What’s going on here?

• Context: Solar power played almost no part in Vietnam’s energy mix in 2017.
• To speed the technology’s adoption, the government offered to pay suppliers a generous $0.09 for every kilowatt-hour produced by big solar farms, but only if they started operations within the following two years.
• By the end of 2019, Vietnam found its capacity of 5 gigawatts – compared with the expected 850mw, and more than Australia (six times VN’s size).

What’s does this mean?

The surge is all the more surprising with the terms that EVN promised to only pay for the power it needed on any given day, although the government’s “feed-in tariff” was tempting given that costs typically amount to $0.05-0.07 a kilowatt-hour. Developers worried that potential investors would balk at that. As it turned out, they leaped at the chance to cash in on Vietnam’s hunger for power.

The bigger picture

A solution to the future power shortage

With the growing economy, the Vietnamese government has plans to double power generation by 2030, but estimates that supply may run short as soon as next year. It needs to find new sources of power as soon as possible.

• Coal is the cornerstone of Vietnam’s energy supply. Under current plans, the fleet of coal-fired power plants will soon triple. But construction has been dogged by regulatory delays, local opposition, and flagging investor interest. Building a new plant takes the better part of a decade.
• Solar farms, in contrast, incite far less opposition and take about two years to build. However,
  • almost all the new facilities are in the sunny south-east, where they overwhelm the local grid and occasionally force EVN to refuse to buy the power they generate.
  • the feed-in tariff is expensive.

The government has begun improving the grid and decreed that in the future it would not offer a feed-in tariff, but instead auction the right to sell solar power to the grid.

A hope for environmentalists

Environmentalists hope that solar’s success will persuade the government to scale back its ambitions for coal-fired plants.

• Wind and solar have almost already met their current goal of providing 10% of power, ten years ahead of schedule. They could easily eat into the 43% share allotted to coal at present.
• Analysts assume that prices are likely to continue to move in renewables’ favour. Wood Mackenzie, a consultancy, thinks power from large solar farms in South-East Asia will be at least as cheap as that from almost all coal plants within five years.
  • In Malaysia, a recent auction to build 500mw of solar capacity drew bids for 13 times that.
  • In Cambodia, the winning bidder to build a 60mw plant said it would supply power at less than $0.04 a kilowatt-hour, a record low for the region.
  • Although the pipeline of proposed coal plants in South-East Asia remains huge, at around 100 gigawatts, the International Energy Agency, a think-tank, has noticed a gradual shift over the past five years. Approvals for new coal plants have slowed; additions to solar capacity have jumped.

Vietnam’s experience suggests that not all the planned coal plants will be built. Even if that proves correct, SEA will still have a lot more coal-fired generation than environmental activists would like. But solar’s sudden spark in Vietnam should at least change officials’ views of what is possible.

Content source: The Economist. (2020) Vietnam grapples with an unexpected surge in solar power. Available from: https://www.economist.com/asia/2020/01/23/vietnam-grapples-with-an-unexpected-surge-in-solar-power [Accessed 27 January, 2020]