Lower tariffs may demotivate investment in new solar power plants

In a new policy draft for solar power development in Vietnam, the Ministry of Industry and Trade has proposed that solar power is purchased at VND1,620 (7.09 cents) per kWh, 32 percent lower than the incentive price offered to projects that began commercial operations by June 30, 2019.

Le Thanh Tung, chairman of renewable energy firm Ecotech Vietnam, said that with costs to produce solar power remaining unchanged, lower feed-in-tariffs will cut into profits.

This will exacerbate things for investors already facing funding problems, Tung said, explaining that banks have tightened their conditions on providing credit for solar projects and were asking for higher interest rates.

Investors are also concerned about the ministry’s proposal to have one fixed price for all regions, instead of having different prices as earlier to encourage investment in areas with lower solar radiation.

The northern region has the lowest solar radiation at about 3.7 kWh per square meter per day, about 1.4 times lower than in southern and central highlands regions, according to the Vietnam Energy Association.

Tung said that this policy could lead to overload in the central highland provinces where solar radiation is high, while the northern and central provinces will remain unattractive to investors.

Vietnam Energy Association chairman Tran Viet Ngai agreed with Tung saying different prices for each region will reduce overload on the national grid.

Vietnam’s national grid was overloaded  in the second quarter of this year with an influx of 89 new renewable power plants becoming active, many in the southern province of Ninh Thuan, where solar radiation is high.

Some plants had to operate at about only 60 percent of their maximum capacity, which investors said could causes losses this year.

The rapid construction of new renewable power plants in the first half of this year came as investors sought to beat the June 30, 2019 deadline to enjoy feed-in-tariffs of 9.35 cents per kWh for the next 20 years.

A 420 MW solar power project, the largest of its kind in Southeast Asia, officially began production in the southern province of Tay Ninh earlier this month.

The registered capacity of solar power projects in Vietnam has reached 25,000 MW, far exceeding the government’s initial target to have 4,000 MW by 2025.

Renewables currently account for 9 percent of Vietnam's energy mix, already surpassing the target of 7 percent set for next year, according to national power utility Vietnam Electricity (EVN).