• Asian Development Bank has released a study that looks into challenges and opportunities of increasing investment in renewable energy market of Vietnam
  • It believes current FITs for renewable energy generation projects in the country aren’t too attractive
  • The government must look at increasing the FIT to be able to encourage investment from the private sector

The Asian Development Bank (ADB) believes Vietnam’s government should revise its feed-in-tariff (FIT) for renewable energy generation projects upwards, which would encourage investment from the private sector. For solar power, it suggests FIT of $0.15 per kWh.

Currently, the government is paying FIT of $0.0935 per kWh for all large-scale solar power projects for a period of 20 years (see Vietnam Introduces Solar Incentives).

In a report titled ‘Green Finance in Vietnam: Barriers and Solutions’, ADB calls the tariff ‘not attractive’ when compared to other ASEAN nations, even though the government offers corporate income tax exemption and reduction, import duty exemption on equipment, along with land-related incentives, long term PPA, and income indexed to exchange rate in US dollars.

Furthermore, potential foreign producers have raised concerns about the purchasing price, while the current cost of electricity generated from renewable power plants is still quite high due to the large technical investment. If the FIT is not increased to regional levels, while there is no clear road map for negotiating the PPA, it will be very difficult to attract private investment,” reads the ADB report.

In 2015, only 3.7% of total energy in this fossil-fuel reliant economy, came from renewable energy. Over the years, wind, solar and biomass have come up as the three most promising energy sources for generating renewable energy.

In its report, ADB strongly advocates integration of renewable energy into the country’s energy mix, but at least 50% of the total investment for its development needs to come from private sector as the government has its hands tied with state budget and low-creditworthiness of state-owned enterprises (SOE) as Electricity of Vietnam.

Some other suggestions made by the authors of the ADB report are developing a wide range of financial vehicles to facilitate long-term finance and risk mitigation, increasing the creditworthiness of EVN, implementing policies that discourage CO2 intensive sectors and facilitate deployment of renewable energy.

The recommendations sounds odd when looking at the many announcements of solar projects in Vietnam. Moreover, prices for modules have decreased over 25% since the beginning of the year, and an increasing number of countries is turning its back on high uncapped feed-in tariffs and move towards auctions to better control cost, like China in May.

The report is available on the website of ADB.