Private Investment in Grid Expansion: Vietnam

Overview

Vietnam offers a somewhat cautionary example of why grid planning should occur alongside, and not after, expanding renewable energy capacity. Vietnam experienced rapid expansion of solar capacity driven by the country’s feed-in tariff, which did not incorporate grid considerations such as location-based quotas. Most renewable assets were concentrated in one region due to resource availability, with limited ability to connect to demand centers.

Between 2018-2021, solar and wind installed capacity in Vietnam grew by a remarkable 23GW. The sudden burst in PV deployment created congestion on the grid. In response, in May 2020, policy makers accelerated efforts to attract private financing to build out Vietnam’s transmission network and accommodate the increased energy capacity, specifically to build 110kV and 220kV lines that connect the new supply to the main grid. Private investment can help to reduce the financial burden on public resources of connecting new capacity.

Impact

Vietnam has laid out in its power-development plans a grid expansion strategy outlining growth targets for line and substation growth to 2030. The draft power development plan VIII aims to balance demand and supply across regions based on their resources to reduce extensive inter-regional grid infrastructure requirements. Specifically, most solar generation exists in the sunny southern parts of the country while the northern region has ample thermal coal resources. To date, the government has approved just one private grid infrastructure development. Trungnam Group built a 450MW Thuan Nam solar power plant and a 220/500kV gridline connecting the Phuoc Minh commune to the Vinh Tan commune. This line will improve transmission capacity in the area and reduce the risk of curtailment to the solar plant.

There are challenges, however, to opening grid infrastructure to private investment. For example, the government wants state utility Vietnam Electricity (EVN) to manage and operate all lines, and has not yet determined which party would be responsible for maintenance costs or how revenue mechanisms to recover capital expenditure would work for private entities. EVN was already hesitant to take on the management of Trungnam Group’s transmission line, even at no cost, because the maintenance cost risk. However, these uncertainties are easily settled with clear policy making and grid planning.

Opportunity

While the Vietnam experience is exceptional, given the size of the country’s clean energy boom, it does offer potential lessons for emerging markets. This case highlights the importance of grid planning when expanding renewables capacity. Such planning should welcome private investment by offering clear remuneration mechanisms to compensate the up-front capital required. Comprehensive planning should cover the transfer, compensation, operation and maintenance aspects of transmission assets. Governments can also use grid planning as a tool to ensure that infrastructure is developed in a way that delivers more equitable access to electricity across the country.

Source

BloombergNEF and Bloomberg Philanthropies report: Scaling-Up Renewable Energy in Africa

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