Renewable energy: Solar energy is hot. Is wind power next?

Installed capacity of renewable energy is accelerating rapidly with solar energy leading the charge. Installed capacity of total electricity generation increased by 19% YoY to 66,000MW, according to the Ministry of Industry and Trade (MoIT). Solar power installed capacity rose by 92% YoY to reach 16,500 MW. Thus, solar accounts for 99.4% Vietnam’s of green energy capacity and 25% of total installed power generation capacity due to accommodative policies (e.g., Decision 13/2020/QĐ-TTg). This is much higher than the 10% target set by Revised Power Development Plan 7 (RPDP7) for 2020. Also, total output of renewable energy in 2020 rose by 3.43% YoY to reach 237bn kWh.

Government prefers renewables. PDP8 has yet to be finalized, but the draft version indicates that renewable energy is planned to account for 30% of the total production mix by 2030, almost triple the target of RPDP7 (11%). In our view, this signals that the government is prioritizing renewable energy over traditional carbon-based power (i.e., coal and hydropower) as set out in RPDP7.

Thirst for energy to continue. According to the draft version of PDP 8, electricity demand is expected to grow by 8.6% annually in 2021-2025 and 7.2% annually in 2026-2030. Aggressive capacity expansion to meet this demand will require annual investment of approximately USD 13bn for power generation and transmission.

Wind energy should accelerate in 2020. The preferential feed-in-tariff (FIT 2) for solar power as set by Decision 13 expired at end-2020. We expect wind power to accelerate this year because wind’s preferential FIT will remain until Oct 31. Decision 39/2018/QĐ-TTg set the onshore wind FIT at US 8.5 cents and offshore FIT at US 9.8 cents per kWh.

PC1 (BUY) is our top pick on the renewable energy theme given the three wind power projects with total installed capacity of 144MW in its pipeline. The company expects to launch all three plants before November 2021, so they should be eligible for the preferential FIT. PC1 is trading at an undemanding 7.6x 2021 PER.

20210112 Renewable energy sector update-edited