Vietnam's New Solar Power Policy

Vietnam's New Solar Power Policy

In Short

The Situation: Vietnam's overreliance on coal-fired and hydropower projects
have led to energy security concerns.

The Action: The nation's prime minister signed into law "Decision 11," which
supports the development of solar power projects.

Looking Ahead: Very broad in its scope, Decision 11 addresses logistical
issues, economic incentives, tax policy, land-use charges, and other related
matters.

Effective June 1, 2017, Decision No. 11/2017/QD-TTg ("Decision 11"),
supports the development of solar power projects to address energy security
concerns related to the overreliance on coal fired and hydropower projects.
Vietnam's Prime Minister signed the decision on April 11, 2017. The Ministry
of Industry and Trade ("MOIT") also issued a circular containing a draft
model power purchase agreement ("Draft PPA").

Ground-Mounted Photovoltaic Power Plants

Feed-in-Tariff. The feed-in-tariff ("FiT") of USD0.0935 per kWh, excluding
value added tax, applies to on-grid solar photovoltaic projects.

To be eligible, the project's solar cell efficiency must be above 16 percent
or have solar module efficiency above 15 percent. There is no separate FiT
for off-grid rooftop solar power projects, and no provision for other forms
of solar technology.

Term. The power purchase agreement will have a term of 20 years from
commercial operation date, extendable based on then prevailing regulations.

Direct Power Purchaser is EVN. Consistent with all Vietnam independent power
projects, Vietnam Electricity Corporation ("EVN") is the only permissible
power purchaser. This precludes corporate investors from directly purchasing
power from project developers.

Residential Rooftop Systems

Net Metering. Rooftop photovoltaic systems are eligible for a net metering
support scheme using a bidirectional meter. Excess energy within a billing
period will rollover to the next billing period. Excess balances at year end
or on termination will be sold to EVN.

No Capacity Cap. There are no capacity caps for rooftop systems.

Incentives for Solar Power Projects

The available incentives are consistent with existing incentives for
projects in other investment sectors prioritized by Vietnam ("Prioritized
Projects").

Investment Capital. Capital may be deployed from both domestic and foreign
sources, in accordance with existing regulations.

Under Decree No. 32/2017/-ND-CP ("Decree 32") issued on March 31, 2017,
investors in solar power projects may also apply to the Vietnam Development
Bank for a loan of up to 70 percent of the total investment capital,
excluding working capital and with a maximum tenure of 12 years. The
interest rate is a weighted average of the interest rates for five-year
government-backed bonds issued by the Vietnam Development Bank.

Import Duty Exemption. All solar power projects are exempt from import duty
for goods that form fixed assets in the project.

Corporate Income Tax. The corporate income tax incentives for solar power
projects will be similar to those for Prioritized Projects.

Land. Solar power projects, transmission lines, and transformers connected
to the grid are exempt from land use charge and rent. This is consistent
with the position for Prioritized Projects.

The Provincial People's Committee will allocate land for investors to
implement solar power projects.

Transitioning

It is uncertain what will happen when Decision 11 expires on June 30, 2019.
Beginning on June 1, 2017, parties to an existing solar power purchase
agreement must negotiate and enter into an amendment, to conform with
Decision 11.

Bankability Concerns

While the MOIT has issued the Draft PPA for public consultation, there are a
number of fundamental bankability issues highlighted below that remain
unaddressed.

Grid Risk Allocation. The project developer is responsible for grid
connection costs and risks. However, the Draft PPA does not factor in
project capacity, distance from existing transmission lines, and higher
costs of installing transmission lines over longer distances.

Credit Support. Given that EVN is the sole offtaker, a government guarantee
or assurance in the form of credit support or deemed availability would
address risk and bankability concerns.

Political Risks. In the event of a change in laws or taxes or increased
costs attributable to political force majeure, there is no guidance on
payment protection or deemed availability.

Limited Offtaker Obligation. The Draft PPA provides that EVN may choose to
stop purchasing electricity without having to compensate the project
developer. There is no concept of deemed commissioning, and EVN is only
obligated to pay for electricity it actually receives. In the event of
termination due to EVN's default, EVN is not required to compensate the
project developer for outstanding debts or expected return on equity beyond
proven damages.

Exchange Rate. The FiT is sensitive to exchange rate fluctuations, and the
currently applicable rate is 22,316 VND/USD as specified in the Draft PPA.
However, the Draft PPA does not provide for indexation.

Dispute Resolution. Under the Draft PPA, disputes may be brought before the
Vietnamese courts in the case of litigation, and to relevant state
authorities in the case of mediation. There is no provision for
international arbitration.

Further revisions will be required before the Draft PPA can be considered
bankable. The public consultation process has commenced this month and we
expect the Draft PPA to be finalized towards the end of 2017.

Two Key Takeaways

Vietnam's Ministry of Industry and Trade has released a draft model power
purchase agreement ("PPA"), but a number of significant issues-grid risk
allocation, credit issues, potential changes in the political realm, and
others-are not addressed.

Further revisions of the PPA are required to address bankability. The model
PPA is expected to be finalized in late 2017.

--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---

Link to Original Article:
http://www.jdsupra.com/legalnews/vietnam-s-new-solar-power-policy-77922/

--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---

John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com