abril 17 2020

Silver Lining for Solar - Vietnam Approves New Incentives and Feed-In-Tariff

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On 6 April 2020, the Prime Minister of Vietnam (Prime Minister) announced Decision No. 13/2020/QD-TTg (Decision No. 13) on the new incentive mechanisms for the development of solar energy projects in the country, including a new feed-in-tariff (FiT). Decision No. 13 will come into effect on 22 May 2020.

The renewable energy sector in Vietnam is attractive to foreign investors due to the absence of foreign ownership restrictions for power generation and insatiable demand for power driven by rapid economic growth. Decision No. 13 provides greater price certainty for projects coming into operation in 2020 and crucially acknowledges that rooftop solar operators can sell power directly to commercial customers. 

Highlights of Decision No. 13

The key points of Decision No. 13 are:

Rooftop Solar Projects with a Buyer Which Is Not Vietnam Electricity (EVN)

For the first time, the Vietnamese government has confirmed that a buyer of rooftop solar may be a non-EVN entity or individual for non-grid connected projects. This provides a clear basis for a direct power purchase agreement (PPA) between a seller of rooftop solar and a non-EVN buyer. The parties are expressly permitted to freely negotiate the terms of the PPA.

Projects with EVN

  1. Grid-connected Solar Projects:

    1.  National FiTs: The new FiTs applicable nationwide (except for the Ninh Thuan province) are as follows:

      1. Floating grid-connected solar project: VND 1,783 per kWh (about US$0.0769 per kWh)
      2. Ground-mounted grid-connected solar project: VND 1,644 per kWh (about US$0.0709 per kWh)

      FiTs will apply to grid-connected solar projects which (i) were given investment approval before 23 November 2019 and (ii) partially or entirely commenced commercial operations between 1 July 2019 and 31 December 2020.

    2. FiT for Ninh Thuan Province: Decision No. 13 continues to provide special incentives for projects situated in the Ninh Thuan province. Solar projects which have been included in the existing power development plans and commenced commercial operations before 1 January 2021 are eligible for the special FiT of VND 2,086 per kWh (equivalent to US$0.0935 per kWh).

  2. Rooftop Solar Projects: Rooftop solar projects with a capacity not exceeding 1MW, which enter into operation between 1 July 2019 and 31 December 2020, can benefit from the new FiT of VND 1,943 per kWh (about US$0.0838 per kWh) for selling the power generated to EVN. All rooftop solar systems must have a minimum solar cell efficiency of greater than 16% or minimum solar module efficiency of greater than 15%.

  3. PPA Requirements: PPAs must be signed for projects with EVN. They must also follow a template to be issued by the Vietnamese government – it is expected that the government will issue a circular to implement Decision No. 13 providing a new PPA template. The maximum term of the PPAs is 20 years from the commencement of commercial operation, after which the parties may agree to extend the term or sign a new one in accordance with the existing regulations.

Implications of Decision No. 13

Expansion of Buyer Pool. The power market in Vietnam is currently state-dominated. Following Decision No. 13, EVN will no longer be the sole electricity offtaker for rooftop solar projects in Vietnam. Eligible rooftop solar projects may also sell some or all of the power generated to other entities off-grid. This new development will afford more flexibility for smaller scale rooftop solar developers. This also shows the government's commitment to gradually move towards a more competitive market-driven environment.

Uncertainty amid COVID-19. Though the new scheme brings more certainty and visibility for the sector, businesses may need to accelerate their projects to ensure they meet the commercial operations date by 2020. This is especially so against the backdrop of the COVID-19 pandemic, which has caused disruption to global renewable energy supply chains.

Looking beyond 2020. Decision No. 13 is silent about solar projects that will enter operation after 2020. Untimely change-in-law constitutes a critical risk that sponsors should be aware of when investing in solar projects in Vietnam. In November 2019, the Prime Minister issued OD No. 402/TB-VPCP stating that projects entering operations after 2020 that sell to EVN would not have a FiT but would instead have to "bid" to supply power to EVN. Decision No. 13 did not address this, leaving it open for the government to proceed with this competitive bidding mechanism for the sale of power to EVN – this could take the form of a reverse auction, though the market would need further guidance on the implementation and transition plans for such a mechanism. This uncertainty may spur increased M&A activity to enable investors to lock-in the FiT by acquiring existing projects.

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