While some see bright prospects for an alternative power boom, high tariffs, regulatory risk and a volatile currency have kept the industry in the dark
atimes.com_Some here are calling it a gold rush. From Thailand to the United Arab Emirates, global players with experience in solar energy are sending representatives to Vietnam in search of the next big alternative energy boom.
Vietnam has expended much energy talking up the upsides of solar power, with government officials gushing about all the sunny weather in the country’s Central Highlands and South.
Officials have recently established solar tariffs and contract templates, paired up with the World Bank to install measurement stations, and called for bids to build farms and sell solar energy to the national electric grid.
“I think that renewable energy in Vietnam will grow very fast,” said Nguyen Quang Minh, deputy director of power systems at the Electricity Regulatory Authority of VietnamAnd hopefully in the future the contribution [and] the penetration of solar will increase very fast in Vietnam and help us to balance between the supply and demand.”
Yet despite all the fanfare, the tropical country still has no solar farms in operation and no use of solar panels feeding into the national grid. Which begs the question: what’s taking so long?
Even if and when solar farms come online, Vietnam aspires to source just 6.5% of its total electricity from renewables – and that’s if targets are hit.
Safe to say it’s a far cry from the photovoltaic craze north of the border in China, where a state push has sent the global cost of solar cells plummeting, both for domestic use and foreign export.
Vietnam’s slow solar progress stems from a mix of uncertainty on tariffs, the difficulty of working with the state power monopoly, obstacles to creating a wholesale market, technological issues and foreign exchange fluctuations, observers say.
That lethargy starkly contrasts with the dizzying speed of the communist country’s industrial makeover.
Vietnam’s economic growth rate is one of the fastest in the world, now at more than 6% annually.
It’s a feat that would not have been possible without electricity-guzzling factories that now produce much of the world’s clothes, electronics and seafood exports.
“We know that the [power] demand growth in Vietnam is in double figures, at least in the last decade or so,” Shenbagam Manthiram, chief representative in Vietnam for Tata Power, said last month at the Vietnam Solar Energy Summit. “And it will continue at least for the next 20 years.”
National policies could come to a head as energy consumption collides with environmental protection concerns. Vietnam frets about how climate change could raise sea levels, bringing saltwater into its rivers and farmland, and exacerbate natural disasters.
At the same time, it is importing more and more environmentally unfriendly coal to fuel its power plants.
“The Vietnam government has focused very much on coal fire and some gas fire, rather than renewable energy,” said KPMG senior partner Ha Do, who advises clients in the energy sector.
She said officials in the provinces, where solar farms are most likely to spring up in future, have had less experience with foreign investment and are still adjusting to international business norms.
Businesses are pushing for a law that recognizes direct power purchase agreements, which would let companies sell solar energy to one another, rather than just to Electricity of Vietnam (EVN).
EVN, currently the country’s sole purchaser of solar power, handles all responsibility for maintaining the grid and ensuring producers are paid.
Solar tariffs are fixed at 9.35 US cents per kilowatt hour until 2019, but exchange rate volatility makes banks nervous about financing solar projects at fixed rates.
“Local banks definitely tend to be more tolerant to certain key points that make the foreign lender reluctant,” Do said, referring to local banks comparative willingness to make solar investments.
Samantha Campbell, managing partner at law firm Hogan Lovells, agrees that domestic banks are more active than foreign lenders in Vietnam’s energy finance sector.
She also said it is “not realistic” to require that all equity is contributed within 90 days of receiving a permit, especially for multi-billion dollar projects, as currently required. She says investors need more time to mobilize such large amounts of capital.
It’s one of several issues Vietnam needs to rectify before the sun can shine on its unrealized solar energy potential.