an extension to the earlier COD deadline of June 2019 applicable to all localities. The extension in Ninh Thuan, as specified in the new resolution, will hold good until projects approved by the Prime Minister reach a combined capacity of 2,000 MW. “Investors see this as a positive sign that the government can be flexible towards investors with serious intentions and large-scale projects,” Ms. Dung said.

The resolution has indeed seen a spate of local and foreign investors trying to tap into the solar potential in the province. The list of renewable energy projects registered by foreign investors in Vietnam has been continually growing and feature well-known foreign players. The Singapore-based clean energy firm Sunseap Group, in partnership with InfraCo Asia Development, commenced the construction of a solar farm in Ninh Thuan in June. The 168-MW solar power plant with total investment of around $190 million will supply over 200 million kWh of electricity to the national power grid once operational in 2019.

Similarly, Vietnamese concern the BIM Group and AC Energy, a subsidiary of Filipino conglomerate the Ayala Group, signed engineering, procurement and construction (EPC) and financing contracts in August, under which a 30 MW solar farm under construction in Ninh Thuan will be expanded to 280 MW and above 300 MW in the future. The power generation arm of Thailand’s B.Grimm Group, meanwhile, has approved an investment in a 257 MW solar power plant project, in which it purchased an 80 per cent stake under the power purchase agreement (PPA). The announcement comes roughly a month after the group said it had agreed to pay $34 million for a stake in a 420 MW solar project in southern Tay Ninh province. 

Ms. Dung sees partnerships between Vietnamese and foreign investors as being crucial in bringing projects to success, as each party possesses unique strengths. “Local firms could leverage their relationships and access to local authorities, which would help speed up land acquisition and site clearance as well as licensing,” she said. “This is crucial for foreign partners, who bring finance and technical capacity but lack local insight. Vietnamese investors play an indispensable role.”

Share of power sources in total electricity production

Source: Graphic c Asia Briefing.Ltd

Obstacles to address

As at August, there were some ten large-scale solar power projects with a total of 1GW in planned capacity under construction, according to StoxPlus. Ninety per cent of total registered capacity, however, remains only on paper, caused in large part by lengthy and complex licensing and site clearance processes. Some local developers come from real estate, trade or manufacturing, and possess little in the way of background and know-how and may also face issues with project financing. The question remains how many solar power projects will actually be built, as most have failed to get off the drawing board. 

According to Mr. Kien from TTVN, given that the fixed PPA puts all the risks in connecting on to the grid on developers, it is important that once construction is finished that developers face minimal problems in getting the project connected. “Another major difficulty is dealing with legal procedures in a short time to ensure project progress,” he said. “The lack of a land bank is also a hinderance for some projects. Other risks include the absence of international arbitration, stabilization clauses, and legal factors relating to international financiers who cannot take land or other assets as collateral due to existing local regulations. Investors have been working to overcome some of the difficulties, but in terms of project financing, the PPA is unbankable at both local and foreign banks.”

Regarding the future, after the deadline on the incentive FiT of June 2019 passes, there are several possible scenarios, such as an extension, a lowering of the FiT, or the introduction of auctions, according to Ms. Dung. Profits are certain to be affected by a lower FiT or an auction. “The PPA model must be revised, so that solar energy investors can access international funding at a lower cost in order to maintain project profitability and the sustainable development of Vietnam’s solar energy sector,” she said.

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