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Inside Southeast Asia's First Large-Scale Floating Solar Project

Article | 22 November 2019

As part of a $37 million loan agreement, ADB is working with Da Nhim–Ham Thuan–Da Mi Hydro Power Joint Stock Company (DHD) to finance the installation of a 47.5 megawatt (MW) peak floating photovoltaic (PV) solar power facility on the man-made reservoir of DHD’s existing 175 MW Da Mi hydropower plant. The project marks the first large-scale installation of floating solar PV panels in Viet Nam and the largest installation in Southeast Asia.

Asian Power, a bi-monthly publication for the power generation, transmission and distribution industry in the Asia Pacific region, interviewed Jackie Surtani, ADB’s Director of Infrastructure Finance for East Asia, Southeast Asia and the Pacific regarding the project. He discussed how the loan was presented, plans for DHD to expand floating solar facilities, and investment prospects in Viet Nam’s nascent renewables market.

This facility is the first large scale floating solar project in Southeast Asia. How has the development team executed this feat?

The project needed to be completed by 30 June of 2019. We've been working on this project for more than two years. Because it is the first floating solar project in Southeast Asia, it took considerable work. Also, this is one of the first renewable projects that ADB has financed on a non-sovereign basis without the Government of Viet Nam’s guarantee.

How was the project financed on a non-sovereign basis?

Like a lot of our developing member countries, traditionally, they have borrowed with sovereign guarantees, but as their economies develop, they want to move towards the private sector. Viet Nam is very incentivised to encourage non-sovereign borrowers.

Viet Nam is very incentivised to encourage non-sovereign borrowers.

DHD approached us and said, ‘we have this great floating solar project and we'd like to develop it, but it has to be done on a non-sovereign basis’. And that's what we explored.

What new solar technologies are in place? How do you pair hydropower and solar power?

It's not new in the sense that there have been other floating solar projects in Europe and in the United States. There are also floating solar projects in the People’s Republic of China. But this is relatively new for Southeast Asia.

DHD – which is a subsidiary of national power utility Vietnam Electricity’s subsidiary GenCo-1 – has these three large hydro projects which have been in operation for a considerable period of time. They've decided to put this floating solar on one of their reservoirs and it actually only takes up something like 8% of one of the reservoirs.

What it does is increase the overall output during the dry seasons where the hydro plant will not be running. It's a great combination of using two renewable energy sources to improve the amount of output that you can get from a single source.

When we went out to the site two weeks ago, [we saw] it's only 8% of this particular reservoir, and they have three hydro plants. Their intention is to move from this 47.5 MW project, and they want to do 330 MW more of floating solar. This was kind of a big pilot, but they wanted to make sure that this worked, and it does.

What factors drove ADB to invest in this project?

Our [long-term corporate strategy], Strategy 2030, calls for us to invest up to $80 billion in climate finance-related projects. We invest in renewable energy projects in all of our developing member countries. Viet Nam is still a market that is in its infancy. It's not a market that attracts too many international commercial banks at this stage.

The other alternative for developers would be local bank financing which is relatively short term and expensive at this stage. For us, this is a way to open the renewable energy market in Viet Nam. If ADB can show confidence in this project, we're hopeful that there will be a lot more renewable energy projects like this.

We believe that renewable energy is good for the people of Viet Nam. It's got a clear climate impact, and so from that perspective, it was a very attractive project for us. We liked this whole combination of solar with hydro, which we think makes a lot of sense. 

Hopefully, not only will Viet Nam want to do a lot more floating solar projects, but also—as we're seeing here in the Philippines and already in Indonesia—people talking about floating solar. That's exciting.

Can you walk us through the process of the whole investment?

We do a lot of sovereign lending and non-sovereign lending. Through our Viet Nam office, through our Southeast [Asia] Regional Department, we have a very long-term relationship with [Vietnam Electricity].

So we were approached by DHD on this floating solar project through our Viet Nam office. We actually have one private sector colleague based in Viet Nam. That's how it started two years ago.
Then we spent a lot of time visiting the project, having our safeguards people check the project. There was a lot of due diligence. Because this was the first project without a government guarantee, we had to analyze Vietnam Electricity on a standalone basis.

We had to understand who this company was, so it took a long time. We then had to go into loan documentation with an international law firm. And you need to make sure that you get all the various government permits. At the end of the day, we got there, and hopefully, the next deal will take a shorter period of time because we've set the precedent. 

Apart from what you just mentioned, what are the other unique characteristics of the loan?

Our aim is to encourage other investors to join us to support the renewable energy market in Viet Nam.

Our Strategy 2030 document says that for every dollar that ADB lends, our aim is to bring in at least $2.5 of other financing. What's great about this project is that we were able to work with the Canadian Climate Fund for the Private Sector in Asia and its follow-on fund the Canadian Climate Fund for the Private Sector in Asia II. 

ADB provided $17.6 million, then we got blended concessional financing from these two Canadian funds. We manage another fund from the Japanese government, called Leading Asia's Private Infrastructure Fund (LEAP) for $4.4 million [for the floating solar project].

Our aim is to encourage other investors to join us to support the renewable energy market in Viet Nam. Viet Nam asked for 800 MW of solar projects by 30 June 2019. Under the feed-in tariff system, they got close to 4,000 MW, which is a remarkable achievement.

Hopefully, our project is contributing to confidence in the Viet Nam renewable energy market. What we're trying to do is to make sure that we attract other commercial banks, other funds, [and investors] support the Viet Nam renewable energy market.

What can other solar power developers in Viet Nam and Southeast Asia learn from the project? 

Based on my experience, one of the key things for both wind and solar is that you get the best possible sites to maximize the success of your projects. Make sure that you're in there early, so that you get the best possible site.

What developers can learn is that appreciation for each market in Asia is different. Markets here in Asia are different from the markets that international developers may have experienced in Europe or the United States.

If you come into Viet Nam and say, ‘I want a project with the structure that I've experienced in the United States or Europe’, you're not going to get it. You have to be flexible. You have to adapt to various local governments, local cultures, and local regulations and make it work. Hopefully, with institutions like ADB, you find ways to mitigate some of the challenges and risks in every single market.

What are the challenges and risks? 

Anytime you do something that’s the first of its kind, you have to just get familiar with it.  We have a power purchase agreement which is not similar to maybe what you would get in other more developed markets. We needed to learn and understand how we got comfortable with this power purchase agreement. We found ways to address that.

The biggest challenge is it just getting a bit familiar with the new market. Our job is to go into these new markets and unblock some of the issues so that other banks and other institutions get can get comfortable with them.

What is your outlook on large scale floating solar in Viet Nam and Southeast Asia? 

Land is scarce in a lot of countries, so this makes a lot of sense where you're building something on top of an existing reservoir.

Hopefully, this will pave the way for other countries' developers to gain more confidence [in renewables]. I am not an engineer myself, but I did not see this as overly complex from a technical perspective. It makes a lot of sense. Land is scarce in a lot of countries, so this makes a lot of sense where you're building something on top of an existing reservoir.

From that perspective, I think there are a lot of prospects.

I have seen press articles that Indonesia is planning something like a 200 MW floating solar project. Here in the Philippines, I believe there is a small pilot project already. I think countries are beginning to explore this as a concept. I think you'll see a lot more of this going forward.

Are you planning to invest in more floating solar projects?

We would love to, but one of the things I would stress is that for each project, you have to review on its own merits. You need to have a project that's bankable. Most importantly, there has to be a clear need for ADB's involvement that we can actually add value to the project and to that country.

This is an abridged version of the original article, which can be read here.