Thanh, the owner of an energy firm in Hanoi with previous experience in hydroelectric investment, spoke of his confidence when putting money toward a solar power plant in late 2018, which was promptly licensed and entered into a power purchase agreement (PPA).
Rushing to complete the project before June 30, 2019 Thanh aimed to enjoy the preferential feed in tariffs (FIT) of 9.35 cents per kWh over the next 20 years. Post-June 2019 solar power projects could expect a lower FIT rate of 7.09-8.38 cents per kWh, according to a Ministry of Industry and Trade (MoIT) proposal at the time.
As a result, 81 new projects came online in the second quarter of 2019, and along with five others in the first quarter, added near 4,500 MW to the grid, 10 percent of total national grid capacity. In June alone, 49 projects came online.
With the sheer number of projects completed, Electricity Vietnam (EVN), the nation’s sole power distributor, said it had to set up special teams working three shifts a day connecting each project to the national grid.
EVN connected 3-4 projects to become operational before the FIT deadline, exchanging around 5,000 to 6,000 messages with power investors from 6 a.m. to midnight daily, the corporation claimed.
So many projects coming online in such a short time was something “unprecedented in the history” of Vietnam’s electricity sector, an EVN official told VnExpress.
This immediately overloaded power grids, especially in southeast coastal Binh Thuan and Ninh Thuan provinces with the highest solar radiation in Vietnam. The 110kV line in Ninh Thuan Province in June operated at 260-360 percent beyond safe capacity, National Electricity Regulation Center revealed.
Projects await new pricing policy
Following the mad dash, only two more solar power projects were added to the system by the end of the year with a combined capacity of 80.3 MW, compared to some 4,000 MW added between April and June, according to EVN.
According to investors, the government has so far failed to agree on a clear pricing mechanism for projects coming online since July, while power grid capacity cannot keep pace with surging output.
Currently, 39 completed projects have signed PPAs, and are awaiting a new price mechanism before connecting to the power grid.
One solar power plant had been added to the national plan this year but was unable to come online after a new Law on Planning came into effect in January, according to an anonymous energy consultant.
“For energy projects, interest usually accounts for 60-70 percent of the investment. And with the common rate at 10-11 percent a year, investors take a hit each day their plant stand idle,” he explained.
Many investors have had to slow down construction awaiting a new price mechanism and infrastructure, unsure how long they could hold out, it was added.
Since June, the MoIT had made several proposals on FIT prices for solar power, but eventually settled on proposing a fixed FIT of VND1,620 (7.09 cents) per kWh, 32 percent lower than the incentive price offered to projects that commenced commercial operations by June 30 this year.
Insiders have said the lowered feed-in tariff will demotivate investment in new plants. Le Thanh Tung, chairman of renewable energy firm Ecotech Vietnam, said with costs to produce solar power remaining unchanged, a lower feed-in-tariff would cut into company profits.
In November, the government tasked the MoIT to study the possibility of setting up a mechanism allowing investors to bid on solar power prices, to overrule the fixed FIT proposal.
Bidding not feasible: investors
According to the latest MoIT report, projects that have entered PPAs and under construction will use the fixed 7.09 cents per kWh, while those that have not begun construction will have to undergo electricity price bidding.
This mechanism is expected to be piloted in 2020 and apply to around 50 to 100 MW of electricity. MoIT had proposed to allow EVN to build the mechanism, which will be submitted to the Prime Minister for approval in the first quarter of next year.
But bidding takes too long to solve Vietnam’s immediate hunger for electricity, said Nguyen Huu Vinh, general director of a solar power project in Ninh Thuan. According to MoIT, Vietnam expects a shortage in electricity starting next year, rising to 3.7 billion kWh in 2021, then peaking at around 15 billion kWh in 2023 before halving each year and falling to 3.5 billion kWh in 2025.
“Solar power bidding is not feasible at present, and although it ensures transparency and publicity, Vietnam’s first priority is to quickly generate more power. Bidding in some countries could take up to two years,” he noted.
To ensure low FIT of 3.9 cents per kWh like Cambodia, which employs bidding, the government should ensure available land for construction, build transmission lines and transformers to support new capacity, and help projects access low interest rate loans from the World Bank or the Asian Development Bank, said Nguyen Van Ngoc, chairman of Son Vu Energy Development JSC.
This is difficult in Vietnam given the scarcity of cleared land and the overloaded grid, Ngoc added.
On Wednesday, the MoIT called on provinces and EVN to cease accepting proposals for new solar power plants, due to the unfixed FIT for solar power and absence of a solid bidding policy.
This year, 135 solar farms with a combined capacity of 8,935 MW were added to the national power plan, with plants producing almost 4,500 MW already going on stream, the ministry said.
Another 260 plants with 28,300 MW total capacity are pending approval.
According to macroresearch firm Fitch Solutions, Vietnam is seeking to leverage renewables in order to meet surging power demand, as evident in its power development plan, in which the government outlines a 4 GW solar capacity target for 2025, and 12 GW target for 2030.
Renewables currently account for 9 percent of Vietnam’s energy mix, already surpassing the target of 7 percent set for next year, according to EVN.
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