Sunny outlook
Solar power scales up in Vietnam in response to attractive incentives and serious commitment to alternative energy.
● The recent inauguration of a 420-megawatt solar power facility — the largest of its kind in Southeast Asia — has underscored Vietnam’s renewable energy potential and is attracting more investment from abroad into the sector.
With annual GDP growth of 6-7%, Vietnam has enjoyed substantial growth in foreign direct investment (FDI) in the past decade, lifting demand for electricity. Power demand in the country of 94 million is now projected to reach almost 130 gigawatts (GW) in 2030, from less than 50 GW in 2018.
The government has responded by offering generous investment incentives, particularly for solar energy, especially now that it has shelved its nuclear power ambitions. As solar accounts for less than 10% of Vietnam’s generating capacity, the government has offered a high feed-in-tariff (FIT) rate of 9.35 US cents (around 3 baht) per kilowatt/hour (KWh) throughout the 20-year supply contract with Vietnam Electricity (EVN), the country’s largest power company.
The attractive FIT rate applies to all kinds of solar technologies including ground-mounted, rooftop and floating solar projects developed between June 1, 2017 and June 30 this year.
According to EVN, as of June 30 a total of 82 solar power plants with a cumulative capacity of 4.46 GW had been connected to the national grid. By the end of 2019, another 13 plants with a combined capacity of 630 MW are scheduled to be connected.
Among the new plants are Dau Tieng 1 and 2 (DT1 and DT2), which are 55% owned by B.Grimm Power Plc (BGRIM), the listed power subsidiary of the 141-year-old Thai conglomerate B.Grimm Group. Vietnam’s Xuan Cau holds the remaining 45% of the installations which came onstream on June 3 and 13 on 1,789 acres (4,525 rai) of land in Tay Ninh, 100 kilometres from Ho Chi Minh City in southern Vietnam.
The project startup has raised BGRIM’s generating capacity in Vietnam to 677 MW. Its 80%-owned Phu Yen TTP plant with a capacity of 257 MW began operating on June 10 on the south-central coast. The other 20% is held by Truong Thanh Vietnam Group JSC Group.
“The DT1 and DT2 project represents one of BGRIM’s big strides to become a leading regional player in the energy sector with a host of investments afoot,” said Harald Link, the chairman of B.Grimm Group.
Vietnam, he noted, possesses high investment potential and has shown a serious commitment to renewable energy development. Political risk in the one-party state is low while local personnel are diligent with English proficiency, he added.
REGIONAL EXPANSION & BEYOND
Preeyanart Soontornwata, CEO of B.Grimm Power, said the company has a licence to develop another 120 MW of solar capacity, which could take the form of a greenfield plant or an acquisition. Its existing site in Tay Ninh is vast with room for future expansion.
The combined capacity of BGRIM’s solar PV projects in Vietnam has resulted in a 40% boost in the company’s total generating capacity since the start of this year. Renewable energy has grown from 8% to 30% of its overall portfolio.
As one of Thailand’s largest power producers, BGRIM currently runs 45 commercial projects including 17 combined-cycle plants, 25 solar, three hydroelectric plants and one diesel-fired power plant. It is also building a 5-MW industrial waste-to-energy project in Thailand with commercial production due to start in December, bringing combined capacity of 2,896 MW.
Another 11 projects under development between now and 2025 would raise total generating capacity to 3,245 to meet demand in Thailand, Vietnam, Laos and Cambodia. Renewable energy will account for 30% and natural gas the rest.
The company has ruled out coalfired development. Its key focus abroad will be on gas-fired, combined-cycle and wind power, said Ms Preeyanart.
BBGRIM is pursuing further investment in Cambodia, the Philippines, Laos and South Korea, she added. It is also involved in rooftop solar programmes at home and abroad, and is studying solar farm projects in Cambodia.
In early 2017, BGRIM signed a memorandum of understanding with Poipet PP SEZ Co Ltd to supply power to the special economic zone, including a 12-km transmission line from Thailand to the zone in northwestern Cambodia.
In Laos, two hydropower projects are under development: the 68-MW Nham Khao plant in Xiangkhouang in northeastern Laos, and the 1.8-billion baht Tadsakoi project with a capacity of 30 MW. BGRIM also holds 20% in the 340-MW Xekong hydroelectric joint venture together with Thailand’s Ratch Group Plc (60%) and Lao World Engineering & Construction Co Ltd (20%).
Beyond Asean, BGRIM last year signed an MoU with Korea Electric Power Corporation (Kepco) to develop an offshore wind power farm with a capacity of 100 MW. In April this year, Mr Link and Ms Preeyanart visited South Korea to discuss cooperation in developing an energy storage system and smart grid at U-tapao Airport and the Eastern Economic Corridor (EEC) in Thailand.
HOT SPOT
Vietnam, meanwhile, has become a hot spot for energy investors. In the southern coastal province of Ninh Thuan the local company BIM Group and AC Energy of the Philippines have connected 330 MW of solar capacity from three projects to the national grid. Phuoc Huu Electricity Investment JSC also opened a 30-MW solar project in Ninh Thuan in June.
IHS Markit forecasts that just five countries — Vietnam, Argentina, Egypt, South Africa and Spain — will account for 7% of the 2019 market for 7 GW of new solar capacity. Having added just 8 MW of new solar capacity in 2017, Vietnam plugged in 106 MW last year and is poised to take things to another level. IHS Markit analyst Josefin Berg projects 2 GW will be installed this year alone.
Global Data has forecast that power generation in Vietnam will rise from the current level of 47 GW to 56 GW by 2020 and to 123 GW by 2030. Solar power is projected to play a major role and could even challenge coal as the country’s biggest electricity source by 2030.
Besides direct investments, private equity investors are also increasingly showing interest in renewable energy in Vietnam. Only fintech and education are attracting more investment interest, according to a Grant Thornton survey.
“100% foreign ownership is allowed in energy production. Wind and solar energy projects, in particular, are absolutely booming — more active than anything I have seen in my 28 years working here,” said Fred Burke, managing partner of the law firm Baker McKenzie Vietnam.
The country has issued a national power development plan that aims to create modern, sustainable and reliable energy services by 2030. The focus will be on companies that have proven technologies in hydropower, wind, solar, biomass and biogas segments.
“Vietnam’s objectives include increasing the proportion of domestically manufactured equipment value in the renewable energy field up to 30% in 2020 and 60% in 2030, and being able to export in 2050,” Pham Trong Thuc, director of the department of renewable energy at the Ministry of Industry and Trade, was quoted as saying in a local report.
The country has seen energy demand surge by 13% a year since 2000 and annual growth of 8% is expected through 2030, according to International Finance Corporation (IFC).
The government has set up a Sustainable Energy Promotion Fund but wants to mobilise external capital to finance future supply, said Mr Thuc. The power system will require about US$10 billion annually until 2030 to meet its targets, according to estimates by EVN. A major challenge will be finding the right partners who can commit this huge amount of capital.
Investors in green energy in Vietnam have been mainly mainstream players. These include both sovereign funds and strategic groups making acquisitions or forming joint ventures such as German Asean Power, Trina Solar, Schletter Group, Sunseap International, Gulf Energy Development, InfraCo Asia Development, GE Renewable Energy and Doosan Heavy.
Private equity transactions include Dragon Capital’s funding of Pacifico Energy Group, Vietnam-Oman Investment’s backing the $48-million BCGCME Long An 1 solar energy plant, and IFC’s investment in Phong Dien, Vietnam’s first private grid-connected solar farm. VinaCapital, the local $1.8-billion asset manager, is also evaluating opportunities.
Renewable energy in Vietnam is attracting more interest from private equity investors than any other sectors except fintech and education, according to a Grant Thornton survey