Markets

New PPA and New Challenges: The Next Step for Vietnam Moving Forward


11 Oct. 2017 by Marco Dorothal, Solarplaza

With the issuing of the country’s official PPA-structure, Vietnam has laid the foundation for the growth of its solar PV capacity, providing a decisive framework in an upbeat market.


Vietnam PPA


With the issuing of the country’s official PPA-structure, Vietnam has laid the foundation for the growth of its solar PV capacity, providing a decisive framework in an upbeat market. In order to meet its undisputed potential, the country was urged to make the renewable energy sector more attractive for investments. Project developers operating in Vietnam  that were consulted by Solarplaza agreed that, besides some flaws in the PPA, its issuing in such a relative short time was the biggest positive note, since developers now at least know the official requirements for their projects. This article takes a look at the implications of the finalized agreement on actual projects under development and in what way it impacts the business case for solar PV.

“Project developers did not feel that the government took into full consideration the assessment provided by the private sector or the feedback made by different donors.”

There were many points raised by key players operating in Vietnam regarding the new PPA. Mainly, project developers did not feel that the government fully took into consideration the assessments provided by the private sector or the feedback made by different donors. For consulted PV companies the two major concerns that remain are technical restrictions and the official exchange rate.

In some projects, engineers are being sent back to their drawing boards with the issuance of new technical requirements for solar power plants. This extra workload and resulting dissatisfaction stems from the land restrictions of 1.2 hectare per 1 MWp of capacity. It is theoretically possible to build that amount of MWp in the specified land area, however, according to the developers, this ground cover ratio doesn’t allow them to optimize the performance of the plant and thus revenues. For new projects, it is technically feasible, however it does not allow for the optimization of the use of all variables. Ongoing projects, on the other hand, suffer the most because this requirement results in major changes to the whole project.

“Ongoing projects, on the other hand, suffer the most because this requirement results in major changes to the whole project.”

The PPA also remained unclear on the details of its coverage for exchange rate fluctuation, mainly for two reasons. First of all, the exchange rate mentioned from the central bank is different from the rate of commercial banks. This is a common situation in the region, but it still needs to be taken into account for the financial planning of projects. Second of all, the requirements for utility-scale projects are not very clear, compared to specific and detailed requirements for rooftop projects. Project developers do not know if EVN, the national utility, will deal with the currency changes on for example a monthly basis or at the end of the year. These factors contribute to what is being called the PPA’s “grey area”.

At the moment, consulted international companies see two different drivers for local companies to enter the PV market. Firstly, there are some serious local investors looking for additional capital from abroad, for example from companies that already have experience with solar plants or construction companies. These players are more interested in the financial aspects of projects, and specifically look for a return on equity for themselves and their international investors. Secondly, there are local players that utilize their connections with different levels of government for developing solar PV projects. These types of companies look for a quick exit, yet have their eyes on high development fees.

“The timeframe in which the projects need to be commissioned and the volume of projects are their biggest challenges in making the PPA work.”

When asked about the biggest worry regarding the PPA, project developers concluded that the timeframe in which the projects need to be commissioned and the volume of projects are their biggest challenges. Because of the time constraints, project developers do not see the possibility to develop a large portfolio of projects properly. Another significant issue is grid connection, because without it you will not get paid. In order for projects to be commissioned, some of the project developers only work in areas where there is no need for new substations or lines.

Another often overlooked hurdle in the successful development of PV plants is developers only receiving approval from a provincial government. However, provincial approval is not worth anything if it is not added to the country’s overall energy master plan. So opportunistic claims of project sizes and totale capacity should be tempered with this realism.

“Provincial approval is not worth anything if it is not added to the country’s overall energy master plan.”

The changes in the PPA resulted in a setback for some project developers with as much as 4 months. The project developers that were least affected by the new PPA, were the ones that invested heavily in judicial advice at the beginning of the application process. By doing so, these developers were able to foresee some of the potential changes and thus remain on track for commissioning their PV projects before June 30th, 2019.  


Learn more about Vietnam’s true market potential and both the opportunities and challenges of solar PV project development in Southeast Asia’s most buzzing market by joining the Solar PV Trade Mission to Vietnam, set to take place in Hanoi and Ho Chi Minh City from 27 November to 1 December. Find more information on this event on our website: www.pvtrademissionvietnam.com