PDP8 still on the drawing board
Vietnam has yet to settle the eighth draft of its Power Development Plan (PDP8). A meeting held on August 11, 2022, decided to submit the final version of the draft for approval by the end of the month. The final version includes a target set on April 26 to cumulate 10.7-13.6 GW of onshore and nearshore wind capacity by 2025, 11.7-16.1 GW by 2030, and 55 GW by 2045. As for offshore wind, the draft PDP8 aims for 7 GW of installed capacity by 2030, and 30-64.5 GW by 2045.
Under the draft PDP8, Vietnam will have 93.9-98.4 GW of power generation capacity (excluding rooftop solar) by 2025. Among which, 21.8-23.7%, namely 20.4-23.3 GW, will come from renewable energies, such as wind, solar, and biomass power. In 2020, renewables accounted for 16% of total energy generation, according to data published by the Vietnam Electricity (EVN).
Challenging goal: 7 GW offshore wind by 2030
As of 2021, Vietnam’s cumulative installed offshore and intertidal wind capacity stood at 876 MW. But now, the country is faced with various challenges, making it more difficult to cumulate 7 GW of installed offshore wind capacity by 2030 (excluding intertidal zone project).
The first challenge is policy uncertainty. The dawdled PDP8 put off the making of targets and policies. The existing FIT mechanism is only applicable for onshore and offshore wind farms connected to the grid before November 2021. Whether Vietnam will extend the FIT or lower the rate is still unclear. As electricity sales models remain uncertain, wind farms already delayed by the pandemic are idled, even completed ones cannot be connected to the grid. Potential investment products also face hurdles. During several meetings, the authorities even consider canceling FIT and putting the 7-GW capacity out for tenders. Some hold opposing views, suggesting a gradual change in electricity sales models.
The second challenge lies in the grid. Vietnam’s installed renewable capacity surges over the past two years, but the integration of electricity grid fails to catch up. Given the lack of infrastructure and impacts bulk amount of renewables have on the grid, the Vietnam Power System Operating Strategies (NLDC) announced that it will not approve any new solar or wind project in 2022. For now, many wind farms are completed but cannot be connected to the grid due to undetermined FIT rate and grid issues. Once the government passes the PDP8, the share of renewables will rise even more significantly. Against this backdrop, the authorities must focus on investing and improving the transmission of electricity.
In the past, the EVN was the only buyer on the market, monopolizing the transmission and distribution of electricity. However, on January 11, Vietnam amended the Electricity Law, allowing private sectors to invest in power grids, but the national grid and some utility-scale power generation plants remain under control of the central government. The amendment took effect on March 1. Such a reform will increase investments of private sectors in Vietnamese grids, accelerating the grid improvement.
Given grid overload issue, InfoLink expects Vietnam to connect no project to the grid this year, and installed capacity will sustain at 876 MW, among which 119 MW are offshore wind capacity. The amendment of Electricity Law in 2023 will allow government to cope with grid issues with fundings from private sectors, thus connecting projects to the grid as scheduled. Additionally, Vietnam is expected to finalize the PDP8 by the end of 2022, approving the construction of some projects.
In an optimistic scenario, Vietnam may cumulate 12.7 GW of installed offshore and intertidal wind capacity by 2030. Among which, offshore wind projects will contribute 6.9 GW, very close to the country’s target. In a neutral scenario, installed offshore and intertidal wind capacity will reach 10.5 GW. Installed offshore wind capacity will reach 5.7 GW after 2026, with 900 MW of annual increase ever since. In a pessimistic scenario, grid connection of projects approved under the PDP8 will be delayed due to grid issues. The authorities may even cancel the FIT mechanism, discouraging developers to invest. Installed offshore and intertidal wind capacity will come in at 9 GW, with offshore wind accounting for no more than 5 GW.
Incentive tax credit
In addition to the FIT mechanism, Vietnam introduced incentive tax and rental credits for renewable projects:
- Income tax: Projects are fully exempted from income tax for four years before operation and have a 50% tax credit during the following nine years. From the first profitable year onwards, developers enjoy a preferential tax rate of 10% for 15 years. (20% for regular companies).
- Rental: Developers will not have to pay for their use of lands for 15 years or the entire project life (depending on the location of the project).
- Import tariff: Exempted items include fixed assets, such as machinery or engineering materials which Vietnam is not capable of manufacturing.
Vietnam draws a blueprint for the development of offshore wind power under PDP 8. However, the emerging market faces challenges of incomprehensive regulations and lack of infrastructure. The Vietnamese government imposes no restrictions on the ownership of renewable projects, meaning that foreign investors can hold 100% of equities of wind energy developing companies. Therefore, the country is more attractive than Taiwan and Japan, where foreign developers must meet local content requirements. In Vietnam, developers must negotiate with provincial governments to acquire land rights. Therefore, InfoLink believes most investors will partner with local businesses to consolidate relationship with local communities and better understand regional conditions.