Vietnam 2020 Renewable Energy Outlook
Vietnam’s thirst for energy
Vietnam’s fast economic growth over the years has driven a rapid increase in demand for power. Over the last decade, the energy demand has grown at an impressive rate of over 10% per year and the trend is not expected to slow down until at least 2030.
Electricity production and consumption are disparate in the country, Northern Vietnam is in oversupply of energy while the southern part is consuming more than they produce. As of today, the total production still surpasses the total demand, however, it is expected that Vietnam will face again power shortage starting 2020. Based on Power Development Plan No.7, it is expected that the country will need 130 GW more of electricity by 2030 requiring about 150 Billion USD investments in the sector.
Coal and hydro energy generation are reaching their limits
For a long time, the country has been resilient on hydropower and fossil fuels to generate electricity. The hydro potential has almost reached its limits for big scale projects, coal and oil prices are increasing and reserves declining. These reasons have led Vietnam to look for alternative power generation sources during recent years.
The country is one of the most vulnerable in the world when it comes to climate change and recent hazardous air pollution levels in both Hanoi and Ho Chi Minh City have been an alarm bell to accelerate change in power generation for the government, companies, and citizens. According to a recent study by McKinsey & Company, Vietnam has reached also the tipping point where Renewable Energies are the lowest cost option to meet the increased demand for Electricity. Renewable Energy in Vietnam is taking more importance in each level of the society, from users to business, not to speak of authorities.
Vietnam bold ambitions for a greener future in Energy production
For years, Vietnam has been lagging way behind neighboring countries when it comes to green energy generation, but a new trend has been set by Prime Minister Phuc since 2017. The country leader has a strong aspiration to lower the country’s dependence on coal and wishes to triple green energy production by 2030. Many incentives are offered for green energy production projects, new FiT’s are introduced, possibilities to sign PPA’s are put in place to create a favorable environment for renewable energy projects in Vietnam.
As years after years, Vietnam’s government foreign debt is near the ceiling and the public money must be invested in key projects, the country has introduced new FiT’s (feed-in tariff) to attract foreign investments. It started in June 2017 when the government introduced a solar FiT of 9.35 US cents per kilowatt which attracted over 4.46 GW of new capacity for the country installed and connected to the grid before 30 June 2019 (deadline to benefit of this FiT). Unfortunately in some areas, namely in Binh Thuan province, the national grid is unable to receive all production and full capacities of the plants can not be sold to EVN, causing losses for the projects. The latest change for the non-rooftop Solar which Vietnam decided, following the example of Cambodia, is abandoning the FiT based off-take structure and replace it with a competitive bidding model.
In November 2018, Vietnam has set a FiT of 8.5 US cents per kilowatt for onshore wind installation, 9.8 US cents per kilowatt for offshore wind projects. In November 2019, the government introduced a long-waited FiT for rooftop solar and this resolution is expected to rocket investments in the sector over the next years.
Vietnam wishes to continue this road, the new Power Development Plan No.8 is under drafting by the government and it aims is to have a key focus on renewable energies, leaving the door open for a bright future in terms of opportunities in Renewable Energy sector in Vietnam.
The shining example of Solar power success in Vietnam
Vietnam’s geographical position gives the country big advantages in terms of solar projects, on average the country has a DNI (Direct Normal Irradiation) of 2.67 KWh/m2 and over 2,000 hours of sunshine every year. Southern provinces are preferred destinations for PV projects as some provinces offer over 2,450 hours of sunshine yearly and a DNI of over 3.5 KWh/m2
With Vietnam government pilot FiT rates for projects implemented between June 2017 and June 2019, the country has raised as a regional (South East Asia) leader in photovoltaic power generation. As of June 2019, 4.46GW of new projects were connected to the grid and it is expected to increase by 630MW by end of 2019, bringing to total solar energy production to 5.2GW from a mere 134 MW early 2017. However, this rapid expansion has raised challenges due to grid curtailment issues, overall the country total installed production surpasses the grid capacity by already 18%. In some provinces as Ninh Thuan and Binh Thuan the situation is even worse as the production is twice the grid capacity.
The country represents now 44% of Solar power generation in the region. The financial approach of Government is the following:
• Floating solar power projects: Competitive bidding
• Ground-mounted solar power projects: Competitive bidding
• Rooftop solar power projects: 9.35 US cents per kilowatt
The government made clear that they would support also in future the 9.35 US cents per kilowatt price for rooftop projects as those investments are fast and easy to install and generated power can be used on-site, limiting government needs to invest in grid expansion. It is expected that the rooftop installation will reach 2GW by the end of 2020.
A gusty future for Wind power generation
Vietnam benefits of optimal condition to generate wind power 3,300 kilometers of coastlines with consistent winds in the range of 5.5 to 7.3 meters per second, boasting a potential of 309 GW. This is highlighted by the recent project for the world’s biggest offshore wind farm which assessment has been approved by Vietnamese. Once the project is completed, it is expected to generate 3.4GW of Electricity overpassing any Vietnamese coal, hydro or gas powerplant power output.
The global Wind Energy Council expects that Vietnam will have over 1GW of wind energy installed by 2021, surpassing Thailand who is the regional leader in the sector. As of today, Vietnam has 327 MW of onshore and offshore wind capacity installed, the country is also the only nation in ASEAN to have an offshore farm.
The shift to wind energy is also supported by the government as the wind production costs have come down substantially and are nearly similar to coal produced energy. This combined with benefits such as enhanced energy security and independence from fossil fuels, low land use and its ability to be implemented in agricultural lands, sustainability, and creation of domestic jobs in manufacturing have made a top priority for the Vietnamese leaders to attract more investments in the wind sector.
Current FiT rates of 8.5 US cents per kilowatt for onshore wind installation and 9.8 US cents per kilowatt for offshore wind projects are valid for all projects entering operation before November 2021. Biggest fears remain in the bankability of EVN PPA’s agreement and reliable access to the grid.
Although having a big agricultural sector, Vietnamese biomass power generation is one of the renewable sectors where the country must do the most of its efforts as the current installed production capacity is only 352 MW compared to Thailand’s 3.3 GW and 1.7GW.
The reason behind this is mainly due to low FiTs and big competition for the in-take material. Vietnam government offers only 5.8 US cents per kilowatt for bagasse fired plants and 7.4 US cents per kilowatt for other fuels fired power plants, making it hard for producers to reach the breakeven point.
Coming to fuel availability, wood pellets, and rice husks are widely available in the country but most of it is already used. Wood pellet is exported to Korea and Japan while Rice husk is mostly used as domestic cooking fuel. Mechanization of agriculture offers a new perspective for the availability of rice straw that was up to now left in the field and later burned.
Vietnam’s actual energy production from biomass is mostly used directly by factories and very little is sold to the grid as it is not economically viable. Many investors and stakeholders in the industry are awaiting what would be included in Power Development plan No.8 regarding energy produced from the Biomass sector before making a move.
Waste to energy activities is a major part of Renewable Energy in Vietnam. There is an endless supply of waste fuel but the quality is difficult for many players. Typically the waste includes a vast part of organic materials and during the rainy season is literally dripping water, having a moisture content in general of 70-85%. Big cities like HoChiMinh City produce up 8000 tons/day of MSW on top of the industrial, medical and hazardous waste. The country is full of communes providing 150-300 tons/day of waste and several years accumulated landfills which often are part of the deal, authorities expecting the operators to burn them as well. So instead of concentrating the business on major cities only, companies should also explore the smaller cities and communities around the country.
All in all, renewable energy in Vietnam offers excellent opportunities for foreign companies. There are no miracles or fast solutions, hard work is expected and teaming with local companies mostly required, even from authorities. The selection of a partner needs to be done with a sufficient understanding of the market value chains and business behavior. Asian Insiders is your local expert with long experience in both the renewables business as well with local companies and analyzing their suitability as a partner. Our Partner Search process will guarantee you a fact-based partner selection, thus avoiding losses and delays in the market entry.
Opportunities in Vietnam
Biomass – Rice Husk and Straw
• Rice husk is concentrated into approx. 1000 rice mills and is available next to water routes for transportation
• Rice straw used to be left to fields and burnt or thrown in rivers, but due to the recent mechanization of rice collection the straw can be now easily collected
• Very good conditions along the long coastline
• Government push
• Hochiminh city and other municipalities rooftop projects are pushed. • Non-rooftop FiT 9.35 US cents to be finished and replaced by a competitive bidding model.
• Government push
• Large supply of fuel provided by local authorities around the country • Tipping fees make the projects profitable if the technology is good (pre-drying etc.)
• FiT is provided by EVN (Electricity of Vietnam)
• Urgency and population and Governments pressure against local authorities to do something with the overused landfills
Challenges in Vietnam
Biomass – Rice Husk and Straw
• Rice husk price tends to be floating. If used the price and supply has to be well secured.
• Rice straw is still scattered, and the user needs to collect it.
• Grid capacity must be secured
• Overcapacity in Ninh Thuan province where are the best conditions for solar. Grid is unable to take all production.
• Competitive bidding
• High organic portion and humidity of waste
• Recycling happens at the source, no side material flows coming to landfills (no extra revenue available)
• Long sales cycle due to excessive bureaucracy and red tape of the local authorities
Sources: World Bank, EVN, McKinsey & Company, Institute for Energy Economics and Financial Analysis, Ministry of Industry and Trade