To infuse more transparency and competitiveness, better grid management and reduction in investment risk and electricity prices, Vietnam’s Ministry of Industry and Trade (MOIT) has announced to shift from feed-in-tariffs (FIT) system to new auction schemes for large-scale, grid-connected solar photovoltaic (PV) projects, says GlobalData, a leading data and analytics company.

Tarun Bhutani, Project Manager at GlobalData, commented: “The previous mechanism of FIT had fixed the preferential tariff for solar PV at VND2,086/kWh (USD 0.0935/kWh) (excluding VAT), applicable for grid connected projects only, whether ground-mounted or roof-top for the projects which achieve commercial operation before June 30, 2019. The FIT rates were attractive enough to trigger a huge rush for development of solar projects and grid connection just before expiry.

“According to Vietnam Electricity Group (EVN), as of June 30, a total of 82 solar power plants with a cumulative capacity of 4.46GW had been connected to the national grid; from less than 150MW of total solar power installed capacity by mid-April 2019”.

In April, 2019, the MOIT announced two years extension of FIT from July 1, 2019 to December 31, 2021. The second FIT tenure has variable tariffs that vary from USD0.0667/kWh to USD0.1087/kWh considering solar irradiation of the location and solar technology used. Higher tariffs are applicable for regions with lower solar irradiation and potential, mostly in the northern provinces of the country.

The tariff level will also depend on the year of grid-connection, as there will be a gradual reduction of tariffs between July 2019 and June 2020, and between July 2020 and June 2021. The intention of the new mechanism is to diversify solar development and investments in different regions of the country.

The transition to auction was much needed as previous mechanism has resulted into issues of power transmission and grid connection due to over planning of solar capacity clustered at few locations.

For instance, Ninh Thuan province has maximum number of solar power projects (25) but the power transmission infrastructure in the area has not been fully developed to support large-scale transmission, resulting in curtailment of power generation. Ten of these projects have been forced to operate at only 30 to 40% of their actual capacity.

So, the idea is to develop solar and other renewables in more strategic manner keeping check on the structure of power transmission system.

There are some concerns shared by the industry participants that the shift in policy regime may have a significant impact on a number of developing or recently proposed solar projects not yet approved, particularly those large-scale projects that were proposed, or are expected to be operational in 2021 instead of 2020.

The key challenge is to prepare an efficient bidding mechanism to screen investors/developers and have an international standard contract framework to make Power Purchase Agreements (PPAs) globally bankable. Secondly, transmission infrastructure needs upgrade for unrestricted power delivery to the grid from generators to ensure auction mechanism to deliver benefit of electricity price reduction.

Bhutani concludes: “The auction mechanism will create a sustainable environment for development of renewable energy and investment risk will be reduced by stable, competitive and transparent system backed by rising electricity demand in the country.

“Vietnam’s power demand is surging to support its growing economy and the country’s power generation is forecasted to rise from the current 47GW to 56GW by 2020 and 123GW by 2030, according to GlobalData estimates. Solar is expected to play a major role in this capacity growth and could even challenge coal as country’s biggest electricity source by 2030.”