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According to the Law on Electricity 20041 , the Vietnamese government should legislate to encourage investment in renewable energies. Over the past few years, the Vietnamese government and the Ministry of Industry and Trade (MOIT) issued several decisions in order to promote renewable energies investment with a transparent legal framework. After the promulgation of new Feed-in-Tariffs in 2017 to attract foreign and local investors, we observe an increase of government-approved solar and wind projects in Vietnam. As a matter of fact, in 2019, no less than 91 solar farms with a total capacity of 4,450 MW started operating2. A significant surge reflecting the high potential of solar energy in Vietnam. Regarding wind energy, Vietnam is also an attractive area for investment due to its favorable climate and beneficial incentives3. Additionally, those projects are entitled to tax and land incentives which are aimed to attract potential investors. Currently, Electricity of Vietnam (EVN) is almost the sole buyer of all electricity produced by renewable energies in Vietnam (with the exception of rooftop solar power projects). Investors must enter into a power purchase agreement (i.e. PPA) with EVN which will buy all electricity connected to the grid at the determined Feed-in-Tariff.
EVN has been the sole buyer of all electricity produced by renewable energies in Vietnam. The latest regulations seem to operate a slight shift on EVN’s monopoly. In decision 13/2020/QD-TTg dated 6th April 2020, the Government has permitted small-scale rooftop PV (no more than 1 MWp capacity) developers to sell electricity to individuals or organizations other than EVN and therefore negotiate prices and terms other than provided in the Model Solar PPA.
Lately, decision 13 adjusted solar power FiT for projects reaching commercial operation date (COD) before December 31st 2020. The new solar FiT is not as high as the former one and added to that, the new tariffs will only be available for projects reaching COD between July 1st 2019 and December 31st 2020. Projects satisfying the provided conditions will be entitled to the new FiT for a period of 20 years. For projects which do not enter in the scope of the new FiT, the MOIT proposed a transition to a competitive auction system. For wind energy, the FiT will be applicable for projects reaching COD before 1st November 20214. It is still unclear whether a new FiT will be applied after expiry of this deadline or if a competitive auction system will be used as for wind energy. Although the future price determination system for wind energy is still blurred, it is notable that the MOIT proposed the government to extend the current wind FiT until December 20235.
In the 2016 National Power Development Plan, the government expects that renewable energies to be 10 percent of the total electricity generation by 20306. To reach this goal, the Vietnamese government operated the above-mentioned changes in Feed-in-tariffs in order to create an attractive framework for investors. The MOIT still needs to develop the transition to competitive auctions for future projects in order to avoid uncertainties and affect new projects’ bankability.
1 Law No. 28/2004/QH11 dated 3 December 2004 on Electricity.2 VnExpress, “Solar power generation surges 28 times,” April 14th, 2020.3 Decree No. 118/2015/ND-CP dated 12 November 2015 of the Government on guidelines for some articles of the law on investment, Appendix I.
4 Decision No. 39/2018/QD-TTg dated 10 September 2018 on provision of assistance in development of wind power projects in Vietnam.5 Official Letter no. 2491/BCT-DL.6 Decision No. 428/QD-TTg, dated 18 March 2016 the approval of revisions to the national power development plan from 2011 to 2020 with visions extended to 2030.
Self-consumption is particularly promoted for rooftop solar power projects as power developers can avoid grid-connection and opt for a 100% self-consumption system. Some privileges are notable when it comes to self-consumption as for instance, electricity exclusively generated for domestic use without selling to any purchaser is entitled to a power generation license exemption7. This attractive regulation is highly appreciated as Vietnam is currently dealing with a limited power grid infrastructure capacity and the overall national power need keeps rising8. Moreover, Decision 13 provides that Rooftop solar power developers can sell part of the electricity generated to EVN or other organization. Therefore, any excess of power output after self-consumption can be sold at standard feed-in-tariff if the system is connected to the national grid.
Lately, the government is trying to encourage consumer to opt for rooftop solar systems as it is considered to have a great potential in Vietnam. The MOIT provided a clearer legal framework for rooftop solar projects in the recently issued Circular No. 18 giving more detailed information regarding procedure and payment method9. This new regulation should be well received as EVN previously assumed that consumers’ reluctance was mainly due to the lack of information and specific legislation on electricity purchasing when households connect their solar power systems to the national grid. Besides, EVN acknowledged the fact that international investment is also essential to boost the development of rooftop solar energy in Vietnam.
As Vietnam has a high solar radiation, PV solar projects have great potential for self-consumption. This is also a solution to the rising power needs as it is foreseen that energy demand will increase of 8% per year from 2021 to 2030 and the national grid is likely to struggle with meeting the electricity needs10.
7 Circular No. 36/2018/TT-BCT dated October 16, 2018 regarding procedures for issuance and revocation of electricity licenses.8 ‘Developing Vietnam’s renewable energy industry’, The Diplomat, June 6, 2020, by Thoi Nguyen.9 Circular No.18/2020/TT-BCT dated July 17 2020, on project development and sample of electricity sale contract applicable to solar projects.
10 ‘Vietnam to face power shortage by 2030’, Viet Nam News, August 10, 2018.
In Vietnam, the use of Power Purchase Agreement is compulsory between the electricity seller and the buyer which is EVN. Parties may negotiate to insert additional clauses in order to clarify contractual right and obligations, as long as the added terms are consistent with the terms of the template PPA (however, in practice, EVN is quite reluctant to do so). Additionally, EVN is responsible for purchasing the entire power produced from grid-connected solar power projects. The government provides model PPAs as templates for each type of energy scheme to lay out the regulations for development of power projects.
Electricity of Vietnam (EVN) remains the main buyer of all electricity produced by renewable energies in Vietnam. The challenge here is the uncertainty implied by some Model PPAs. Indeed, in the new Model Solar PPA as well as for Model Wind PPA, the MOIT do not provide EVN’s offtake obligation to purchase the entire power generated by solar power project. Not only does this model seem inconsistent with some regulations (e.g. decision 13 for solar energy), but it also creates contractual uncertainty that may affect the bankability of the PPA. Moreover, another challenge is the risk of early termination of the PPA. For instance, in the new solar model PPA, for grid-connected solar farms, if the seller proceeds to an early termination of the contract due to EVN’s default, the risk of insufficient compensation remains high. Indeed, damages amount is calculated up to the time of termination. This can cause serious risk of allocation as a PPA is 20 years duration and therefore, if the termination occurs early in the contractual relation, the amount of compensation may be insufficient compared to the total investment cost. Those compensation risks can eventually have a negative impact on bankability assessment.
Power Purchase agreements are predominant in the Vietnamese renewable energy market as they are mandatory when dealing with EVN. The legal framework for PPA is highly regulated but remains a bit uncertain. Now, project developers have to shoulder the majority of risks related to Model PPAs. The main expectation for the renewable energy market is to have a more attractive/balanced power purchase agreement.
The legal framework for leasing in Vietnam is not well developed but in practice the leasing system is frequently used in the commercial sector. Especially, many businesses have opted for small-scale rooftop projects structured as lease agreements in order to reduce electricity bills and save operating costs. The lessor installs the solar roof at no cost for the business which will proceed to lease payments based on the energy generated by the system.
Recently, the MOIT provided the possibility to have direct power purchase agreements (DPPA) with buyers which are not EVN. As this business model is still new and not very detailed, developers may need to have a clearer legal framework in the future.
Although leasing as a financial model exists in practice, the legal framework on this matter needs to be developed in order to have a more trustworthy legal structure.
For the first time, with Decision 13, the MOIT allowed direct purchase agreements between project operators and buyers which are not related to EVN. This possibility is however only opened to rooftop solar projects with a capacity of up to 1MW. The parties may therefore freely agree on the terms of the DPPA as well as applicable tariffs.
The direct power purchase agreement model is quite recent at the moment and is still restricted to small-scale rooftop solar projects for the moment. An extension to larger-scale power projects could be highly appreciated by developers as it would allow to have a more competitive market and therefore resolve the bankability issues regarding PPAs.
Although recent, this new model has a great potential in helping to reach the power generation goals in Vietnam. However, the legal framework regarding this matter needs to be developed in order to achieve a better legal certainty, and therefore improve bankability.
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