Get ready for auctions! After months of confusion and uncertainty over the policy for solar power development in Vietnam Prime Minister Nguyen Xuan Phuc today issued his conclusions and looks to have signed the death knell for solar feed in tariffs (FiT) in favor of competitive auctions.
In Notification No. 402/TB-VPCP dated 22 November 2019, the Prime Minster concluded that rational future development of the sector necessitates introducing an auction system for ground-mounted solar projects. FiTs will continue to apply only for rooftop solar projects and certain already-approved ground-mounted projects.
The decision comes nearly five full months after expiry of the blanket 9.35c/ kWh FiT issued in April 2017 that kicked off a huge, and largely uncontrolled, rush that culminated in some 4,500MW of solar generation capacity becoming operational by July 2019 and, reportedly, an incredible 35GW of registered interest. The first number alone is some 500% more than the 850MW of solar that was planned to be operational by 2020 in National Power Development Masterplan 7 (revised as of 2016). That both highlights just how frenetic the activity was and also how efficiently the private sector is able to get these projects developed, financed and constructed. Just imagine what could be done with an international-standard PPA and a developed grid infrastructure.
The Prime Minister, in his conclusions, chides the MOIT for the helter skelter development over the past two years, with many projects concentrated in areas where grid infrastructure is unable to properly serve the facilities resulting in widespread curtailment problems. The Prime Minister has urged the MOIT to learn its lessons and re-orient itself towards a new reality. The gold rush days are over and developers can expect a more rigorous licensing and approval process for new projects now.
FiTs aren’t entirely dead yet though. The Prime Minister’s conclusions suggest, without stating definitively, that certain projects will still be entitled to FiTs. Specifically, ground-mounted projects that already have signed PPAs and can be put into operation in 2020 appear set to continue to enjoy FiTs. Rooftop solar projects will also continue to enjoy FiTs. The Prime Minister has instructed the MOIT to propose the final FiT terms, including a list of projects entitled to enjoy the new FiT, and present them for his approval by 15 December 2019. While the number is still unknown, it is widely expected to be 7.09c for ground-mounted projects and stay at 9.35c for rooftop projects (which are favored due to not needing land to be allocated).
Certain, already announced, special rules for Ninh Thuan province will continue to apply with some adjustment. Specifically, some already-approved projects in that province will continue to enjoy the 9.35c FiT but only until total operational capacity there reaches 2000 MW or until the end of 2020, whichever comes first. The race is on there.
For all other ground-mounted solar projects, the Prime Minister has determined that competitive auctions are the way forward. No doubt having an eye on the September 2019 auctions in Cambodia that resulted in solar tariffs as low as 3.87c, and record low prices in other markets around the world, this is seen as the appropriate way to marry investor appetite with actual conditions. 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.