If the purchase price of renewable energy is unstable and clash with the benefit of involved parties, it seems to be that new projects in the 2021-2030 period will be difficult to develop.
FIT price – Attraction for a while
Power sector policy is in the transition phase, there have been breakthrough policies that changed the industry’s picture since 2017, spectacular growth results from the development of renewable energy sources (RE), such as wind and solar energy in the 2018-2021 period.
According to EVN’s statistics, by the end of 2020, the total installed capacity of solar power is 19.4 GWp, of which 9.3 GWp in the capacity is more than 100,000 rooftop solar power systems and the rest is solar power plants. It is expected that by the end of October 2021, the installed capacity of wind power increase to around 5.7 GW. Thus, the total installed capacity of variable renewable energy sources will reach 28%, excluding hydroelectricity.
However, Vietnam’s electricity system still depends mainly on power generation from fossil fuels, accounting for 64% (Coal thermal power: 123 billion kWh ~ 50% and gas thermal power 34.7 billion kWh ~ 14%). The above positive results are due to the impact of the FIT pricing policy for renewable energy during this time, namely:
For wind power, the first FIT policy was enacted in 2011 at a rate of 78 USD/MWh, however, this price is considered to be not commercially viable, therefore until 2017 total installed capacity only reached 135 MW.
It is noteworthy that all 3 projects implemented at this stage are applying a special financial mechanism, not simply using the issued FIT price. In which, to promote the development of wind energy in Vietnam, the Prime Minister has issued the FIT2 price since November 2018, with a rate of 85 USD/MWh applied to onshore wind power projects and 98 USD/MWh for offshore wind projects (Decision No. 39/2018/QD-TTg). Consequently, the market reacts quickly to this decision, specifically it is expected that by the end of 2021, Vietnam will have about 5,886 MW of COD wind power, in other words, it is multiple 43 times the total installed capacity in 2017.
For solar power: The FIT policy was first issued in 2017 at a price of 9.35 UScent/kWh with a grid connection deadline before June 30, 2019. This triggered the market with 4.5 GW of solar power was connected to the grid during this period. The second solar FIT price has been issued respectively at 7.09, 7.69 and 8.38 UScent/kWh for solar power plants, rooftop solar power systems and floating solar power, with a grid connection deadline of December 31, 2020.
All of the above policies apply to buy electricity from renewable energy sources for 20 years and have created a positive response to investors. Since then, the rapid investment has created momentum for the market to become more mature in a very short time and at the same time also created doubts issue of purchasing renewable energy at an attractive FIT price that may lead to an increase in retail electricity prices and an uncontrollable development trend of supply and demand balance.
Policy is the foundation
Facing the situation, according to experts, to help the domestic renewable energy market develop sustainably, Vietnam needs to learn from other countries experiences. Regarding the mechanism, it is necessary to gradually move from the FIT mechanism to the auction mechanism, a competitive selling price for renewable energy. Because this method has been applied by many countries around the world with high efficiency, it also helps to achieve the following goals:
Firstly, to reasonably develop and integrate RE into the grid; secondly, the purchase price of renewable energy is always close to the market price; thirdly, ensure timely project completion and support a just and sustainable energy transition.
In particular, the countries that have developed strategies to promote the development of renewable energy are based on bidding programs for electricity prices. For example, in Chile and Mexico, wind and solar (PV) technologies have proven to be competitive at a comparable level to traditional energy and won a large share of contracts at low prices record.
This trend has been applied to offshore wind power projects in Denmark, Germany and the Netherlands, additionally, in Argentina, Peru and Dubai energy capacity auctions have also been applied at a very early stage.
According to Mrs. Ngo Thi To Nhien – Executive Director of Vietnam Initiative for Energy Transition, the auction mechanism for renewable energy prices has been deployed in 60 countries for the main reason is that this mechanism brings the ability to develop renewable energy sources in a reasonable, cost-effective and transparent manner. Applying the auction mechanism also achieves other development goals, such as creating jobs for workers, improving technology levels, and contributing to ensuring national energy security. In addition, there are many outstanding benefits include:
The flexibility of the design, this factor makes it easy for managers and policymakers to combine and adjust different factors to meet the needs of implementing renewable energy projects while still achieving economic development goals for the country, the structure of the energy sector, the maturity of the energy market, as well as the reduction of emissions in the power sector.
Predetermine installed capacity and prices, allowing policymakers to control the price (with the ceiling) and the amount of renewable electricity that will be purchased, thereby also ensuring stable revenue for investors at the same time establishing a CO2 emission control mechanism with quotas and the purchasement of the green certificate.
The level of commitment and transparency, reflecting the reality on the power purchase agreement, aims to: Clearly state the commitments and obligations of each party, thereby creating legal guarantees for investors and minimizing financial risks if there is a change in market and policy in the future; at the same time specifying penalties for delay in contract performance, in order to ensure that projects are implemented according to the bid documents towards a green growth economy and a carbon-neutral target by 2050. Therefore, the establishment of long-term, continuous policies is necessary to attract investors’ interest in the energy sector.
Source: Business Forum Magazine.