VIETNAM 2019 – RENEWABLE ENERGY

I. Overview

Vietnam’s energy demand is forecast to increase by over 10 % per year between now and up to 2020 and by 8 % per year in 2021-2030[1]. Electricity demand is expected to be 265-278 billion kWh in 2020 rising to 572-632 billion kWh in 2030 as against 86 billion kWh in 2010 [2]. To meet this growing demand, Vietnam needs to add 6,000-7,000MW of capacity annually at a cost of US$148 billion by 2030 [3].To meet this demand the Vietnamese Governmentrecently had to revise the Power Development Plan to increase the share of renewable energy such as biomass, solar and wind to reduce the gap between demand and supply. At present, renewable energy only accounts for 2.1% of total power generated.

Currently hydropower holds the largest share amongst all renewable energy sources, followed by biomass and wind. Solar energy, biogas, and waste-to-energy technologies are picking up slowly while geothermal energy and tidal energy are still at a very early stage of development.

Renewable resources

Potential capacity

Installed capacity  

Small Hydropower

7,000 MW  (technical)

1,648 MW (~23.5%)

Wind

27,763 MW  (technical)

189.2 MW (~6.8%)

Biomass

318,630 MW  (theoretical)

270 MW (~0.84%)

Solar

7140 MW (commercial)

8 MW (0,1%)

Geothermal

350 MW

0

Solid waste

400 MW

2 MW (0,5%)

Source: Vietnam Energy report 2018 

Vietnam has witnessed a growth of foreign investment in green energy projects. In 2018 alone, 121 solar projects with a capacity of 8100 MW were added to the national electricity plan while another 220 projects are waiting for approval [4].

  1. Hydropower:

The administration still prioritises the development of hydropower, especially multi-purpose projects. According to the Ministry of Industry and Trade (MoIT), hydropower accounted for 40% of country’s total electricity output in 2016 and 2017. The total hydropower production will be increased from 17,000 MW as present to 21,600 MW in 2020; 24,600 MW in 2025 (pumped storage power plants with 1,200 MW); and 27,800 MW in 2030 (pumped storage power plants with 2,400 MW). The share of hydropower in the total electricity production is forecast to increase by 29.5% in 2020; 20.5% in 2025 and 15.5% in 2030 [5]

 

Figure 1: SMALL HYDROPOWER MAPPING AND PLANING – VIETNAM

Source: GESTO Energy Consulting, World Bank

  1. Wind power

Vietnam has enormous potential for developing wind energy projects, having a coast line of over 3000 kilometers with an average wind speed of 6 meters per second [6].The country’s technical potential for wind power is assessed at 27 GW [7]. However, there are currently very few operational wind power plants in Vietnam. Therefore, the government’s Decision No.39/2018/QD-TTg dated September 2018 on the revision of the wind feed-in tariffs (FiT) which replaced Decision No.37/2011/QD-TTg on the support mechanisms for the development of wind power projects is seen as a positive step to promote renewable energy.

 

 

Figure 2: Planned project in Vietnam 

Source: Ministry of Industry and trade /GIZ Energy support programme

  1. Solar power:

The latest data shows that a total of 332 solar projects have been registered with the total capacity of 26,290 megawatt peak (MWp), including 121 projects (7,234MWp total capacity) that will begin to generate electricity by 2020 and 211 (13,069MWp) awaiting approval [8].Solar energy projects, including rooftop solar, are viewed as one of the major solutions to reduce pressure on the electricity sector.

Vietnam’s potential for solar projects is reportedly very attractive as it benefits from natural solar energy intensity of 5kWh per m² on average. Theoretically, the potential for solar in Vietnam is 60-100 GWh per year for concentrated solar power and 0.8-1.2 GWh per year in case of photovoltaic systems. [9]

However the growth only began when the government’s Decree No.11/2017/QD-TTg on mechanisms for encouraging the development of solar power in Vietnam was released. Thanks to the government incentive, the list of solar projects registered by foreign investors in Vietnam has been steadily growing, including foreign names such as Tata Power, Sunseap Group, ACWA Power, SY Panel Group, AIN Group, Siemens Gamesa Renewable Energy, Gulf Energy Development, Dragon Capital and Pacifico Energy.

Figure 3: Planned solar projects in Vietnam

Source: Challenges and Opportunities in the Vietnamese Solar Market, GIZ Energy Support Programme

  1. Biomass energy:

Being an agricultural country, Vietnam has very good biomass energy potential. Agricultural waste accounts for the largest share (45 %), followed by firewood (30 %), livestock waste (16-18 %), waste and other organic wastes (5-7 %). [10]Biomass projects are expected to generate about 900MW [11]. In particular, rice husk and bagasse are the biomass resources with the greatest economic potential, estimated at 50 MW and 150 MW respectively. However, currently biomass is generally treated as a non-commercial energy source, and collected and used locally. In particular,there are 38 bagasse-based biomass power plants that have been developed in Viet Nam that are using biomass for electricity and heat production with a total capacity of around 352 MW [12]. Among them, only eight plants are grid-connected with a total capacity of 82.51 MW (22.4%), selling 15% of electricity produced from biomass to the grid at US 5.8 cents/kWh [13].

Vietnam is determined to triple the output of electricity produced from renewable sources from 58 billion kilowatts per hour (kWh) in 2015 to 186 billion kWh by 2030 – targets that have been dubbed as bold and ambitious [14].The country has taken several steps to promote the development of the sector and encourage investment in recent years. In particular, in 2016, the government approved the revised National Power Development Master Plan (“PDP VII”) for the 2011- 2020 Period, with a vision for 2030. This emphasized, among other considerations, the development of renewable energy sources. This sets out a new goal for a 6,5% share of the total power generation capacity to be covered by renewable energy by 2020, and 10,7% by 2030.

The targets set for individual type of renewable energy in PDP VII for renewable energy for 2020, 2025, and 2030 are:

Source: Revised national power development plan VII

II. General renewable energy incentives:

In order to hit the target, Vietnam will require investment of $23.7 billion by 2030 [15]but the country’s domestic resources are not strong enough to make this happen. Therefore, the Government is now broadening its strategic approach to fully tap the huge potential of its power sector by unlocking the private investment potential and inviting foreign technical expertise and foreign investment.

The government has allowed 100 % foreign ownership of Vietnamese companies in the energy sector. Foreign investors can choose among permitted investment forms such as 100 % foreign-invested company, joint ventures or public-private partnership (PPP) in the form of BOT (Build-Operate-Transfer) form.

In addition, Under the Law on Investment, renewable energy projects are eligible for special investment incentives, as follows:

Corporate income tax preferences: Income from new investment projects for renewable energy production will be subject to corporate income tax (CIT) at the rate of 10% for the first 15 years [16]or corporate income tax exemption for four years, and a reduction of 50 % for the following nine years. In particular, enterprises producing electricity from renewable energy that are able to meet several criteria according to Decision 693/ QD-TTg can benefit from preferential CIT rate of 10% for the first 15 years. New investment projects for renewable energy production taking place in areas with difficult socio-economic conditions are entitled to a 4-year tax exemption and a reduction of 50% for the following nine years.[17]

Import duty preferences: There is an exemption from import duty in respect of goods imported in order to construct or form fixed assets, such as raw materials, manufactured materials and other components.

Land related incentives: Investors may be entitled to exemption from the land use fee that would usually apply for 11 years or, in cases where the investment project is in a region facing extreme socio-economic difficulties, 15 years [18]. In addition, during the capital construction period of a project (being the period of construction of a new building or plant for up to 3 years from the effective date of the land lease contracts), investors are entitled to exemption from land rents and water surface rents[19]. Furthermore, land clearance compensations and support will be provided, in accordance with the Law on Land. All land lease and land allocation for renewable power projects are handled by the relevant provincial People’s Committees.

III. Challenges

Rapid development of renewable energy can lead to many challenges such as high investment costs, limited power grid infrastructure capacity, need for large tracts of land, and difficulties related to the control and regulation of electricity systems.

Vietnam’s feed-in-tariffs (FiTs) beingone of the lowest in the world have deterred foreign investors due to large investment costs.Electricity of Vietnam (EVN) purchases all power from renewable projects. FIT currently set for biomass, wind, waste-to-energy, and solar projects are as follows:

Source: Sweetening the Deal for Biomass Energy in Viet Nam’s Sugar Industry, The Global Green Growth Institute, November 2018

 

Apart from FiTs, negotiating standard Power Purchase Agreements (PPAs) with EVN, the sole buyer of power is time-consuming, which leads to an increase in the total project costs. The timeline regarding the formulation of guidelines and regulatory approvals by authorities, which has been the case for years, also increase the overall cost due to delay time. Lack of clarity and delays in approvals also leads to execution delays or complete abandonment of projects. Besides, local developers are new to energy/electricity topics. They have no knowledge and limited resources for project development which will also create a huge burden for investors if they want to open business in Vietnam renewable energy sector.

Most renewable energy projects are concentrated in Central Vietnam, where electricity infrastructure is relatively weak due to low consumption. As power plants cannot be plugged in without considering the capacity of each transmission line, EVN has been petitioning the government to plan and approve additional transmission lines [20]. However, the process of planning, land clearance and construction is time consuming, so the concern remains that the existing grid will not be able to keep up with new solar plants. One solution being put forward is to promote household solar panels, which are suitable for low voltage grid, so that no additional investment into the transmission grid would be required.

[1]Viet Nam to face power shortage by 2030, Vietnam news, August 10th, 2018 https://vietnamnews.vn/economy/463521/viet-nam-to-face-power-shortage-by-2030.html#WeSs6XRhKbhYwg4R.97

[2]Viet Nam to face power shortage by 2030, Vietnam news, August 10th, 2018  https://vietnamnews.vn/economy/463521/viet-nam-to-face-power-shortage-by-2030.html#WeSs6XRhKbhYwg4R.97

[3]Pham Trong Thuc, Vietnam renewable energy development project to 2030 with outlook to 2050, Ministry of Industry and Trade, 2018.

[4]Vietnam poised for renewable energy boom, VnExpress, 14thMarch 2019, https://e.vnexpress.net/news/business/industries/vietnam-poised-for-renewable-energy-boom-3893823.html

[5]The Ministry of Industry and Trade statistic

[6]Overview on Vietnam geography, Socialist republic of Viet Nam Government portal  http://www.chinhphu.vn/portal/page/portal/English/TheSocialistRepublicOfVietnam/AboutVietnam/AboutVietnamDetail?categoryId=10000103&articleId=10000505

[7]Vietnam has great potential for wind power development, Vietnam News, Nov 24th2018, https://vietnamnews.vn/economy/480733/vn-has-great-potential-for-wind-power-development.html#wmOBtLk0WSICmVPx.97

[8]Rooftop solar to ensure renewable energy future, Vietnam Investment Review, 13thFebruary 2019, https://www.vir.com.vn/rooftop-solar-to-ensure-renewable-energy-future-65746.html

[9]Report “Maps of solar resource and potential in Vietnam”, Ministry of Industry and trade.

[10]Vietnam seeks ways to develop biomass energy, Vietnam economic news, Oct 12nd 2017, http://ven.vn/vietnam-seeks-ways-to-develop-biomass-energy-28784.html

[11]Renewable energy development in Viet Nam faces challenges, Viet Nam News,  August 24th2018 https://vietnamnews.vn/society/464451/renewable-energy-development-in-vn-faces-challenges.html#IhuyIGlVdYkeJ5SY.97

[12]Viet Nam Sugarcane and Sugar Association statistics

[13]Report: “Sweetening the Deal for Biomass Energy in Viet Nam’s Sugar Industry”, The Global Green Growth Institute,  November 2018

[14]New tech and incentives helping to reduce costs, Vietnam Net, April 10th, 2019 https://english.vietnamnet.vn/fms/business/221452/new-tech-and-incentives-helping-to-reduce-costs.html

[15]Viet Nam seeks investment in energy market, Vietnam News, March 29th2019 https://vietnamnews.vn/economy/507991/viet-nam-seeks-investment-in-energy-market.html#5DrUz7DeB78WusSL.97

[16]Article 15, Decree No. 218/2013/ND-CP, Detailing and guiding the implementation of the Law on Corporate Income Tax

[17]Duc Minh, Solar power projects are exempted from many taxes, Thoi Bao Tai Chinh, February 18, 2019 http://thoibaotaichinhvietnam.vn/pages/nhip-song-tai-chinh/2019-02-18/du-an-dien-mat-troi-duoc-mien-giam-nhieu-khoan-thue-67870.aspx

[18]Article 19.3, Decree No. 46/2014/ND-CP, Regulations on collection of land rent and water surface rent

[19]Article 19.2, Decree No. 46/2014/ND-CP, Regulations on collection of land rent and water surface rent

[20]Solar power investment rush poses an overload risk, VnExpress, 5thDecember 2018, https://e.vnexpress.net/news/business/industries/solar-power-investment-rush-poses-an-overload-risk-3849512.html

References:

Viet Nam to face power shortage by 2030, Vietnam news, August 10th, 2018, https://vietnamnews.vn/economy/463521/viet-nam-to-face-power-shortage-by-2030.html#WeSs6XRhKbhYwg4R.97

Pham Trong Thuc, Vietnam renewable energy development project to 2030 with outlook to 2050, Ministry of Industry and Trade, 2018.

The Ministry of Industry and Trade statistic

Overview on Vietnam geography, Socialist republic of Viet Nam Government portal http://www.chinhphu.vn/portal/page/portal/English/TheSocialistRepublicOfVietnam/AboutVietnam/AboutVietnamDetail?categoryId=10000103&articleId=10000505

Vietnam has great potential for wind power development, Vietnam News, Nov 24th2018, https://vietnamnews.vn/economy/480733/vn-has-great-potential-for-wind-power-development.html#wmOBtLk0WSICmVPx.97

Report “Maps of solar resource and potential in Vietnam”, Ministry of Industry and trade.

Vietnam seeks ways to develop biomass energy, Vietnam economic news, Oct 12nd 2017,http://ven.vn/vietnam-seeks-ways-to-develop-biomass-energy-28784.html

Renewable energy development in Viet Nam faces challenges, Viet Nam News,  August 24th2018 https://vietnamnews.vn/society/464451/renewable-energy-development-in-vn-faces-challenges.html#IhuyIGlVdYkeJ5SY.97

Viet Nam Sugarcane and Sugar Association statistics

Report: “Sweetening the Deal for Biomass Energy in Viet Nam’s Sugar Industry”, The Global Green Growth Institute,  November 2018

Viet Nam seeks investment in energy market, Vietnam News, March 29th2019  https://vietnamnews.vn/economy/507991/viet-nam-seeks-investment-in-energy-market.html#5DrUz7DeB78WusSL.97

Vietnam Law on Investment

New tech and incentives helping to reduce costs, Vietnam Net, April 10th, 2019 https://english.vietnamnet.vn/fms/business/221452/new-tech-and-incentives-helping-to-reduce-costs.html

Duc Minh, Solar power projects are exempted from many taxes, Thoi Bao Tai Chinh, February 18, 2019 http://thoibaotaichinhvietnam.vn/pages/nhip-song-tai-chinh/2019-02-18/du-an-dien-mat-troi-duoc-mien-giam-nhieu-khoan-thue-67870.aspx

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