Options to scale up solar PV in. Vietnam. - Introduction. Vietnam

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1 Options to scale up solar PV in Vietnam - Introduction Vietnam November 2015

2 Solar PV scale up in Vietnam INTRODUCTION Overall objectives To accelerate PV scale up in order to fulfill GoV target in a sustainable manner and diversify the energy mix to ensure energy security. Increase PV generation to show viability Grow market to reduce costs Aim of the discussion today Confirm understanding of views and experiences from GoV, municipalities, stakeholders Build consensus around potential models for solar PV scale up To formulate next steps for World Bank engagement 11/9/2015 Options to pilot and scale up solar PV in Vietnam 2

3 Options to scale up solar PV in Vietnam - International experience and proposal Vietnam November 2015

4 Outline INTERNATIONAL DEVELOPMENTS AND EXPERIENCE IN SOLAR PV STATUS OF SOLAR PV IN VIETNAM OPTIONS FOR SOLAR PV SCALE UP IN VIETNAM POTENTIAL PROJECT SCOPE AND NEXT STEPS 11/9/2015 Options to pilot and scale up solar PV in Vietnam 4

5 Reasons for promotion of solar PV in Vietnam Objectives of government Keep energy costs low Promote environmentally friendly energy production Ensure long term energy security Reasons for scaling up solar PV in Vietnam Good domestic solar resource in south and central Vietnam PV prices have fallen significantly in recent years to levels expected to reach grid parity in the medium term Potential for domestic equipment production and industrial development Hedge against hydro variability Reduce dependency on imported coal Significant flexibility in the power grid In a nascent market, government can play a key role in accelerating PV uptake Create an enabling regulatory framework Facilitate cost and risk reduction in the PV market Mobilize capital from MDBs/climate finance 11/9/2015 Options to pilot and scale up solar PV in Vietnam 5

6 Solar power have become cost-competitive in several markets, even without subsidies, not only because of good resources Rooftop solar cheaper than electricity retail rates in at least 11 countries Morocco: 11.5 /kwh CSP Jordan: 6.1 /kwh solar U.S. Southwest: ~8 /kwh solar, competitive with coal UAE: 5.6 /kwh solar Parts of India: 6.95 /kwh solar Coal at at 5-8 /kwh Chile: /kwh solar First solar plant with no govt. support Brazil: 8.7 /kwh solar South Africa: 6.5 /kwh solar, 30% cheaper than new coal Source: WRI, BNEF, World Bank 11/9/2015 Options to pilot and scale up solar PV in Vietnam 6

7 US$/kWh Grid parity Government role varies with the maturity of the market and the policy lessons learned LESSONS FROM SPAIN, GERMANY, CHINA, US AND BRAZIL, FIT RPS and Green Certificates Rebates Manufacturing incentives Reduce import taxes on equipment Reduce/limit FITs Tax credit Sales tax Other financial incentives Improve resource understanding and provide cheaper access to land Vietnam 2015 Vietnam 2017? Price discovery through site specific auctions Pre-qualification of developers (key) Environmental externalities priced into broader pricing structure Minimal government intervention Market opening Development Mature market Time 11/9/2015 Options to pilot and scale up solar PV in Vietnam 7

8 The example of Solar India for CSP and large scale PV What government did? Moved from FIT to solar parks and later reverse auctions Provided bankable PPA s for investor confidence Provided enough scale and vision for scaling solar (20 GW to 100 GW) High quality resource mapping Ownership by Ministry of New and Renewable Energy (and establishment of the Solar Energy Corporation of India SECI) What private sector did? Financial engineering by mobilizing development funds (MDBs, OIPC/EXIM), pension funds, PE etc Move towards domestic manufacturing Result Solar PPA prices fell from 25 US cents to 8 cents per unit in 5 years Balance sheet funding to project finance 5 MW to 5 GW in five years 11/9/2015 Options to pilot and scale up solar PV in Vietnam 8

9 Example of rooftop PV in India IFC MODEL IN GANDHINAGAR AND VADODARA, INDIA Can provide quick scale up without substantial modifications to the regulatory framework Establishment of an aggregator is a prerequisite for success Gandhinagar Project City population: 200,000 Rent-a-roof PV project: 5 MW 38 firms submitting expressions of interest. Azure Power and SunEdison each won one of the two 2.5 MW projects and the power purchase agreements were signed in April Vadodara Project City population: 2,000,000 Rent-a-roof PV project: 5 MW Over 40 firms purchasing the bid documents. Madhav Solar (Vadodara Rooftop) Private Limited won the 25-year concession and the power purchase agreement with the distribution utility was signed in June /9/2015 Options to pilot and scale up solar PV in Vietnam 9

10 Example of utility scale solar THE CASE OF MASEN, MOROCCO Creation of MASEN (Moroccan Agency for Solar Energy), a state-owned company, to develop the 500 MW Ouarzazate solar complex for CSP and PV and two other sites Public-Private Partnership lead to mobilization of private capital. Drove the price of CSP down from 18.5c/kWh for the first plant to 11.5c/kWh for the third plant and encouraged local industrialization. 11/9/2015 Options to pilot and scale up solar PV in Vietnam 10

11 Structure of MASEN 11/9/2015 Options to pilot and scale up solar PV in Vietnam 11

12 POTENTIAL OPTIONS TO SCALE UP SOLAR PV IN VIETNAM 11/9/2015 Options to pilot and scale up solar PV in Vietnam 12

13 Economic growth spurs increasing energy demand VIETNAM S ELECTRICITY CONSUMPTION IS EXPECTED TO RISE IN DOUBLE DIGITS IN COMING YEARS Between , electricity demand is expected to continue rising at annual double digit rates This will require 30 GW of new power generation capacity and US$ 50 billion investments until Business-as-usual point to growth of coal import dependency pressing for energy supply diversification 11/9/2015 Options to pilot and scale up solar PV in Vietnam 13

14 Solar PV potential in Vietnam CURRENT STATUS AND POTENTIAL Approx. 5MWp installed capacity on research institutions, public buildings, factories - mostly ODA/donor funded A handful of utility scale projects (~ MW) in the pipeline, but none commissioned. Relatively high correlation between solar PV generation and building load due to air-conditioning Potential for ground-mounted PV in Vietnam estimated at 22 GW; mainly concentrated in Southern regions with high irradiation levels at 5 kwh/m2/day or more 11/9/2015 Options to pilot and scale up solar PV in Vietnam 14

15 Policy framework - Solar PV FIT DRAFT DECISION ON FEED-IN TARIFFS FOR GRID-CONNECTED AND ROOFTOP PV The Government of Vietnam has recently presented a draft decision on a FIT for solar PV. The decision differentiates between grid-connected solar power project (<100 MWp to be eligible for FIT) and roof-top solar project (below 500 kwp to be eligible for fit). No: /2015/QD-TTg - Proposed Feed-in Tariffs Grid-connected solar power projects US 11.2/kWh Roof-top solar power projects US 15.0/kWh 11/9/2015 Options to pilot and scale up solar PV in Vietnam 15

16 Solar PV cost estimates in Vietnam Growth of Market in Vietnam Assumptions 20 year lifetime Inflation = 8 % IRR = 18% Debt: 80% Debt: Ranges from 12% to 18% Northern Vietnam Solar Resource Central Vietnam Solar Resource Southern Vietnam Solar Resource Current proposed FIT Level Global PV Development Source: NREL System Advisor Model Installed system cost (USD/kW) 11/9/2015 Options to pilot and scale up solar PV in Vietnam 16

17 What can be done to accelerate cost reduction? The 6GW target and the FIT are necessary but the market will develop slowly due to other barriers like: Off-taker risk Lack of standard PPAs Permitting barriers Limited operational experience of key stakeholders Test and develop the market to increase investor confidence in the proposed FIT for rooftop and utility scale PV and bankability for projects. Off-grid PV may be a good solution for remote areas, but more critical mass of PV generation is needed. 11/9/2015 Options to pilot and scale up solar PV in Vietnam 17

18 Roles and responsibilities in PV development Utility scale Rooftop GoV -MOIT, MOF, MONRE, MPI ERAV EVN Contribute with equity Complete FIT RE Zone / Site preparation Debt enhancement / off-taker risk Transmission and distribution (PV) grid codes Transmission planning and connection Dispatching and balancing Off-taker (pay FIT) Invest in PV generation? Complete FIT Priming market Capacity building Distribution grid code Standard PPAs Metering Code Audits Have visibility on the installations Distribution companies - Interconnection processes GENCOs Invest in PV generation? - 11/9/2015 Options to pilot and scale up solar PV in Vietnam 18

19 Roles and responsibilities in PV development Utility scale Rooftop Donors and MDBs Resource mapping, Technical Assistance, Loan, guarantee Technical Assistance, Financial Intermediary Loans (FIL) Private sector Develop plants Become early adapters Open and develop market Create companies, eco-cities Local banks - Intermediary financiers Local manufacturing and consultants Manufacturing, engineering Manufacturing, engineering 11/9/2015 Options to pilot and scale up solar PV in Vietnam 19

20 Public and private participation in solar PV development can take many forms POTENTIAL MODELS FOR A UTILITY SCALE PV PLANT 100% Public project 100% Private project PPP structure Pros: - Capacity to take on project - Cheaper development Pros: - Access to public land - Brings in private capital - Can improve risk allocation - Facilitates concessional financing Pros: - Not dependent on public equity - Can bring in international expertise Cons: - Debt sustainability of EVN? - Lack of experience - Can crowd-out public investment Cons: - Potentially complex structure - Requires public commitment and leadership Cons: - May not drive market take-off if risk/reward ratio is not attractive 11/9/2015 Options to pilot and scale up solar PV in Vietnam 20

21 Structuring a potential PPP Support for geospatial planning to identify best sites and integration measures Preparation of feasibility studies, including Environmental and Social Impact Assessment and ground measurements Support for Transaction Advisory Services Project structuring Procurement Legal advisory Design a reverse auction mechanism and prepare bidding documents Mobilize IBRD funding and other concessional financing to reduce offtaker risk or financial cost of the PPP? 11/9/2015 Options to pilot and scale up solar PV in Vietnam 21

22 Cost and Financing KEY ASSUMPTIONS FOR 100 MW UTILITY SCALE SOLAR PV PLANT Business case possibly within close reach Institute of Energy estimated USD /kWh; approx. USD 0.14/kWh in BAU scenario (10 MW ground-mounted plant in An Giang province) Estimates for a 100 MW utility scale plant CAPEX costs of US$150 million of which total construction cost amounts to US$20 million and pre-construction development costs of US$0.5 million OPEX costs of 1.8 million US$ annually Annual net electricity generation and capacity factor site dependent. Land requirements ~200 hectares (2 km 2 ) Extra benefits Potential CAPEX savings in transmission networks Small reduction in transmission losses Environmental benefits 11/9/2015 Vietnam Solar PV Pilot Project 22

23 Cost and Financing TECHNICAL ASSISTANCE Site selection to identify best sites and integration measures (250,000 US$) Feasibility studies, including Environmental and Social Impact Assessment and ground measurements (400,000 US$) Support for Transaction Advisory Services (1,000,000 US$) Project structuring Procurement Legal advisory Design a reverse auction mechanism and prepare bidding documents 11/9/2015 Options to pilot and scale up solar PV in Vietnam 23

24 Complementary activities Refinements to the regulatory framework, including support on development and update of grid codes (transmission, distribution and metering). Additional support to scale up rooftop solar PV. Capacity building activities for EVN, distribution companies and government entities. 11/9/2015 Vietnam Solar PV Pilot Project 24

25 WBG recommendations PRELIMINARY WBG PROPOSAL BASED ON INITIAL MISSION FINDINGS A +100MW solar PV plant (beyond FIT scope) could accelerate the market development by providing scale and reducing lead time. A public-private partnership could facilitate concessional financing to reduce project financial costs and/or off-taker risk without crowding-out private sector investments. For a first, large project competitive bidding could help identify the right price level and be a precursor for future auction mechanisms The World Bank could assist in the preparation of a PPP project over the next months. The main barrier currently is the absence of a single, public entity that can lead the PPP. The World Bank could help mobilize support for the development of this project with concessional financing, technical assistance and capacity building if requested by the GoV. Additional consultations to establish consensus on a potential model to accelerate deployment of rooftop PV needed (identification of rooftop aggregating entities, standard PPA and clear metering procedures). 11/9/2015 Options to pilot and scale up solar PV in Vietnam 25