Vietnam - attractive market for investor to develop rooftop solar energy

WVR - With the increasing demand for rooftop solar installations in the FDI manufacturing sector in Vietnam, led by the electronics/semiconductor and textile sectors, Vietnam is considered as an attractive market for foreign investors to develop rooftop solar energy.
một dự án điện mặt trời do Công ty CME Solar triển khai lắp đặt tại Công ty Hồng Hải Foxconn- Bắc Giang. (Ảnh: Bảo Chi)
A solar power energy project installed by CME Solar Company at Hong Hai Foxconn - Bac Giang. (Photo: CME Solar)

However, at this time, the current shortage of seasonal power supply, along with the high demand for electricity in commercial/residential areas are putting pressure on the progress of production development in the FDI community.

The fear of the fleeing FDI may have a negative impact on the "eagles" in relocating the global supply chain to Vietnam as planned. This is a major and structural issue for Vietnam's economic development plan.

Renewable energy – a solution for shortage power

The drive to develop renewable energy sources stems from the imperative to address electricity shortages. Vietnam's power sector has experienced substantial growth in recent decades. The capacity of the power system and the demand for commercial electricity have consistently expanded, with an average annual growth rate of 10.5% recorded between 2011 and 2020.

Electricity production surged from 93 billion kWh in 2011 to 215 billion kWh in 2020, showcasing a growth rate of 3.4% in 2021. Forecasts suggest that this growth will accelerate to an annual rate of 10% from 2021 to 2030. These predictions align with Vietnam's rapid urbanization and its economic growth model, which relies heavily on manufacturing.

Confronted with the mounting demand for electricity in both production and daily life, Vietnam faces challenges in meeting the power supply requirements. Despite recent additions of utility-scale renewable energy sources, which now account for 25% of the capacity, most of these installations are concentrated in the central and southern regions.

Notably, Vietnam's hydroelectricity production is declining due to the country's vulnerability to climate change. The impacts of climate change, coupled with the challenges posed by El Nino, have exacerbated the situation, particularly during the upcoming dry seasons.

During the last 5th session at the National Assembly, Chairman of the Economic Committee, Vu Hong Thanh, discussed the limitations of hydroelectric power, which has already reached 80% of its capacity with minimal room for further development.

At the same time, the expansion of coal power sources needs to align with Vietnam's commitments made at the 26th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP26). The current power structure relies heavily on fossil fuels, particularly coal-fired power, which constitutes approximately 45% of the total electricity output.

Given this context, Power Plan VIII was finally approved on May 15, after numerous delays. However, further measures are necessary to enhance both production and transmission capacities nationwide, particularly in the northern regions.

Master Plan of Power Development Number 8 (MPPD 8) places considerable emphasis on the swift implementation of renewable energy to address the existing electricity shortage and serve as the primary power source for future plans. The plan prioritizes renewable energy development more than its predecessors. The target is to achieve a renewable energy share (excluding hydropower) of approximately 31-39% in the overall energy mix by 2030, corresponding to a capacity of 5,000-10,000MW.

Moreover, Vietnam has the potential to raise this ratio to 47% through the Equitable Energy Transition Partnership with International Partners (JETP). Looking ahead to 2050, renewable energy is projected to comprise 67.5-71.5% of the entire energy system.

Vietnam is actively pursuing the adoption of rooftop solar energy alongside its focus on renewable energy. The country aims for 80% of factories and 20% of homes and office buildings to utilize rooftop solar energy for on-site consumption by 2050, rather than exporting excess electricity to the grid. This presents a significant opportunity for the development of distributed solar energy.

Distributed Rooftop Solar is the best solution?

Experts and developers from the renewable energy business community consider Vietnam to be an attractive market for investors interested in the growth of distributed solar energy. Chung Dieu Tuan, CEO of Copper Mountain Energy Solar Investment Joint Stock Company (CME Solar - FDI enterprise supported by Oman Investment Authority), expresses optimism regarding the market outlook, attributing the driving force to the increasing demand for rooftop solar installations in Vietnam's FDI manufacturing sectors, particularly in electronics/semiconductor and textile industries.

He mentioned that as part of the global effort to achieve net-zero emissions, international brands and manufacturers operating in Vietnam must transition to renewable energy sources. This requirement creates further opportunities for the development of the distributed solar market within the country.

According to data from the Vietnam Energy Partnership Group (VEPG) as of June 2023, the total production capacity of rooftop solar energy systems has reached around 8GWp, a significant increase from 1GWp in December 2020.

The Savills report for 2022 indicates that the combined area of industrial and commercial roofs is approximately 80,000 hectares, with an estimated growth rate of 10%. However, solar energy currently only accounts for 8% of the total roof area used for production. Consequently, the rooftop solar market in Vietnam is projected to be one of the fastest-growing segments in terms of new installed capacity over the next decade.

An example of successful implementation is Foxconn, a leading manufacturer for global brands such as Apple. In June 2023, Foxconn launched a rooftop solar capacity of 19MWp in Bac Giang province. The company plans to test-operate an additional rooftop solar system in July with a total capacity of 32MWp, accounting for 20% of Foxconn's current factory roof area in Vietnam.

Foxconn has expanded its operations in Vietnam due to favorable economic, political, and social conditions, with rooftop solar becoming an integral part of their energy transition strategy for existing and future factories in the country. The first project by Foxconn was licensed and implemented successfully within a three-month timeframe, including procurement, installation, and supervision stages conducted with globally renowned technical consultants.

Following in the footsteps of Foxconn, other global electronic giants, and manufacturers such as Samsung and LG are also preparing to unveil their energy transition plans in Vietnam in the upcoming months of 2023. Additionally, notable textile, fashion, and footwear brands including Adidas and Nike have recently taken active steps towards adopting distributed solar energy.

However, since rooftop solar systems can only meet around 20% to 30% of the actual energy consumption demand, FDI enterprises are hopeful that the Vietnamese Government will implement various solutions to realize the energy conversion plan. In particular, the FDI business community has been engaged in dialogues with the government to promote the adoption of Direct Power Purchase Agreements (DPPA).

Furthermore, the government needs to prioritize the development of an urgent response program to mitigate the impact of power shortages and outages. It is crucial to establish long-term solutions that address the possibility of periodic power interruptions. By ensuring stable power supplies, the government can help businesses maintain their performance and bolster overall economic resilience.

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