Time to shine – Solar power gaining momentum in Vietnam

10:04 | 02/10/2019 Energy

Solar power saw the sunshine in Vietnam with the promulgation of Decision 11/2017/QD-TTg dated 11 April 2017 (“Decision 11”) of the Prime Minister (PM) on Mechanism for Encouragement of Development of Solar Power in Vietnam, amended by Decision 02/2019/QD-TTg dated 8 January 2019. Decision 11 took effect from 1 June 2017 and completed its term on 30 June 2019. Power Purchase Agreements (PPAs) for solar power projects entered into before 1 June 2017 were required to be amended so as to be in compliance with Decision 11.

Mr. Vaibhav Saxena

Investment incentives

Solar power project is exempted from import duty on goods imported to create fixed assets of the project. It is also entitled to other import duty incentives as applicable to other renewable energy projects, including exemption from import duty within 05 years from the commencement of production for raw materials, materials and components imported for production of the project which cannot be produced domestically.

Solar power project is entitled to the best CIT incentives available under the laws of Vietnam, including: CIT rate of 10% for 15 years, which could be extended up to 30 years in certain cases subject to approval by the PM; and CIT exemption for the first 4 years, and 50% reduction for the subsequent 9 years.

Solar power project is entitled to land use fee/land rental incentives same as for a project in the preferential investment sectors and a renewable energy project. Subject to the location of the project, it may also be exempted from land use fee/land rental for a period ranging from 03 to 15 years or for the whole term.

Following Decision 11 the MoIT released Circular No. 16/2017/TT-BCT (“Circular 16”) dated 12 September 2017 providing for guidance for implementation of Decision 11 on project development and standard form of Solar Model PPA (Grid MPPA).

Grid-connected solar power projects

An investor is only permitted to prepare the feasibility study for a solar power project which is included in an approved Master Plan. If such project has not been included in one of the said Master Plan, the investor needs to apply for inclusion of the project in the relevant Master Plan before preparing the feasibility study for the project.

The equity capital in a grid-connected project must not be less than 20% of the total investment capital of the project and the long-term land area of a grid-connected solar power project must not exceed 1.2ha/1MWp.

The grid-connected solar power project must comply with the regulations on management of investment in construction of works and also the following requirements: Assessment on the impact of the project’s grid connection plan on the local area power system; and equipment connected to the SCADA system or the load dispatch information system so as to provide forecast information on the hourly electrical output to the relevant load dispatch center.

Grid MPPA

Re-witnessing key provisions in the Grid MPPA which are not identical to other renewable energy model PPAs:

Under the Grid MPPA, FiT is applicable in accordance with Article 12.1 of Decision 11 which is VND2,086/kWh (excl. of VAT), equivalent to UScents9.35/kWh at the VND/USD exchange rate published by the State Bank of Vietnam (SBV) on 10 April 2017 being VND22,316 to US$1.00. This FiT only applied to a solar power plant or the relevant part thereof which achieve COD on or before 30 June 2019 and for a term of 20 years from COD.

The Vietnamese law currently does not specify the treatment to the solar projects or parts thereof which do not achieve COD by 30 June 2019. General perception of the law indicates that Decision 11 shall expire on 30 June 2019 and the MoIT shall propose the mechanism for encouragement of development of solar power projects for the period after 30 June 2019. However, the FiT to apply after 30 June 2019 has not been issued yet which has caused concerns among the investors who have invested in the solar projects. The government of Vietnam is working on this issue and it expected to be resolved soon.

Under Decision 11, the adjustment of FiT following VND/USD exchange rate fluctuation was carried out in accordance with the Solar Model PPA. However, the Grid MPPA does not detail on it.

The definition of FM fails to distinguish between political FM events and natural FM events. The Grid MPPA also provides the actions to be taken to mitigate an event of FM and unilateral termination rights of the affected party if the FM event prevents a party to the contract from performing its obligations for a period of 01 year by giving a written notice to the other party.

The Grid MPPA provides that, if the seller is the party affected by a breach and selects suspension of performance of the contract, then the value of compensation for loss and damage shall be calculated as equal to the value of the actual output of power generated by the seller within the previous 01 year period calculated up until the time of suspension of performance of the contract. Limiting the compensation value amounts to higher risks for the investor and affect the risk appetite of the lender.

Mr. Dang Duong Anh

Rooftop solar power

A rooftop solar power project with capacity of 1MW or more is required to go through the master planning approval. However, a rooftop project with a capacity of less than 1MW is not subject to the above requirement but the investor needs to notify the relevant provincial EVN affiliates on it. Such project having capacity of 1MW or more needs to obtain the electricity permit.

Solar rooftop sector has been in a dim light due to issues related to net-metering as discussed above which were resolved via Decision 02/2019/QD-TTg dated 8 January 2019 of the PM that introduced the two-way meter regime, following which the MoIT issued Circular No. 05/2019/TT-BCT dated 11 March 2019 (effective on 25 April 2019) (Circular 05) and provides for a model PPA specifically for rooftop projects (Roof MPPA).

Circular 05 provides for a Roof MPPA that will be applicable to all grid-connected solar rooftop power projects. Roof MPPA is in a much simpler form than the Grid MPPA. The parties to the Roof MPPA may amend/supplement the Roof MPPA to clarify their rights and obligations without changing the fundamental contents therein. However, similar to Grid MPPA the “fundamental contents of the Roof MPPA” are undefined.

Under Circular 05, before 1 January 2018, FiT for rooftop solar power projects is stipulated at the rate of VND2,086/kWh (equivalent to UScents9.35/kWh at the VND/USD central rate published by the SBV on 10 April 2017 being VND22,316/USD); and from 1 January 2018 the aforementioned FiT shall be adjusted in accordance with the fluctuation in VND/USD exchange rates as per the central rate published by the SBV on the last day of the previous year. Rooftop solar power projects may apply the power trading mechanism via two-way electricity meter (i.e. inwards and outwards separate readings to ensure fair billing) and a clear provision is provided for application of such scheme under the Roof MPPA. The abovementioned FiT shall be applicable for a term of 20 years from the COD of the rooftop solar power project.

The promulgation of the Roof MPPA has provided a simple formula for the calculation of the price paid to the seller and clearly indicated the payment and invoice procedures between the corporate entities, individuals and households. Roof MPPA requires the buyer to pay a default interest on any late payments.

However, Roof MPPA still lacks provisions to cover all necessary perspectives of the transaction (e.g. clear termination and/or FM events; arbitration; governing laws etc.). Furthermore, since the Roof MPPA is applied compulsorily without changing the fundamental contents, it would be an arduous task for the investors to negotiate on the supplementation of the additional terms to it.

EVN issued a Document No. 3450/EVN-KD, dated 2 July 2019 (Note) to address issues hindering the development of rooftop solar power projects (RSPPs).

The investor can lease the roof of the electricity user (the owner of the roof) to install RSPP (with a capacity of less than 01MW capacity) and sell its electricity through the meter of the roof owner who buys electricity from EVN.

Also, the RSPP can sell electricity to the power company (to be understood as EVN or its affiliates) through a separate meter, independent to the meter from which the roof owner is buying electricity from EVN.

EVN Document stipulates that the RSPPs attaining COD after June 30, 2019 can enter into the Roof MPPA and record the electricity sold. However, the power company shall temporarily uphold the electricity payment until further guidance on the next FiT regime is in place.

Dang Duong Anh and Vaibhav Saxena, Lawyers at Vietnam International Law Firm (VILAF)