The New Mechanism for Encouraging the Solar Power Development in Vietnam

Nearly nine months after June 30 2019, when the preferential price for solar power of US9.35 cents per kWh expired, the new price of solar power has been officially fixed. This ends the anxious moments from investors/ developers during the period when various proposals on the FIT submitted by the Ministry of Industry and Trade (MOIT) to the Government including the approach of dividing into two or four price regions according to radiation intensity.

In the latest Decision of the Prime Minister on the incentive mechanism for solar power development in Vietnam (the Decision No 13/2020 dated 6 April 2020 for replacing the Decision No 11/2017 expired from June 30, 2019), which takes effect on May 22, 2020, the government has scrapped the incentive FIT for solar power projects and approved a new price of VND1,640 (equivalent of 7.09 cents) a kilowatt-hour for terrestrial solar power projects (VND1,943 or 8.38 cents for rooftop solar projects and VND1,783 or7.69 cents for floating solar projects). The feed-in-tariff, roughly 24 percent less than the earlier 9.35 cents, will be applicable for 20 years starting May 22. The new tariffs will be applied for the grid-connected solar power projects, that have obtained the decision of investment approval in policy before November 23, 2019 and having the commercial operation date for the whole project or for a part of the project in the period from July 01, 2019 to December 31, 2020. The new FIT shall be applied to projects in which capacity of solar cells exceed 16% or module exceeds 15%.

Except for Ninh Thuan, a southern province of Vietnam and a solar power hotspot, has been exempted from the rules. In particular, the preferential FIT as 9.35 UScent/kWh, equivalent to 2,086 VND/kWh will be applied for the grid-connected solar power projects included in power development plan and commercially operated before January 01, 2021 with a total accumulation capacity of 2000 MW.

These tariffs will be adjusted in accordance with exchange rate fluctuation according to the central rate of VND to USD dollar publicized by the State Bank of Vietnam on the date the Seller issues invoices.

For all subsequent projects and/or not meeting the criteria above, they will apply a bidding mechanism.

For the rooftop solar power projects, in case that the electricity buyer is not Electricity of Vietnam (EVN), or the unit authorized by EVN, the electricity tariff and Power Purchase Agreement (PPA) are agreed upon by the parties in accordance with current provisions of the laws (the electricity buyer and the seller may agree on the tariff and the way to directly use electricity from the solar power system).

How is the competitive bidding mechanism proposed for solar power projects?

In terms of solar power projects that are not qualified to apply for the FIT set out under the new Decision 13, they have to apply bidding mechanism. In this regard EVN has made proposal to the MOIT with three options for consideration. This new mechanism is favorable as it is poised to resolve the problems from the expired FIT incentives under Decision 11. Entitlement to a flat FIT of 9.35c/kWh (kilowatt-hour) has attracted an enormous number of projects coming into Vietnam, with most of them clustering in Ninh Thuan and Binh Thuan provinces.

Under the EVN proposal, there are three options, including:

1. Solar park-based bidding:

This is the one being suggested by WB. According to this option, the applicable objects are big projects already included in the power development plan, has advantages conditions of radiation intensity, gird connection and land/water surface

Bidding mode:

• the People’s Committee of province will propose a project with assessment from the Institute of Energy.
• EVN directly prepares a pre- feasibility study.
• the MOIT will consider and decide for adding the project in the power development plan

Announcement of project information: capacity, land and water surface, connection point, works for clearance or moving, stations built up by investors,…

Investors need to make cost projections (land clearance, connection, investment, operation,…) for the project going into commercial operation and submit for bidding. The PPA template and ceiling price are included in the RFP. Investors with proposal of lowest price at connection point will be selected. 

Once selected, the investor will work with the local People’s Committee regarding land hand over and approval in policy for investment as per regulations.  The investor will also sign the PPA with EVN at bidding price and be liable for developing the project into commercial operation

2. Public bidding:

Applicable to: projects have been proposed by provinces and in appropriate with provincial land planning.

The principle of the option is as follow:

• EVN will only build grid network as per planning and the investors will be responsible for building any works, stations to connect to the grid of EVN. This will be checked on each round of bidding.
• EVN proposes a demand for capacity at each round of bidding
• Executing agency will select the investor according to the demand capacity and under pay-as-bid format, choosing the projects with bidding price at connection point from low to high subject to ceiling price which equals to FIT or the average winning price of the last bidding round

Selected projects will be surely added to the power development plan, entering into the connection agreement and PPA with EVN. Any projects failed in this bidding round can still participate in the subsequent bidding rounds. 

3. Substation based bidding:

Applicable to: projects in the area or substations which have been opted by the government.

The principle of the option is as follows:

• The MOIT proposes a demand of electricity buying in an area or substations in appropriate with the grid network capacity and electricity demand in that area.
• Bidding invitation will be circulated to invite qualified bidders
• Pay-as-bid format with ceiling price will be FIT

Selected bidder will proceed with admin procedures to add the project in the power development planning, connection agreement and PPA execution.

Once applied, Vietnam’s bidding-based mechanism is a viable alternative to the FIT mechanism as the inventive FIT (in the past) has led to overheated development of solar projects in the country. Especially, it could further lead to conflict in land use exacerbating socio-economic issues.

Overall, the bidding-based mechanism will ensure the sustainable development of renewable energy in Vietnam and in appropriate with international and regional practice. Investors can, therefore, benefit from rising electricity demand in a stable competitive environment.