In Vietnam, government incentives fuel solar energy race
The number of applications for solar energy projects in Vietnam has skyrocketed over the past year as investors race to put their solar plants into operation by mid-2019 to qualify for incentives offered by the central government.
The count of new investment requests has exceeded all expectations after Prime Minister Nguyen Xuan Phuc announced incentives to encourage the development of the solar sector last year.
Under a PM decision which took effect in June 2017, power generated by solar projects launched by June 30, 2019 will be purchased by state-run Vietnam Electricity (EVN) at 9.3 cents per kilowatt-hour for 20 years, which is a profitable rate for investors.
EVN retains monopoly over electricity distribution and retail in Vietnam, where the energy sector remains strictly regulated.
Though the country has recently allowed private investment in power generation, all plants must sell their generated electricity to EVN, which then distributes the power to consumers.
Similarly, investors signing power selling contracts with EVN by the designated date will be eligible for various incentives related to land, capital and import and corporate taxes.
Solar plants that go into operation later than June 30 next year might have to sell their electricity at a cheaper price and without the favorable conditions offered by EVN.
As of the end of August, 121 major solar energy projects with a total capacity of 6,100 megawatts by 2020 had been licensed, according to statistics from the Vietnamese Ministry of Industry and Trade.
Twenty-five of these projects have entered agreements to sell electricity to EVN, while 70 have had their plants’ basic designs evaluated.
In the southern province of Tay Ninh, a three-plant solar energy project developed by Dau Tieng Tay Ninh Power Company has been approved in principle by the provincial administration.
At a cost of nearly VND12.5 trillion (US$535 million) and a total capacity of 500 MW, the Dau Tieng 1, Dau Tieng 2 and Dau Tieng 3 solar plants together form the largest solar energy project in Vietnam.
With other major solar projects scheduled to go on stream by mid-2019, Tay Ninh is expected to become Vietnam’s new renewable energy hub.
The total capacity of licensed solar plants in Vietnam has already surpassed government estimates approved by the prime minister, which sets Vietnam’s target for solar power generation at around 850 MW in 2020 and 4,000 MW in 2025.
Despite such optimistic prospects, experts have warned of difficulties still facing the development of solar energy in Vietnam.
With many solar plants being concentrated in areas in the central and southern regions of Vietnam where sunshine is abundant, there will be a need to build new or upgrade existing grids and substations to handle the increased load.
Uninterruptable power supplies (UPS) will also be needed to make solar plants useful on cloudy or rainy days, but the development of massive UPS systems can double the investment in a solar project, according to experts.
These factors can drive costs up and subsequently increase electricity prices for end consumers.
In addition, there have been cases where companies only register to develop solar projects to reserve their ‘slots’ without actually going through with the plans.
Many investors have offered to transfer investment rights to others at a price, according to Tran Viet Ngai, president of the Vietnam Energy Association.