• As per a new notification issued by the Vietnamese government, the country is to move towards auction based solar PV development, transitioning from FIT mechanism
  • Auctions will be of two kinds, one based on lowest bid for electricity supply to distribution utilities, and the other based on bids for land
  • FITs will continue to be enjoyed by projects that have secured a PPA and are commissioned by 2020; rooftop solar projects can continue to claim FIT
  • Projects in Ninh Thuan will also continue to receive FIT of $0.0935 per kWh till the operational solar power capacity reaches 2 GW or till the end of 2020 whichever comes earlier

The Government of Vietnam is getting ready to introduce a competitive auction mechanism for large scale solar power development in the Asian country, shifting away from the hugely popular feed-in-tariff (FIT) mechanism. Prime Minister Nguyen Xuan Phuc issued a notification to take ‘Decision’ No. 402/TB-VPCP in effect.

Under ‘Decision’ No. 11/2017/QD-TTg issued in April 2017, the country had a very attractive FIT scheme in place guaranteeing a hight rate of $0.0935 per kWh to all solar projects that came online by June 30, 2019. In response, around 82 solar power plants representing 4.46 GW of total capacity were commissioned before the deadline. The plants are mainly concentrated in Ninh Thuan and Binh Thuan provinces where the grid infrastructure is not sufficient to ensure seamless integration of the solar power (see Vietnam: Over 4 GW PV Grid Connected By June 2019).

The Prime Minister’s directive did not mince words in rebuking the Ministry of Industry and Trade (MOIT) in encouraging solar power development at such a large scale in the country without taking into accout its power infrastructure and concentrating major development in few areas alone. The Ministry of Industry and Trade needs to draw from the above-mentioned experiences and drawbacks to enhance the publicity, transparency and efficiency in management of solar power development as well as other forms of renewable energy in the next period,” reads the government notification. 

What happens to FITs now?

In September 2019, the Vietnamese Ministry of Industry and Trade (MOIT) proposed bringing down FIT rates for new utility scale solar to $0.0709 per kWh to be effective between July 1, 2019 to December 31, 2021 (see $0.0709/kWh For Large-Scale Vietnam PV Projects).

The new notification allows for rooftop solar PV to continue to receive FITs while for large-scale solar it will apply only for projects that have executed a power purchase agreement (PPA) and are commisisoned within 2020. MOIT is supposed to compile a list of such projects for the Prime Minister’s approval by December 15, 2019. 

No doubt having an eye on the September 2019 auctions in Cambodia that resulted in solar tariffs as low as 3.87 cents, and record low prices in other markets around the world, this is seen as the appropriate way to marry investor appetite with actual conditions,” pointed out law firm Duane Morris Vietnam in a November 22, 2019 blog post on Lexology. “There is of course a huge question mark over how such auctions will function in practice and there remains a lot to be seen. Most significantly, will there be any changes to the standard PPA terms to facilitate low prices. If not, the market will have to put a firm price on the bankability and contractual risk.” 

Ninh Thuan

Having become one of the most popular regions in the country of late thanks to its massive solar power development spree, projects in Ninh Thuan will continue to receive $0.0935 per kWh till the operational solar power capacity reaches 2 GW or till the end of 2020 whichever comes earlier. 

Auction system

According to the Vietnam Briefing, there’ll be two kinds of auctions under the new regime—first for developers to offer the lowest bids to supply power to local distribution companies and secure a PPA, and second for competitors to submit bids for land. 

The auction-based system is believed to ensure sustainable development of renewable energy in the country on par with international standards. “Vietnam’s auction-based system is a viable alternative to the FiT mechanism as FiT has led to overheated development of solar projects in the country. If unchecked, it could further lead to conflict in land use exacerbating socio-economic issues,” added the Vietnam Briefing.