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7 January 2021

Vietnam’s second half solar surge in 2020 halts FiT for new rooftops

Vietnam’s solar boom has continued to outstrip expectations through 2020, casting aside fears that grid constraints and lower incentives would result in a lower figure than the 5.5 GW boom in 2019. According to a report from national utility EVN, Vietnam now has 19.4 GW solar capacity, of which rooftop constitutes 9.3 GW and utility-scale 10.1 GW.

This means Vietnam has surpassed the 2030 target it set in 2016, and has installed in half a year the same amount of solar as Japan’s and the USA’s 2019 figures combined. The country is also pursuing wind development, but wind has a slower development cycle.

Adding 4 GW utility-scale solar in half a year is impressive, but the most extreme part was 4.6 GW of rooftop power being officially approved and connected in the last week of 2020, from December 25th to December 31st, according to national utility EVN. That is a massive last-minute crunch of the same order of magnitude as those which occur at the end of the year with a subsidy deadline in China. It may have been the case that 2 GW was approved on the very last day, surprising even the officials and companies involved. Most of these projects won’t have been physically developed during that time – instead being adjusted to meet an altered definition in the regulation so that they could be approved as rooftop installations.

A figure of 16.5 GW is also being bandied about as Vietnam’s total solar capacity, but this is GWac, as the power enters the grid in the form of alternating current. The solar capacity in itself is 19.4 GWp measured as direct current.

Through 2019 and early 2020, utility-scale solar was 80% of solar development, powered by a $93.5 per MWh Feed-in Tariff. This was soon reduced, with Decision 13 in April 2020 cutting the Tariff $70.9 for utility-scale solar, but only cutting the rooftop tariff to $83.8 per MWh – which has a 20-year duration. Decision 13 was set to expire on December 31st and has done so without being replaced. Before its expiration, a massive effort by investors and businesses shifted the emphasis from utility-scale projects to rooftop solar. National utility EVN has instructed power companies to cease power purchase agreements for rooftop systems beyond that date.

As for the replacement policy for 2021, that still has yet to be decided on, and for now rooftop solar has suddenly become far less attractive, though some businesses are still proceeding with projects in hopes of a favorable policy or to simply reduce how much electricity they need from the grid.

The Department of Electricity and Renewable Energy is now reviewing options and will present them to the Ministry of Industry and Trade before the first quarter is over. In particular, an official in the Ministry told a reporter that a bidding and an “electricity price reverse auction” system will be established for utility-scale solar, trying to address problems like current development being situated with only solar resource in mind, and not the load placed on the grid.

Meanwhile rooftop solar may get another lower fixed purchase price, but also with stricter procedures for connection to protect the grid. Another innovation will be further regional variation in incentives – previously only Ninh Thuan province had greater incentives, to plug the gap left by a cancelled nuclear plant development. The next policy will also most likely introduce a gradation of incentives by the scale of the installation, instead of a simple utility versus rooftop dichotomy.

While the FiT has been wildly successful at attracting investment and causing a solar boom, the cost may be deemed to have been unnecessarily high by the government in future, and solar saturation is reaching the point that energy storage and transmission upgrades are needed, as well as technical improvements such as demand response to further integrate this intermittent energy source.

Solar is now fully a quarter of Vietnam’s generating capacity, but still only 4.3% of electricity generation, lower than you’d expect from a 20% capacity factor. This is due to massive curtailment – between 2 GW and 3 GW of solar was curtailed in the last weekend of 2020, during which demand fell to just 20.5 GW, well below the grid’s peak capacity of 66 GW. With no battery energy storage installed on the grid, the peaks and troughs of solar generation don’t match up closely with demand, which falls a little in the midday and peaks in the evening.

With an 8% annual growth in power demand when Coronavirus isn’t at play, Vietnamese authorities had been concerned about a possible power deficit in 2021-2025, so at least they now have enough power for the most part – but still are threatened by grid limitations. Last year we reported that Vietnam will be spending $8 billion annually through the decade on meeting it power demand, with a growing share of that going to transmission expansion.

Vietnam’s energy strategy looking ahead is to combine renewables with natural gas, while cancelling the nuclear and coal plant pipelines in whole or in part. It remains to be seen when and to what extent it will adopt battery energy storage or pumped hydro.

The country is traditionally highly reliant on coal, aside from its hydropower, and a major factor in the adoption of renewable energy has been an environmental movement that dislikes poor air quality. While foreign investors have a hard time closing deals on the fifteen coal plants remaining in a prospective pipeline, a consortium of fashion brands with factories located in Vietnam, including Nike and H&M, are lobbying for more renewable energy and with regulatory structures for direct corporate Power Purchase Agreements – 29 such companies sent a joint letter to the Prime Minister to that effect last month.

Last year a massive swathe of future coal plant developments, which would’ve come online in the 2030s, was delayed or cancelled – with dozens of GW involved. For a country looking at an 8% annual demand growth rate, which means tripled demand in 15 years, this is a significant loss of planned capacity, and so the scale of wind, solar, and natural gas will be commensurately great.