Vietnam: Solar Power – Final Draft Decision On Solar Power Feed-In-Tariffs (FIT2) For The Period From 1 July 2019 To 31 December 2021

On 22 February 2019, the Ministry of Industry and Trade of Vietnam ("MOIT") published a second draft decision of the Prime Minister on the mechanism for encouraging the development of solar power projects in Vietnam to solicit public comments ("FIT2"). The time for soliciting public comments on FIT2 draft has expired on 15 April 2019.

By 16 April 2019, Electricity and Renewable Energy Agency of MOIT ("EREA") coordinated with VBF Power and Energy Working Group to arrange a seminar for discussion of the final draft FIT2 of EREA (the "Final FIT2 Draft"). The Head of EREA confirmed in the seminar that the Final FIT2 Draft would be submitted to the Government for evaluation and approval. It is expected that the Final FIT2 Draft would be issued with a guiding circular (including new model solar PPAs) by 30 June 2019 or earlier. Duane Morris would like to highlight some key contents of the Final FIT2 Draft as follows:

New FITs for Solar Power Projects – from 1 July 2019 to 31 December 2021

Compared to the previous drafts, the Final FIT2 Draft has (i) increased the FITs for floating solar power projects in order to compensate the high costs of this technology, (ii) removed FITs for solar power projects with integrated storage system as there is low interest on this option, and (iii) sets a single commercial operation date (COD) deadline of 31 December 2021 (instead of 30 June 2021) for this new FIT2 program. The Final FIT2 Draft also adjusted and classified solar power projects into three groups as follows:

" Floating solar power projects, which are defined as grid connected solar power projects having solar PV panels installed on structures floating on the water surface.
" Ground-mounted solar power projects, which are defined as grid-connected solar power projects having solar PV panels installed on the ground, or on rooftops or attached to civil buildings and having an installed capacity of more than 1 MWp.
" Rooftop solar power projects, which are defined as solar power projects having solar PV panels installed on the roof, or attached to a civil buildings, and having an installed capacity of 1 MWp or less.

The proposed tariffs (as below) will apply to part or the whole of solar power projects achieving actual COD before 31 December 2021 for application for a PPA term of 20 years from the COD.

No. Technology Region I Region II Region III Region IV
VND / kWh US cent equivalent VND / kWh US cent equivalent VND / kWh US cent equivalent VND / kWh US cent equivalent
1 Floating solar power projects 2,281 (second draft: 2,159) 9.98 ( second draft: 9.44) 1,963 (second draft: 1,853) 8.13 (second draft: 8.13) 1,758 (second draft: 1,664) 7.69 (second draft: 7.28) 1,655 (second draft: 1,566) 7.24 (second draft: 6.85)
2 Ground-mounted solar power projects 2,102 9.20 1,809 7.91 1,620 7.09 1,525 6.67
3 Rooftop solar power projects 2,486 10.87 2,139 9.36 1,916 8.38 1,803 7.89

Region I comprises 28 northern provinces of Vietnam, including: Ha Giang, Bac Kan, Cao Bang, Tuyen Quang, Thai Nguyen, Lao Cai, Yen Bai, Lang Son, Quang Ninh, Phu Tho, Vinh Phuc, Bac Giang, Hai Duong, Hoa Binh, Hanoi, Ha Nam, Bac Ninh, Hung Yen, Hai Phong, Ninh Binh, Thai Binh, Ha Tinh, Nam Dinh, Quang Binh, Thanh Hoa, Lai Chau, Nghe An, and Son La.

Region II comprises 6 central provinces of Vietnam, including: Quang Tri, Dien Bien, Thua Thien Hue, Quang Nam, Da Nang, and Quang Ngai.

Region III comprises 23 central highlands and southern provinces of Vietnam, including: Kon Tum, Ca Mau, Hau Giang, Binh Dinh, Bac Lieu, Kien Giang, Soc Trang, Can Tho, Vinh Long, Tra Vinh, Lam Dong, Ben Tre, Tien Giang, An Giang, Dak Nong, Ho Chi Minh City, Dong Nai, Dong Thap, Ba Ria – Vung Tau, Long An, Binh Duong, Binh Phuoc and Tay Ninh.

Region IV comprises 6 central highlands and southern provinces of Vietnam, including: Phu Yen, Gia Lai, Dak Lak, Khanh Hoa, Ninh Thuan, and Binh Thuan).

Model PPA for Solar Power Projects

For all solar PPAs with EVN / its subsidiaries as buyers, a model PPA will be required. EREA said that after the PM approves the Final FIT2 Draft, the MOIT would issue a circular to promulgate new model PPAs. We asked directly their plan to disclose these model PPAs and circular but the Head of EREA could not answer, pending approval of the Final FIT2 Draft. EREA's representative hinted that there should be not many major changes in model solar PPAs.

At the seminar, Head of EREA confirmed that the risk of network system of EVN remains the same. This means EVN shall have the right to refuse the power purchase in case any errors / curtailment issues of the power network / system.

Regarding direct PPA between generators and power purchasers (other than EVN and its subsidiaries) for rooftop solar power projects, the Final FIT2 Draft allows the parties to agree the terms of such direct PPA in line with the applicable law.

Direct PPA for Rooftop Solar Power Project and for other Solar Power Projects

Technically, the power purchaser in the Final FIT2 Draft includes EVN, EVN's subsidiaries and other power purchasers. However, EREA's intention in this final draft is to regulate the other power purchasers for direct PPA of rooftop solar power projects only. There is also no clear definition of other power purchasers in the Final FIT2 Draft as EREA would like to let it open for further guidance in the circulars.

The direct power purchase in the Final FIT2 Draft is for (i) rooftop solar power project of 1 MW or less installed capacity, and (ii) not connected to the grid. In this case, the price and PPA will be agreed by the parties.

The direct PPA between generators and power consumers other than EVN for solar power projects of more than 1 MW is currently under ERAV's scheme, and not included in this Final FIT2 Draft. At the seminar, ERAV explained that they were working with counsels on this. The draft model would be likely disclosed for soliciting comments by early June 2019, then submitted to the PM for approval. If it goes smoothly, by end of 2019 – early 2020, ERAV would provide the answer on whether the DPPA scheme would be implemented.

Ninh Thuan Province – COD prior to 1 Jan 2021

In the Final FIT2 Draft, solar power projects in Ninh Thuan enjoy FiT of US cent 9.35 if (i) it has been approved in a power master plan, (ii) it could achieve the COD prior to 1 January 2021, and (iii) it is included in a group of 2000MW solar power projects. We asked about the status of 2000MW group in Ninh Thuan had been approved, and whether there is any chance for new investors to join this scheme. Head of EREA confirmed that by 31 December 2018, 1930 MW projects had been approved in Ninh Thuan. It is not legal feasible for new solar power projects in Ninh Thuan to be approved. However, it is possible for foreign investors to take over any current projects, even in the case such projects are withdrawn from current investors due to violation of Investment Law.

Solar Power Project Auction Pilot

In the Final FIT2 Draft, by 2020 MOIT will prepare and submit the draft to the Government for approval of the pilot. However, at the seminar, Head of EREA confirmed that it is impossible for implementation of power project auction prior to 2021. Thus, similar as the case of wind projects under Decision 39, it is intended that solar power project auction will be scheduled for at least since early 2021.

Power Network Bottleneck Issue

MOIT is proposing to the Government to enable private investment in network by way of BOT or a mode that allowing investors to construct and then hand-over network to EVN with some special compensation.

What if the Final FIT Draft could not be approved and issued

This is the final draft which would be submitted to the PM for approval. If it is not approved, then there will be no FIT regulations for solar power projects. EREA confirmed this situation in the seminar.

Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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