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Vietnam launches FIT programme

  • Asia
  • Energy and infrastructure - Clean energy

04-05-2017

Background

The Vietnamese Government has launched a new feed-in-tariff programme (including a new range of support for investment) to encourage the development of ground-based and roof-based solar power projects nationally.

A decision issued by the Ministry for Industry and Trade has laid the foundations for regulatory change and defined the proposed framework in which certain solar power projects may be developed going forward. 

Power Purchase Agreement

The electricity produced by such projects will be purchased entirely by the (state owned) Vietnam Electricity Group with the terms of such purchase set out in a ‘standard’ PPA, issued by the Ministry for Industry and Trade for a 20 year term (extendable and/or renewable).

The purchase price which is currently set at a rate equivalent to 9.35 US cents/kWh applies only to grid connected projects with a solar cell efficiency higher than 16%, but is subject to fluctuations in the Vietnamese Dong / US Dollar exchange rate.

Rooftop projects have a separate solar power tariff, involving net metering and the use of bidirectional meters to calculate the volume of power to be sold to the purchaser on the expiration of the PPA.

Incentives

The programme is open to local and international developers and investors.

To help encourage investment in what is a relatively new market, investors will be exempt from import tax on materials imported to create fixed assets. In addition, corporate investors can benefit from corporate income tax reductions and exemptions. A corporate income tax rate of 10% will apply for the first 15 years of the investment together with a four year exemption from the first profitable year and a 50% reduction in corporate income tax for the nine years following the end of the exemption period.

Further incentives for solar projects that are connected to the grid include exemptions or reductions in land related fees and assistance from local committees who are available to facilitate the arrangement and make available of land for the establishment of solar projects.

Points to note

Whilst the announcement is a significant and positive step in the right direction and is welcomed there are some key areas of concern.

The reference to a model PPA means that bidders will be required to bid without the benefit of a definitive PPA. This may create a significant challenge.

The bankability of the programme may be impacted by the absence of a state guarantee from the Vietnamese Government, but of course the tariff offered for ground-based solar projects remains much higher than those seen recently in other comparable markets.

The PPA payments are not pegged to the dollar.

Clarification will also be required around what safe-guards, if any, will be offered to ensure the convertibility of the Vietnamese Dong into US Dollars and the interaction with foreign exchange control mechanisms.

Grid connection and transmission between the plant and the grid will be the investor’s responsibility. The investor will also have to bear the power loss in case of a connection point not being correctly located to where the metering equipment is installed.

We will discuss these points further and the extent of the opportunity at our forthcoming workshop in Hong Kong on 18 May 2017. If you would like to attend this free to attend workshop please contact Bethan Marks at bethanmarks@eversheds-sutherland.com

 

For more information contact

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