Government not to extend deadline for solar power pricing incentives

Under the prime ministerial Decision 11 issued in April 11, 2017, solar power installations that reach their commercial operation date (COD) by June 30, 2019, are entitled to a feed-in tariff (FIT) of 9.35 cents per kilowatt-hour for a period of 20 years.

Investors had had their hopes up after, on June 20, a deputy prime minister reportedly had agreed in principle at a meeting with the Ministry of Industry and Trade (MoIT) that the effective date for projects in Ninh Thuan would be extended to the end of 2020.

Ninh Thuan and Binh Thuan are central provinces that have the greatest potential for renewable energy in the country.

Investors were hopeful that the decision for extension would first be issued for Ninh Thuan projects in July and extended nationwide later this year.

In early July the Ministry of Planning and Investment (MPI), in coordination with MoIT, recommended the COD extension to the government.

But the hopes have now been dashed with the Government Office issuing Official Letter No. 7108 stating the deadline remains unchanged but without mentioning a reason.

“What remains unclear is whether the MoIT and MPI would continue pushing for a nationwide COD extension,” Oliver Massmann, a partner at law firm Duane Morris LLC, said in a note via email to his clients.

“Time is of essence now, yet everything is still up in the air. For prudent reasons, we would have to advise IPPs (independent power producers) to go with smaller projects now for the purpose of plausible construction time,” he added.

There are no definitive answers now to questions about pricing for solar power connected to the grid after June 30, 2019.

“How the FITs are decided after June 30, 2019 will depend on what technology prices will be at a specific period of time,” said Le Minh Duc, director of the Electricity Regulatory Authority of Vietnam (ERAV)’s Center for Electricity Market Development & Workforce Training, said.

His statement is contained in a report made by the Vietnam Business Forum (VBF), a consortium of private business associations.

FITs are payments made for supplying renewable energy to the national grid.

Recent innovations in solar power technology that have helped bring down production costs dramatically have made Vietnam’s 9.35 cents tariff attractive to private investors.

Hundreds of private investors have submitted proposals to set up solar farms, but the June 30, 2019 deadline is too tight, energy experts said.

The projects can get entangled in land acquisition hiccups, procedural lags and lack of master zoning plans for solar power development at the national and provincial levels.

There are also concerns over infrastructure for connecting to the national grid.

Meanwhile, power authorities are considering trialling auctions as an alternative option to FITs after June 2019.

Pham Quang Huy, deputy director of ERAV, said they have sought World Bank assistance and hired consultants to study auction mechanisms.

Bidders offering the lowest prices to the Electricity of Vietnam (EVN), the country’s sole power distributor, will be awarded development contracts.

MoIT has reportedly approved around 70 solar projects with a total capacity of over 3,000 megawatts to be commissioned before June 30, 2019.

Vietnam currently relies largely on hydropower and thermal power plants for its electricity demands, but these have drawn frequent domestic and international criticism for their social and environmental impacts.

Solar accounts for just 0.01 percent of the power output, but the government plans to increase this ratio to 3.3 percent by 2030 and 20 percent by 2050.

By 2030 Vietnam aims to produce 10.7 percent of its electricity from renewable sources, with wind energy being the other main option.