Why the solar M&A landscape in Vietnam is set to heat up

Vietnam has now effectively overtaken Thailand as the largest solar market in Southeast Asia in terms of installed solar operational capacity, with more than 6,314 MW installed up to September 2020.

However, its solar (and other renewable energy) M&A activity has developed very slowly to date. There are many reasons to expect that this is about to change.

Looking ahead, we can expect solar M&A activity to start gathering steam in the coming months, with investors beginning to assess risks from other perspectives instead of only focusing on the model PPA bankability concerns. This is because:

Large supply of operational solar projects: 2,988.9 MW of ground-mounted solar projects will potentially reach COD by the end of 2020, further adding to existing operational solar assets out of which many will be up for acquisition.

EVN’s positive credit rating: In June 2018, Fitch assigned its first and positive credit rating of “BB” to EVN, which in April 2020 was confirmed with a stable outlook at the same level as the Vietnam sovereign rating.

Vietnam’s reliance on foreign direct investment: Vietnam relies heavily on foreign direct investment (FDI) to grow its economy.  Any negative headlines in the power sector would likely damage its reputation and be against Vietnam’s own strategic interests of further attracting FDI in the sector that urgently requires more foreign capital.

Growing appetite by foreign lenders: As shown, the first large projects have received loans from international financing institutions – a trend likely to continue as there seems to be a growing appetite to finance such projects and lenders are starting to get familiar with assessing and mitigating underlying risks.

Projected scarcity of electricity in Vietnam: Vietnam will face severe power shortages from 2021 onwards when electricity demand will outpace the construction of new generation capacity. Again, Vietnam can hardly afford to scare off foreign investors, who are much needed for investing in new generation capacity and expanding the still underdeveloped transmission line system.

Attractive electricity tariffs: Compared to other solar projects in the regions and potential future tariffs in Vietnam under announced competitive selection processes, the tariffs awarded under both FIT phases are high, allowing for relatively high returns.

Outlook of competitive selection process: The announced competitive selection process will likely make it more difficult for developers looking to sell projects post completion to participate in, leaving the market to large IPPs that would hold onto these assets for a long period of time and effectively reduce numbers of projects up for acquisition.

For these reasons, the M&A market for solar projects in Vietnam offers many opportunities, but time is of the essence to secure the best projects now coming online.

https://www.pv-magazine.com/2020/11/20/why-the-solar-ma-landscape-in-vietnam-is-set-to-heat-up/

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