How Vietnam became the Renewable Energy Powerhouse Nation
Vietnam’s solar energy gets decentralised
Vietnam passed a huge milestone in renewable energy deployment at the end of August 2020 with the installation of almost 50,000 rooftop solar facilities at a total capacity of 1.2 GW. Most striking of all was the speed of installation. Since the start of 2020, Vietnam has brought close to 30,000 rooftop solar installations online, doubling its national capacity in just eight months. The growth of rooftop solar in Vietnam is the latest indicator of the country’s robust renewable energy market, which has grown almost 6,000% in two years, largely thanks to its solar expansion.
Policy certainty unleashes exponential renewable growth
Vietnam’s renewable energy sector was virtually non-existent just four years ago, showing just how far things have come. The country was struggling to meet its rapidly growing demand for electricity, mainly due to delays in building up coal-fired capacity. In response, the government opted to pursue an alternative strategy and set about building its renewable energy capacity.
To establish policy certainty for solar developers, the government instituted a new Feed-in Tariff (FiT) scheme under Decision 11 for solar PV projects in 2017, setting tariffs at a generous rate in order to rapidly attract international developers. This strategy “delivered spectacularly”. By the time the tariffs expired on 30 June 2019, around 4.5 GW of utility-scale solar power had been brought online. In just under two years, Vietnam became Southeast Asia’s solar powerhouse. Today, the country’s cumulative solar capacity has hit 6.3 GW, generating a record 7.27 billion kWh: 4.4% of total generation in the first eight months of 2020.
In Vietnam, wind power has lagged behind solar power. Wind farms are typically larger in scale and construction is more logistically challenging, but the country’s regulatory framework for wind has also been less favourable than for solar. The government amended this in 2018 to signal more robust support for wind power and to attract more investment. The sector now also stands on the cusp of exponential growth. The country aims to have 800 MW of wind capacity installed by the end of 2020 and the government recently approved an additional 91 onshore and offshore wind facilities, totalling 7 GW. Vietnam is now on track to install 12 GW of wind by 2025.
Renewables are in, coal is out
The pivot to renewables has changed Vietnam’s overarching strategy for developing its power sector. Renewables, which started off as a “side show” experiment in 2017, have moved centre stage. Early drafts of Vietnam’s anticipated new Power Development Master Plan (PDP 8) show that the government is aiming to increase the share of renewables in its power mix to over 30%. This would translate into an increase from just 6 GW today to 41 GW by the end of the decade, BloombergNEF estimates.
Conversely, coal has taken a back seat. PDP 8 will not propose any new coal-fired power plants, as the government aims to move away from coal in a “reasonable way”. This means Vietnam is set to cancel or postpone 13 coal-fired power projects with a cumulative capacity of 17.1 GW. To put this into perspective, Vietnam’s current coal-fired capacity is just under 19 GW.
Planning for the future
As Vietnam maps out its PDP 8, its renewable energy sector will likely undergo some fundamental shifts in the years ahead. Taking the advice of the World Bank, the country has signaled there will be a shift from FiTs to auctions as a way to manage the growth of renewables in an “orderly” fashion. Typically, auctions are a sign of a maturing renewable energy market in which a government turns its attention to fostering competition and driving down the price of renewables. In 2020 alone, an auction in Abu Dhabi followed by an auction in Portugal each delivered record low bids.
To ensure it will successfully integrate higher shares of renewables, Vietnam needs to grapple with the challenges it currently faces. Over congestion of the grid is a very real problem. Some estimates suggest that around 60% of utility-scale solar projects have faced some form of curtailment. Steps have already been taken to address this, with the state-owned utility, Electricity of Vietnam (EVN), announcing it will expand its transmission and distribution capacity. To the same effect, the recent promulgation of Decision 13 allows entities other than EVN – individuals or businesses – to purchase electricity directly. Both of these moves will help reduce curtailment and the pressure on existing infrastructure, yet to truly unlock the potential of renewables, Vietnam needs to focus on grid flexibility. According to analysis by energy finance thinktank IEEFA, this can be achieved through a raft of technical and operational measures, such as changing grid scheduling or bolstering storage capacity. Building this type of flexibility will need to be a key priority of PDP 8 as Vietnam continues to boldly venture down the path of renewables.