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SOLAR 101

Your Financing Options for Rooftop Solar in Vietnam

In Vietnam, the rooftop solar segment based on business operation can be divided into various business models. The first two models (roof rental & joint venture) are the most common types of business models to be used in Vietnam rooftop solar projects.

Roof Rental Business Model:

This model is exactly what it sounds like; a rooftop solar developer will rent the roof site from a rooftop owner. It consists of three key players: 1) the roof owner, 2) the developer company, and 3) the utility. Under this model, the roof owner agrees on a 25-year roof rental contract with the developer company, while the developer company acquires a 25-year power purchase agreement (PPA) from the utility. After installing and operating the solar system on the rented roof by developers, every kWh produced by the system will be exported to the grid. The revenue from the sales of electricity will go to the developer; and the roof owner will receive a rental fee as agreed in the contract.

In this model, the roof owner does not have a liability in the rooftop solar system; therefore all the cost, including the investment cost, insurance cost, and O&M cost are born by the developer. It is beneficial to roof owners who want solar on their roof but do not want to take liability in the system. Another benefit of this model is that the roof owner does not consider solar PV part of their core business and therefore would not like to invest in it.

Eligibility for a solar rental will vary with each specific project, but there are a few requirements that are generally needed with any lease. There include:

  1. A credible roof owner that will be able rent out the roof for 25 years.
  2. Large roof area: an installation capacity of 1MW requires approximately 8,000 square meters.
  3. Strong roof structure, which can withstand the additional load from the solar panels.

Solar rental is an excellent way for a business, organization or municipality to support solar energy without worrying about the responsibility of owning and maintaining a solar system and convert the unused roof space into revenue.

   

Structure of Roof Rental Business Model

Joint Venture with Developers:

Under this business model, unlike roof rental, where roof owners sign the rental contract with solar developer, the roof owner will lend their roof to the developers for the solar system installation. Also, the roof owner themselves are also likely to contribute part of the investment to the rooftop solar project.

After installing and operating the solar system on the rented roof by developers, every kWh produced by the system will be exported to the grid. The revenue from the sales of electricity will go to both roof owner and the solar developer, which will be shared depending on the contract signed.

Both of the roof rental and join venture are considered the most popular and common types of business model for financing rooftop solar in Vietnam since they can eliminate roof owner’s liability in the solar system as much as possible. Also, these are the most cost-effective ways to gain some benefits from their properties for the roof owners. For your reference, below please find some less common but also sometimes to be used types of business models for rooftop solar financing.

Solar Shared Saving Business Model:

The solar shared-saving model is proposed for energy-intensive buildings and factories in order to reduce electricity cost. Based on time-of-use electricity rate, theses consumers have to pay for peak and/or off-peak electricity rates and demand charges every month, which constitute a substantial share of their yearly expenses. As a result, the solar shared saving business model is expected to provide a win-win solution for developers and energy intensive consumers.

The main players in this model consist of the customer (roof owner), the developer, and the utility. The roof owner, who wants to reduce electricity costs, agrees on a shared saving contract with the developer company. The contract typically lasts 20 to 25 years. The developer installs, owns, and operates the commercial-scale solar PV system on the site. Then, PV electricity units are sold at a discount, typically 5–10% lower than the grid electricity tariff. In this sense, it appeared as if the roof owner could lower his consumption by 5% to 10%, which is the reason for the term ‘shared saving.’

  

Structure of Solar Shared Saving Business Model    

Solar Leasing:

Solar leasing is a structure that allows the consumers to pay for the solar system over time and avoid the high upfront cost. The leasing company (or solar lessor) enters a leasing contract with the customer (solar lessee), allowing the lessor to own, install, and operate a rooftop solar system on the customer’s roof. The solar lessee pays for the solar system through a combination of down payment and monthly instalments and uses the solar electricity or sell it to receive feed-in tariff. Therefore, the customer receives benefits from the solar PV system in the form of energy saving or feed-in tariff income.

    

Structure of Solar Leasing Business Model

Solar Loans:

A solar loan is what it sounds like: a loan that allows you to purchase a solar energy system and pay it off over time. Unlike with solar leasing, you own the system outright.

For example, HSBC Bank (Vietnam) Ltd has unveiled a loan product named “Green Loan” with the special preferential interest rate from 11.99% when installing the rooftop solar energy system. However, solar loans are not considered as the common types of rooftop solar financing option in Vietnam due to its lack of cost-effectiveness.

   

Reference: Tongsopit, S., S. Mounghareon, A. Aksornkij and T. Potisat (2015), ‘Business Models and Financing Options for a Rapid Scale-up of Rooftop Solar Power Systems in Thailand’, in Kimura, S., Y. Chang and Y. Li (eds.), Financing Renewable Energy Development in East Asia Summit Countries. ERIA Research Project Report 2014-27, Jakarta: ERIA, pp.79-136.