New Study: Commercial PV Rooftop Investment Opportunities in Vietnam

Vietnam has abundant solar resources. The country’s solar irradiation is comparable to most countries in the region, including developed solar markets such as China, Thailand or the Philippines, as well as to international solar markets, such as Spain and Italy. solar_map_vnCurrent scientific estimates state an average of 4-5 kWh/m2/day in most regions of Southern, Central and even some parts of Northern Vietnam (totalling up to 1,460-1,825 kWh/m2/year) and average peak irradiation levels of up to 5.5 kWh/m2/day in some Southern regions (totalling up to 2,000 kWh/m2/year).

Deploying this substantial solar potential at production sites would help manufacturing industries in Vietnam improve power supply reliability and reduce the burden on national power demand. This would also help the industrial sector reduce their significant expenses on electricity consumption due to high tariffs during peak hours and cross-subsidization policy from large consumers to smaller ones.

And looking at it from the perspective of  the solar industry: the long-term market potentials for Solar PV investments in the commercial and industrial sector are generally vast. All economic indicators show that the Vietnamese economy will most likely continue to grow at a rate of 5-6% per year and foreign direct investments (FDI) are expected to increase likewise. Vietnam’s high level of regional and international economic integration is widely seen as a guarantor for further economic growth and the development of the Vietnamese commercial and industrial sector in particular.

To make solar PV investment opportunities in the Vietnamese commercial sector tangible, the German-funded Renewable Energy (RE) Project Development Programme (PDP) assigned RB Renewable Energy Consulting to provide an analysis on solar PV investment opportunities in Vietnam, including six detailed investment case studies for commercial and industrial PV rooftop systems.

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The main objective of the assessment was to identify the potential for rooftop solar PV applications in companies and factories within industrial zones and recommend business opportunities for German companies. The geographical focus of the study was industrial zones and/or private factories located in Central or South of Vietnam with the highest solar energy potential. The core of the analysis is defined by six case studies, with the character of pre-feasibility studies. In general, two different business models were applied in the calculations of costs and benefits: self-consumption and net-metering, which are both expected to be included in the future solar PV support framework drafted by the Vietnamese Government in 2015/2016.

The case studies indicate that the emerging solar market of Vietnam already offers attractive business opportunities for German and Vietnamese companies. The key results of the assessment can be summarized as following:

  • The pre-feasibility studies for the six commercial and industrial cases that have been developed in the course of this study show that there are attractive investment opportunities for rooftop solar PV in the Vietnamese industry sector. However, they also show that the current low level of electricity tariffs in Vietnam is a big challenge and the assumption of a future increase in retail power tariffs is a critical factor for investment calculations.
  • For the whole examined company sample, equity IRRs (before tax) range from 5% to almost 18% in conservative base scenarios and from 8% to 21% in the more optimistic scenarios with lower investment costs assumed. Equity payback times range from 9 to almost 18 years in the base scenarios and from roughly 7.5 to 14 years in the more optimistic scenarios and can even get below 7 years when low investment costs and a higher increase of power tariffs are assumed.
  • The results show that there is a divide in results between business sectors that pay the ‘business’ and the ‘manufacturing’ electricity tariffs of EVN. Equity IRRs (before tax) reach double-digit values even in base case scenarios, in those cases that are either paying the EVN-Business tariff or the EVN-Manufacturing tariff but are able to benefit from the net metering support mechanism. In those cases, equity payback times are below or close to 10 years in the base cases.
  • The results also show that the a net metering support scheme as foreseen in the first draft legislation from 2015/2016 would have the potential to improve investment cases substantially for those PV system designs that allow for excess energy generation. This, however, will apply only to a very small number of cases, and hence shows that the legal framework for rooftop applications as proposed would have had only limited impact on the rapid development of this market segment. In the short- and medium-term the key driver for PV investments will thus remain self-consumption and the benefits of power purchase savings.
  • The analysis also revealed that despite the general expectation of investors to reach short equity payback times, there also is an added-value perception of solar PV investments that make longer payback times feasible for many investors. These added values range from benefits for green building certification to contributions to corporate programs, greening products or services in the eyes of customer target groups or the increase of energy supply security.

The study was released in the context of  the one-day conference Photovoltaics in Vietnam: Free-Field and Net Metering before Breakthrough on September 12th 2016, organized and supported by the Energy Solutions – Made in Germany initiative of the German Federal Ministry for Economic Affairs and Energy (BMWi), the Delegate of German Industry and Commerce in Viet Nam (AHK Viet Nam) and the GIZ Energy Support Programme Vietnam. Read more about the conference here.

The study is available for download at the website of the German Ministry for Economics and Energy. Or you can download it directly here.

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The Renewable Energy (RE) Project Development Programme (PDP) is implemented by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH on behalf of the German Federal Ministry for Economic Affairs and Energy (BMWi) in the context of the Energy Solutions – Made in Germany initiative. The target countries in the Southeast Asia (SEA) region are Myanmar, Philippines, Thailand, and Vietnam. PDP SEA aims to develop Southeast Asian renewable energy markets by promoting German- Southeast Asian business partnerships. It supports Germany’s small and medium sized renewable energy business enterprises in their activities in the region