Smart Energy International explores the position of Vietnam in Southeast Asia’s energy sector. Specifically, how Vietnam embraced and exceeded some of its renewable energy targets and what the future holds for the Land of the Blue Dragon.
The primary principals governing Vietnam’s power sector development are laid out in the Electricity Law of 2004 (amended). The law sets out requirements for national power development master plans to be established for 10-year periods at a time. The first such plan was released in July 2011.
The National Power Development Plan for the 2011–2020 period with the Vision to 2030 set out a strategy to ensure Vietnam’s energy security, improve rural electrification and increase renewable energy capacity. In March 2016, a Revised Power Development Master Plan VII revised the percentage of renewable energy required. It was determined that renewable energy (excluding large and medium scale hydropower) should make up 10% of total generation by 2030. This was accompanied by a mandated reduction in coal-fired generation. Solar has been seen as key to the proposed increase in renewable generation capacity, with a goal of 12GW installed by 2030.
Despite a number of incentives, including tax relief and tariff reductions, the initial uptake of solar in the country was muted. In 2017, therefore, the government initiated a period of rapid development and the introduction of a renewable energy feed-in tariff. This initially prioritised the development of solar energy over other energy sources.
Solar in 2018 accounted for 134MW of renewable capacity (3% of total renewable capacity), yet by the first quarter of 2020 the aggregate capacity of solar plants has increased to 25,000MW, making Vietnam the largest solar market in Southeast Asia.
In December 2019, the Ministry of Industry and Trade released an update to the existing feed-in tariff (FIT) for grid connected floating solar and grid-connected, land based solar. The first solar FIT suggested a price of approximately $0.0935/kWh – with the December 2019 proposal dropping to $0.0768/kWh for floating solar, and $0.0708/ kWh for land based solar.
Decision No. 13/2020/QD-TTG
In April 2020 Decision 13, effective from 22 May 2020, was set out, with its key provisions including the extension of the Solar FIT.
The Solar FIT for projects that failed to achieve commercial operation date by the end of June 2019 could be extended – at the reduced solar FIT and only if certain specific efficiency measures were met. Alternatively, these projects would have their purchase price for electricity determined by a “competitive mechanism”* – widely anticipated to be an auction.
It is hoped that the clarification offered in Decision 13 will relieve developer concerns regarding the extension of the solar FIT. However further clarification as to the proposed auction model is yet to be determined.
The rising wind
Recently, there have been a number of announcements made by the Vietnamese authorities around the development of additional resources. In June this year, Nguyen Xuan Phuc, the Vietnamese Prime Minister announced 91 approved-in-principle wind power projects. The capacity of these projects exceeds 7GW [Dispatch No.795/TTgCN]. This announcement supports Vietnam’s ambitions to become a central player in the wind generation market in the region.
In a briefing note by law firm White & Case, the firm reported that it has been predicted Vietnam will face“power shortages in the future due to an increasing demand for energy and supply-side challenges.” The brief continued that Southern Vietnam was predicted to be the most severely impacted, and that 3GW of the proposed 7GW would be situated in that region.
However, Vietnam’s ambitions are going to need considerable input from the private sector, as well as continued government commitment to succeed. Jon Bowden, Head of the Vietnam Country Practice at White & Case, notes: “Substantial private sector development and investment will also be required in order to enable Vietnam to meet its renewable energy ambitions.
If the projects set out in Dispatch 795 are successfully implemented, this will represent a very significant expansion of Vietnam’s renewable energy capacity.” Other projects confirmed include a 450MW solar power plant in the south central province of Vietnam at the Phuoc Minh commune. It is believed that the $592 million project will be generating power by the end of this year.
Ninh Thuan, the province in which the project will be located, plans to become Vietnam’s renewable energy hub with a total capacity of 8,000MW by 2030.
Vietnam has operated a competitive wholesale market since early 2019 and electricity retail price adjustments have been made in accordance with the market mechanism under the control of the state. The prime minister has instructed the development of a competitive power market to 2030 with a vision to 2045 – the aim is to pilot the competitive power retail market in 2022. Deputy Prime Minister Trinh Dinh Dung, speaking during the Vietnam Energy Summit 2020, said the official complete market would be launched in 2023.
Clouds on the horizon
At the summit, which ran from 22-25 July, Dung said the domestic energy sector is gradually switching to a market economy mechanism and effective use of energy.
He commented further that the pooling of resources between the public and private sector was important for the continued development of renewable energy in the country. He also highlighted concerns around energy security in the region and an imbalance between local supply and demand.
According to Politburo member and head of the Party Central Committee’s Economic Commission Nguyen Van Binh, while the sector has undergone rapid and significant changes, there is still more to be done. Van Binh commented that the current supply/ demand situation has led to Vietnam having to increase imports of energy from other countries.
He commented further that many planned projects were running behind schedule and raised concerns around energy security.
Nhân Dân online – the voice of the Party, State and people of Vietnam – reported that Van Binh revealed that the policy on energy pricing has not yet matched the market mechanism.
Key tasks which were announced during the summit include:
• Complete mechanisms for the sector’s development, involving all the various stakeholders to develop supplements to the laws on electricity, oil and gas.
• The economic and efficient use of energy is highlighted as important, along with drafting of a new renewable energy law.
• Devise development strategies for the energy, electricity and coal industries for the periods 2021-2030 along with a vision to 2045. Inclusive in this is researching and building strategies for long-term energy imports and environmental protection.
Deputy Prime Minister Dung further noted that the National Electricity Development Master Plan must be approved within 2020.
Regarding the development of renewable energy, Minister of Industry and Trade Tran Tuan Anh pointed to the fact that with the engagement of other economic sectors, especially the private sector, Vietnam could achieve set targets in a much shorter time than was expected.
Resolution No.55-NQ/TW, made on 11 February 2020, contains new and breakthrough goals, including the diversification of energy sources, the prioritisation of renewable energy and gas fuelled power generation, and increasing the participation of the private sector in energy development.
In addition to setting out goals for the security of the sector, Resolution No. 55 also calls for significant investment into the upskilling and development of local capacity.
Despite the significant progress made by Vietnam over the past two years, it is still uncertain if the country will meet the goals determined by the Revised Master Plan. The continued reliance on coal and concerns around the cost competitiveness of renewables are key considerations for which clarification will need to be provided by government and regulators.
However, there can be little doubt about the significant political will shown thus far by the Vietnamese government toward the achieving of its goals.
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