Power Sector - New policy for rooftop solar implies slight positive impact for selected power, industrial park stocks - Flash Note
  • 2024-10-23T00:00:00
  • Sector Reports

1) The Government has issued Decree No. 135/2024/NĐ-CP, effective from October 22, 2024, outlining mechanisms and policies to encourage the development of rooftop solar power (RTS) for self-production and self-consumption (SPSC) on rooftops of residential properties and business facilities (including industrial parks). 

 2) To recap, in April 2020, the Government approved a favorable Feed-in-Tariff (FiT) for RTS projects that began commercial operations between July 2019 and December 2020, offering a rate of VND1,943/kWh (8.38 cents/kWh). This policy provided an attractive IRR of 12-15%, driving a dramatic increase in RTS installed capacity, which surged 26x in 2020 to reach 7,755MW. However, since the expiration of this FiT at the start of 2021, investments in RTS have nearly stopped. 

3) The official Decree has not yet been published. However, we would like to provide key points following the latest Draft version in mid-October 2024, as follows:

4) Applicable subjects: organizational and individual owners.

The Draft version outlines the two main cases as below:

Case 1: Off-grid installations

Systems not connected to the national grid are exempt from requiring a power operation license and are not subject to any limitations on installation capacity. 

Case 2: On-grid installations (connected to the national grid)

+ Below 100kW: These installations are also exempt from requiring a power operation license and are not subject to capacity limits. The excess volume can be sold to the national grid, capped at 20% of the actual installed capacity.

+ 100kW to less than 1,000kW: These installations must be reported to local regulatory authorities for capacity monitoring, in accordance with regulations. The percentage for selling excess volume is not specified. 

+ 1,000kW and above: These systems require a power operation license and must adhere to specific procedures, with a limited capacity addition of around 2,600MW (as outlined in the PDP VIII Execution Plan). However, we expect this capacity limit to increase in the upcoming amended PDP VIII Plan due to slower-than-expected additional capacity development nationwide. The percentage for selling excess volume is not specified. 

5) Price: 

Per our understanding, the selling price for the excess volume will be based on the average spot market price (SMP) from the previous year, as determined by EVN and the National System and Market Operator (NSMO). This might be 44% lower than the previous FiT.

6) Implications: 

+ We believe this will partly help to relieve power shortage risks for Vietnam during the 2025-2030F period. In addition, this will have a positive impact on stocks, including PC1 and BCG, in the medium term. Regarding PC1, it currently has 30MW of rooftop solar in Nomura 1 IP Phase 1, expects to develop 30MW/50MW/50MW in Nomura 1 IP Phase 2, Nomura 2, and the IP of its associated company – Western Pacific - in the next three to five years. Regarding BCG, it claimed to develop 30MW in 2024 for several clients, including MWG. The company expects to develop ~50MW p.a. in coming years with the new Government decree. Regarding REE, it is still waiting for policies applied to large-scale projects (from 1,000kW onwards).  We currently have a BUY rating for PC1 and a MARKET PERFORM rating for REE.

+ In addition, we also see a slight positive impact on industrial park stocks by encouraging new investments in rooftop solar power to serve customers within these parks. Currently, some companies under our coverage are planning to invest in, and expand, their solar power portfolios. Notably, IDC has already invested ~25MW and aims to increase this to 100MW by 2026, while SIP has invested 50MW and is looking to add another 10-20MW.

+ We expect the potential release of circulars and/or guidance on implementing the Direct Power Purchase Agreement (DPPA) to be a significant positive driver for RTS investment.

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