New FiT mechanisms to bolster renewables

Vietnam is set to reform its policies to attract more renewable energy investment in the time to come. Deputy Minister of Industry and Trade Hoang Quoc Vuong talked with VIR’s Nguyen Dat about the new mechanisms, with solutions to reach this goal and ensure outlets for power generated by renewable energy projects.

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Deputy Minister of Industry and Trade Hoang Quoc Vuong

Is the existing feed-in-tariff (FiT) mechanism attractive enough to woo investors?

Recently the government has been focusing on developing renewable energy, with some mechanisms and policies promulgated, especially the fixed FiT for purchasing electricity from renewable energy projects.

In September 2018, the government issued Decision No.39/2018/QD-TTg on a new FiT for wind power, with 8.5 US cents per kilowatt-hour (kWh) for inland projects and 9.8 US cents per kWh for offshore projects. Before that, in April 2018, the government also issued Decree No.11/2017/QD-TTg on mechanisms for encouraging the development of solar power in the country, with a FiT of 9.35 US cents per kWh of solar power.

I think that the current FiT is attractive enough to make projects bankable.

Will the fixed FiT continue to be used as an incentive to lure financiers in the future?

We will have to calculate depending on price fluctuations in the renewable energy market. As far as I know, currently the FiT for solar power has been reducing quickly. For example, in 2017 when the government issued a FiT of 9.35 US cents per kWh of solar power, we believed that such a FiT was quite suitable and even quite low. However, after being applied in the market, within one year, the FiT of solar power not only in Vietnam, but also in the world in general, reduced quickly.

Thus, if we keep a fixed FiT over a long period of time, it will not be suitable to the market and even may lead to overheat development of solar power projects, overloading the national power grid which will not be able to absorb all power generated, as well as lead to other consequences.

So what are the possible solutions?

This is why the Ministry of Industry and Trade (MoIT) is considering a new mechanism, known as auction for FiT, in order to select capable investors to develop renewable energy projects. The auction-based system will reflect well the FiT in the market at all points of time that the projects are implemented. It will also help us to have sufficient time to improve the national power transmission system, so that all power generated from new power projects can be absorbed safely and reliably.

Do you think that this auction-based FiT will be a long-term stable policy in ­Vietnam?

Well, in fact, auction is a stable policy. When we hold an auction, any investors offering the most suitable and cheapest FiT will be selected. That’s our persistent policy. And the specific FiT will be determined by the market. Of course, all investors want that we will buy their electricity at a high price, so that their projects will become more financially feasible.

For the existing FiT, it is applied for the project’s 20-year lifespan. And in the time to come, when we put a renewable energy project up to auction, the investor winning the auction-based FiT will also be able to implement and apply this FiT within 20 years. And this FiT will not be changed annually.

Many investors are now viewing the power purchase agreement (PPA) as one of the biggest obstructions for Vietnam to lure more renewable ­energy investment. Is this correct?

I think that the most important thing for luring domestic and foreign investment lies in the FiT, not in other mechanisms. As you see, recently the solar power FiT has been set at 9.35 US cents per kWh, which is high for investors. Since the FiT was enacted in April 2017, many backers have entered the solar energy industry to carry out projects. With the new solar FiT, we have received hundreds of proposals from investors nationwide, with total capacity of nearly 30,000 megawatts (MW) of solar power, which has far exceeded our expectations.

What concerns from overseas backers are you seeing?

Foreign investors often have many more concerns than domestic ones. For example, concerns over exchange rate fluctuation. When they sell electricity here they are paid in Vietnamese dong, but they have to exchange that into foreign currencies to transfer to their home nations. They are also concerned over the government’s guarantee in FiT-related off-take agreements.

However, I think that in the time to come, we will have to consider the revision of the PPA in a manner that we can lure more funders. And we will also consider what extent is suitable for the government to apply their guarantee to the off-take agreements.

I would also stress that the biggest challenge in the local power industry now is to improve the capacity of national power transmission lines. The MoIT has proposed the government to adjust and complement the construction of new transmission lines, so that all power generated from power plants can be well connected to the national power grid.

Currently, many wind and solar power projects are facing a danger of not being listed in the renewable power development planning. What are the solutions for them?

Under the government’s current regulations, renewable power projects can be implemented only after they have been listed in the planning. However, if new renewable power plants want to be listed in the planning, theoretically the existing planning will have to be revised.

I think there will be no big ­difficulties, because our planning is for the long-term. However, constructing and operating renewable projects depend on a number of factors, with the most important being capacity of absorbing electricity of the national grid.

Thus we have to thoroughly calculate when the project should be built and put into operation.


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