By Thang Nam Do and Paul J. Burke
- Vietnam now boasts the highest installed capacity of solar power in Southeast Asia, generating 16,500 MW at the end of 2020.
- Generous feed-in tariffs and supporting policies—including income tax and land-lease payment exemptions for utility-scale investors—have contributed towards this achievement.
- The Vietnam Government’s commitment to boosting energy supply and strong public demand for improved air quality have been important underlying drivers in this direction.
- Vietnam provides relevant lessons for other ASEAN countries to realise their significant solar power potential.
Vietnam has recently seen a remarkable solar photovoltaic (PV) boom, the first stage of a major and rapid energy transition in the country. The country’s solar PV capacity increased from only 86 megawatts (MW) in 2018 to 4,750 MW in 2019 (Figure 1). With this, Vietnam surpassed Thailand to have the largest installed capacity for solar power generation among ASEAN members. By the end of 2020, its installed solar PV capacity reached about 16,500 MW or around one quarter of the country’s installed power capacity, far surpassing its 2020 target of 850 MW.
ASEAN has set an ambitious target of a 23 per cent renewable energy share in the total primary energy supply by 2025. ASEAN countries have significant solar power potential to help achieve the target, but progress is mixed.
Figure 1: Solar installed capacity in key ASEAN markets, 2017-2019
Drivers for Vietnam’s solar PV boom
Attractive solar feed-in tariffs (FIT) have been the key proximate driver for Vietnam’s solar boom. Solar power projects – both utility-scale and rooftop – that started operation prior to 30 June 2019 are able to sell their electricity to the state-owned Vietnam Electricity and its subsidiaries at a FIT of US$93.5/MWh for 20 years.
In April 2020, the feed-in tariffs were reduced to US$83.8/MWh for new rooftop solar projects, US$70.9/MWh for new ground-mounted solar PV and US$76.9/MWh for new floating solar projects. Projects that entered commercial operation by 31 December 2020 were eligible, with the FITs covering electricity generated over the next 20 years. At the time of writing, no FITs or other incentive mechanisms exist for solar PV projects starting from 2021.
Other government policies have played important roles. Utility-scale solar PV developers have been given flexibility to mobilise funding from all sources, including foreign funding, and have been exempted from income tax for the first four years. The income tax will then be reduced by 50 per cent in the following nine years, and thereafter 10 per cent until the 15th year of operation. Imported equipment has also been exempted from import tariffs. Solar PV projects have also received land-lease payment exemptions ranging from 14 years to the entire project life, depending on the location.
Committed to energy security
A survey of experts identified the Vietnam Government’s commitment to energy security as the most important motivation for the introduction of Vietnam’s FIT (see Figure 2). Delays in new coal and other power projects amid rising electricity demand have meant that securing new electricity generation sources has been a priority. Solar PV has become highly viable due to rapid technological improvements and associated cost reductions.
Public demand for environmental protection was the next most important driver. Serious air pollution in urban areas has triggered public opposition to the development of new coal power plants, and local issues related to water and other resources have become concerns. Some local authorities have refused to approve new coal power projects on account of their environmental implications.
Figure 2: Key drivers for Vietnam’s solar PV IT policy (percentage of respondents)
Another important driver for the introduction of the solar FIT has been the Government’s intention to develop solar power generation as a new economic sector. The National Strategy for Green Growth 2012 sets out the specific objective of restructuring the economy by greening current sectors and promoting a renewable energy sector. Following this, the Renewable Energy Development Strategy 2015 detailed targets for developing the renewables sector. The importance of this sector has been re-emphasised in the recent Political Bureau Resolution no. 55 on National Energy Development Orientations.
Potential drivers for solar development in ASEAN
ASEAN has significant potential for solar power, particularly in the Mekong countries of Myanmar, Thailand, and Cambodia. Solar power could play a major role in helping ASEAN achieve the renewable energy target of 23 per cent by 2025, with contributions from wind, geothermal, and other renewable technologies.
To tap this potential, ASEAN countries could follow Vietnam to focus on domestic drivers in motivating policy change, as the political economy behind new policy directions is important for policy success. These include the local health benefits associated with zero-emission electricity generation from sources such as solar PV.
Rush hour traffic along Sudirman Street, one of Jakarta's main thoroughfares. Outdoor air pollution, which stems mainly from fossil fuel combustion, may reduce average life expectancy by about two years in Indonesia. Photo: Shutterstock
ASEAN countries face serious air pollution due to combustion of fossil fuels. The annual number of premature deaths associated with air pollution in ASEAN is projected to rise from 450,000 in 2018 to more than 650,000 by 2040 if the current trajectory for fossil fuel reliance continues. Outdoor air pollution – predominantly from fossil fuel combustion, and also construction, agriculture, and other sources – is estimated to reduce average life expectancy by about two years in Indonesia, 1.7 years in Malaysia, and one year in Thailand. A focus on the local air quality benefits of solar power would potentially cultivate political and public support.
Developing a solar PV industry would provide a new economic benefit and help ASEAN pursue a greener post-pandemic recovery. It offers an opportunity to generate revenues from otherwise underutilised spaces such as rooftops. ASEAN could use broader motivations such as global climate change and improving national positions in the international arena to motivate the adoption of solar PV policies.
Vietnam’s success demonstrates that reforming regulations is also a priority. For example, a new investment law and an amendment to the current Electricity Law have been proposed to tackle transmission capacity issues that have led to curtailment of solar power. In the meantime, the Prime Minister issued an ad hoc decision in 2020 to allow the private sector to invest in transmission lines to connect their plants and other projects in the same area to the main grid. Vietnam is also developing a mechanism for direct power purchase agreements to enable solar power generators to sell electricity directly to consumers.
In November 2020, Vietnam’s National Assembly passed a revised Law on Environmental Protection that legalises an emissions trading scheme. The law will take effect on 1 January 2022. Singapore already has a carbon tax, but there are opportunities for other ASEAN countries to follow Vietnam’s move.
ASEAN could further reform fossil fuel subsidies. Removing fossil fuel subsidies in ASEAN’s electricity sector would not only enable solar PV development but also potentially free up about US$8.3 billion per annum. This sizable resource could instead be used for the development of transmission lines or to meet other priorities. The COVID-19 recovery period is an ideal time for such reforms, given the relatively low international fossil fuel prices and the need for efficiency-enhancing public investments.
The key lesson from Vietnam’s experience is the importance of price signals for solar PV and sufficient levels of government prioritisation and support. Better system planning and greater focus on system flexibility and power storage, plus enhanced private sector participation in transmission development to connect their projects, would also facilitate more efficient integration of solar PV into the electricity system.
This is an excerpt of Vietnam’s Solar Power Boom: Policy Implications for ASEAN Member States and was first published by ISEAS-Yusof Ishak Institute as an ISEAS Perspective.
UOB makes no representation or warranty as to, neither has it independently verified, the accuracy or completeness of the information in this article. Any opinions or predictions reflect the writer's views as at the date of this article and are subject to change without notice.