Vietnam FiTs have been successful but challenges remain

Out-Law Analysis | 17 Oct 2019 | 11:20 am | 2 min. read

Vietnam's use of feed in tariffs (FiTs) since 2017 has been more successful than expected in increasing its renewable power generation capacity. Many investors continue to commit to schemes but still face challenges.

In 2017 and 2018, Vietnam's push to incentivise private investment in renewables was greatly accelerated by the introduction of attractive high FiT schemes for both solar and wind projects.

There were some doubts about how effective this measure would be. The 20 year power purchase agreement (PPA) released in May 2017 did not provide for independent arbitration and did not contain an appropriate termination compensation clause. This worried investors and lenders  and meant that local banks were still the main source of project finance.

Investors also worried about electricity grid issues and about the risk of curtailment, where state-owned power company Vietnam Electricity (EVN) can refuse to buy the power generated.

But as the government considers a new draft of solar FiT policy which it hopes to implement by the end of 2019, it is clear that there are sufficient numbers of willing developers eager to  participate in a new wave of renewable solar energy generation projects. But long-term operators will have to consider the ongoing curtailment risks, grid issues and cost complications arising from the PPA structure and reductions in FiT payments.

Long-term operators will have to consider the ongoing curtailment risks, grid issues and cost complications arising from the PPA structure 

Multilateral institutions like the Asian Development Bank (ADB) may provide the government with much needed gap funding for projects where traditional banks are unable or unwilling, as happened with the first floating solar project in Vietnam (47.5 MW peak floating PV facility) on the Da Mi hydropower plant where almost half the cost was funded by ADB (US$17.6m).

As in other countries FiT payments in Vietnam will reduce over time as they are designed as an initial capacity-building mechanism rather than a long term source of funding. The payments have succeeded in building capacity so far.

For solar projects a blanket FiT of $0.0935 per kWh introduced in 2017 for expiry at the end of June 2019, has attracted the development of 4.46 GW of solar capacity, according to pv-magazine and ESG . Regional experts had been worried that the program may not have offered enough benefit to funders.

The wind power feed-in-tariff (FiT) was raised to $0.085 per kWh for onshore and $0.098 per kWh for offshore projects from 1 November 2018 so as to reach the government’s target of 800MW of wind capacity by 2020, according to IJGlobal. The new FiTs cover projects that commence operations before 1 November 2021. Nearshore and offshore sites have the greatest potential for future wind projects, particularly near places with high power needs like Ho Chi Minh city.

According to power-technology, solar power now makes up 8.28% of Vietnam’s electricity capacity. However, developers might in future begin to struggle to obtain corporate guarantees or have other financing issues with the PPA after the gradual reductions in the FiT reductions proposed to start in 2020, actually commence.

Vietnam is targeting 21% of installed capacity by 2030 to come from renewables, with solar and wind comprising some 11%, according to The Asset.

Pv magazine said, the MOIT's draft proposal plan is to cut FiTs for large scale solar projects by 20% and it proposes applying FiT levels for the whole nation rather than varying payments geographically to drive new capacity to under-served areas.