In a year characterised by continuing Covid-19 waves and economic recovery programmes, as well as an energy crisis that saw record-high electricity prices around the world, many turned to solar solutions for their energy needs. In 2021, 167.8 GW of solar capacity was grid-connected globally, a 21% growth over the 139.2 GW added the year before, establishing yet another global annual installation record for the sector. This brings the total operating solar fleet to 940 GW by the end of 2021, with the terawatt milestone being achieved in 2022.
SolarPower Europe has published a report titled “Global Market Outlook for Solar Power 2022-2026” according to which if it took 10 years to upscale the world’s total grid-connected solar capacity from 100 GW in 2012 to 1 TW in 2022, it will take only a little more than 3.5 years to double it by end of 2025. At the end of the forecasting period, the report expects 2.3 TW of solar to be installed worldwide. According to the report, despite the global market growth, the number of markets in the GW range has remained 17 in 2021, although sustained growth is expected on this front, too and 21 GW-scale markets in 2022, 29 in 2023 and 34 in 2024 have been forecasted. Southeast Asia Infrastructure provides an extract from the report covering the solar markets in Vietnam.
Overview of PV developments
Following a spectacular 2020, resulting in 11.9 GW of added solar capacity and catapulting the country into the top 3 solar markets globally, the PV sector in Vietnam saw a dramatic collapse in 2021. With the termination of the Feed-in Tariff 2 (FiT2) system at the end of December 2020, the support framework has become much less favourable for solar projects. As a result, slightly less than 2 GW of PV capacity was installed in 2021, an 83% annual decrease from the previous year.
Adding to the legislative vacuum that followed the termination of the FiT2 regime, in January 2022, Vietnam’s National Load Dispatch Centre (NLDC) stopped approving any future solar and wind energy projects citing grid constraints arising from the installation of high capacities of renewable sources in recent years. This move is expected to last at least until the end of the year.
Looking at total installed capacity, the country has a solar fleet of more than 18 GW in operation. The solar installation boom in the recent years has given the country a significant towards achieving its PV targets, which are currently under revision.
Solar and renewable energy targets
At the COP26 in November 2021, Vietnam Prime Minister Pham Minh Chính announced a net zero emission target by 2050 and a coal phaseout by 2040. Renewables and solar PV in particular will play a key role in decarbonising the Vietnamese economy. Under the draft Power Development Plan VIII (PDP VIII), whose revisions are still ongoing, PV capacity needs to reach about 18-20 GW by 2030 and about 55-72 GW by 2045, representing respectively a base and a high scenario outlined for PV power contributions. Under PDP VIII, only centralised PV parks with a capacity over 1 MW are taken into account, while rooftop solar and renewable capacity for green hydrogen production are not included in this strategy. In either scenario, the growth of large-scale solar capacity is minimal until 2030.
Drivers for solar growth
The major drivers behind solar’s impressive growth in recent years have been attractive fiscal and economic incentives. Particularly, in 2020, the FiT2 set very favourable rates for rooftop, floating and ground-mounted solar. Notably, the FiT2 rate for rooftop solar was higher than the average retail electricity tariff, while the rate for utility-scale plants also made the financially viable projects attractive to investors. The feed-in contracts signed under the FiT regulation have a duration of 20 years with the annual payment being determined based on the actual VND/USD exchange rate.
FiT2 was valid from May 22, 2020 to December 31, 2020 and created a rush to develop as many projects as possible before the deadline. New solar capacity installations continued to grow steadily in the third quarter, before experiencing an incredible jump in the last quarter; December, in particular, had record rooftop solar capacity deployments.
At present, not only a new mechanism promoting a shift towards self-consumption has not been introduced; the grid operator has also temporarily stopped the authorisation procedure for any wind and solar projects, due to grid constraints following the recent high PV installation levels. The grid operator cited challenges in stabilising the power system in real time.
Considering the current solar PV installed capacity of over 18 GW as of December 2021, the target solar PV capacity for the next 10 years would be negligible, according to the PDP VIII draft. This raises questions about the government’s renewable energy development ambitions in the future, despite the COP26 commitment towards net-zero emissions by 2050. Additionally, there are no clearly defined targets specifically for ground-mounted, floating, and rooftop solar categories. These concerns have been raised by various parties and the government has been asked to adjust the solar target in the PDP VIII.
Among various challenges that young solar markets such as Vietnam face, two key barriers affecting the current development are notable:
- Very short-term policy that lacks clarity. The short duration of FiT2 with a validity of only 7 months led to a pressing demand in products, services, delivery, and grid connection. In December 2020, the high demand resulted in a 30% increase in the solar PV system price. Since the expiration of FiT2 on December 31, 2020, no new support policy has been introduced. In the worst case, this gap in policy might cause a medium to long-term market distortion in the coming years or, even in the best-case scenario, a temporary short-term market collapse.
- Asynchronous developments of solar PV and grid projects lead to PV power curtailment. Indeed, the development of solar PV projects outpaced the transmission grid projects, which are defined to be financed, operated and managed exclusively by Vietnam Electricity (EVN) National Transmission Corporation. This has led to the decision to stop new variable renewable projects for 2022 and might result in negative impacts for the sector if not urgently addressed.
Despite the unexpected impacts, both on the investment as well as on grid operation due to the short-term policy, the Vietnamese solar market could still give some positive surprises in the medium term.
Indeed, keeping national energy security and energy independency in view, the opportunity for further development of solar PV is still acknowledged, especially decentralised rooftop solar, the lengthy process negotiation process and limited financial access for big coal-fired and gas-turbine power plants notwithstanding. The pilot direct PPA mechanism will continue to drive the market even without a feed-in tariff in place.
In brief, the installed solar capacity, both utility-scale and rooftop PV, is expected to be very low in 2022, but could experience another up-tick, if well-designed mechanisms that promote a sustainable long-term market are developed and announced in time.
The entire report can be accessed here.