Vietnam is the "solar power market to watch" for the next decade, as it has significant growth potential for solar power and the investment environment is improving notably, according to a recent report of macroresearch firm Fitch Solutions. It expects solar capacity in Vietnam to reach 7,700 MW in 2028.

The report says that with substantial untapped solar power potential, as it is endowed with high irradiation levels, Vietnam is likely see increased investor interest and surging capacity deployment, albeit from a low base.

According to Fitch Solutions, Vietnam is seeking to leverage renewables in order to meet surging power demand, as evident in its power development plan, in which the government outlines a 4 GW solar capacity target for 2025, and 12 GW target for 2030.

In an attempt to encourage foreign investments and growth in the sector, the government offers some preferential policies, including attractive feed-in-tariffs (FIT) and other financial incentives such as preferential tax and duties.

While a proposed 20 percent cut to the FIT for ground-mounted and floating solar capacity in September could curb investor interest somewhat, the new two tariff levels at $70.9 and $76.9 per MWh will still remain high enough for investors, as auctions push prices down substantially in most alternative solar markets, the macro-research firm said.

Furthermore, a new Direct Power Purchase Agreement (DPPA) is set to be introduced, where renewable energy producers can sell and deliver electricity directly to corporate customers. This scheme is expected to be piloted soon, and the government is finalizing decisions on more specific regulations.

As of September, the registered capacity of solar power projects in Vietnam has reached 25,000 MW, far exceeding the government’s initial target to have 4,000 MW by 2025, according to national power utility Vietnam Electricity (EVN).

Renewables currently account for 9 percent of Vietnam's energy mix, already surpassing the target of 7 percent set for next year, according to EVN.

Despite the potential and policy incentives, there are some concerns about Vietnam’s infrastructure keeping pace with the growth in renewables.

An influx of 89 new renewable power plants becoming active in the second quarter of this year overloaded Vietnam’s national grid. This forced many plants to operate at around 60 percent of their capacity, and they have said that this could cause losses this year.