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Vietnam intends to prioritize grid enhancements, renewable
integration, and significantly increase its renewable energy target
in the upcoming Power Development Plan 8, due to be finalized later
this year. Alongside the increased target, the government has made
clear its intention to shift away from feed-in-tariffs (FITs) to
tenders, following the success in spurring on solar development in
2019 and a strong project pipeline for wind. The government had
intended to have the first solar tender and pilot direct power
purchase agreements (PPAs) in 2020, however owing to the
coronavirus (COVID-19) disease 2019, it is now unclear if it will
take place as originally scheduled.
The power sector liberalization journey is still ongoing in
Vietnam, with full implementation of the competitive wholesale
electricity market and the retail market planned for 2021 and
post-2023, respectively. These markets will be the future for solar
development. The Vietnam government will likely rely on solar
tenders for the next five years, before gradually letting solar
develop on a merchant basis, as Vietnam remains committed to
liberalizing the power sector and reaching its renewable targets
while avoiding an increase in the cost of power. The upcoming
government tenders will drive prices lower, potentially converging
to a range below the average levelized cost of electricity (LCOE)
of solar in the country, even as the LCOE continues to decrease.
The gap between the LCOE and wholesale market's system marginal
price (SMP) will narrow significantly over the next five years.
Figure 1: Vietnam price and cost forecast
Curtailment issues faced by solar projects need to be solved
before a successful transition can occur. The curtailments are
likely to persist over the short-to-medium term. This is due to
four reasons; first, Electricity Vietnam lacks capital to mobilize
all necessary enhancement programs, second, transmission and
distribution enhancements typically take between two and five years
or more depending on scale and complexity, while the development of
a renewable project can be completed in 12 to 18 months, third, the
development of renewable capacity will continue particularly in the
central and south regions, fourth, in addition to renewables there
are also planned gas and liquefied natural gas-fired projects that
will be developed in the same regions.
If left unresolved, there will be a slowdown in project
development, as solar captured price after accounting for
curtailment will only fall below the LCOE by 2032. In addition,
solar development cost will rise due to greater competition for
land with available grid connection points, siting of projects in
lower solar irradiance areas, and an increased need for in-depth
and longer-term grid integration studies.
IHS Markit experts are available for consultation on the
industries and subjects they specialize in. Meetings are virtual
and can be tailored to focus on your areas of inquiry. Book in a
consultation with Allen Wang
and Joo
Yeow Lee.
Allen Wang is a director on the Gas, Power, and Energy
Futures team at IHS Markit. Joo Yeow Lee is an associate director with the Gas, Power,
and Energy Futures team at IHS Markit.
