Vietnam’s power development plan (issued in 2011 and revised in 2016) sets the target of 6.5% and 6.9% as the proportion of renewable energy production in the power structure by 2020 and 2030, respectively, in which wind power will be 800 MW by 2020 and 6000 MW by 2030. To achieve such targets, on 29 June 2011, the Prime Minister issued Decision No. 37/2011/QD-TTg providing the development support mechanism for wind power projects in Vietnam (“Decision 37”). By Decision 37, investors in wind power projects shall be entitled to certain preferential treatment in terms of investment credit, import tax, corporate income taxes, and land lease or land use fees.
Almost eight years have passed since Decision 37 first came into effect, and currently, there are seven operational wind power projects with a total capacity of only around 200 MW, far from the target mentioned above. Even with the provided supporting mechanism of the Government, wind power projects in Vietnam appears to be less attractive to investors due to, among others, two significant issues related to the wind power: the Feed-In-Tariff (“FIT”) and the required contents of power purchase agreements (“PPAs”). Although the Government recently made efforts to resolve both of these issues, the result seems to vary.
According to several experts, investors are not interested in wind power because the FIT of wind power under Decision 37 was too low. Under Decision 37, the FIT at the power transmission point was VND 1,614/kWh equivalent to 7.8 US cents/kWh. Compared with other forms of renewable energy, such as solar power energy with a FIT of 2,086 VND per kWh equivalent to 9.35 US cents/kWh, such FIT of wind power is clearly less attractive to investors than that of solar power. Also, it is also much lower than the FIT of wind power in some other countries such as Thailand and South Korea.
Being aware of such issue, the Government has recently decided to increase the FIT of wind power to encourage the development of this type of energy by issuing Decision No. 39/2018/QD-TTg (“Decision 39”) which amends and supplements a number of articles of Decision 37. According to Decision 39, which took effect on 01 November 2018, the buyer is responsible for buying all the power generated from wind power projects with the FIT at the power transmission point, with the FIT depending on the project’s location:
- For inland wind power projects, the FIT is VND 1,928/kWh (exclusive of value-added tax, equivalent to 8.5 US cents/kWh); and
- For wind power projects on the sea, the FIT is VND 2,223/kWh (exclusive of value-added tax, equivalent to 9.8 US cents/kWh).
The above FIT under Decision 39 is applied to a part of or the entire grid-connected wind power plants having commercial operation date before 1 November 2021 and shall be applied within 20 years from the date of commercial operation.
As such, this increase could be deemed as goodwill of the Government to encourage investors to continue investing in wind power projects in Vietnam.
PPA template: disadvantageous terms for power sellers
While there is good news for investors in terms of wind power FIT as mentioned above, the efforts of the Government to improve and resolve issues related to PPAs seem unclear. In particular, although PPAs should be based on mutual agreement between the Government (through Vietnam Electricity) and the power seller, however, given that power is a sensitive field which is under State monopoly in Vietnam, PPAs are regulated under a template provided by the Government. In fact, as the PPA template is codified in Circular 32/2012/TT-BCT issued by the Ministry of Industry and Trade (“Circular 32”), fairness between the parties in such agreement cannot be guaranteed, and the power seller seems to have no flexibility to negotiate on certain terms and conditions of this agreement. One of the terms and conditions, among others, which can be considered as unfair is the provision which allows Vietnam Electricity (in case it is in breach) to compensate the power seller a sum equal to only one year of power output value in case the latter opts for the suspension of the PPA. In practice, an investor, should need at least more than 10 years for recovering all initial investment cost for a wind power project.
Currently, the Government is drafting a new circular to amend the current regulations on development of wind power project and PPA template as provided in Circular 32. However, since the latest draft does not reflect any change with respect to the critical issues discussed above, the investor remains in a weaker bargaining position compared with Vietnam Electricity. Until a new circular is issued with fair and reasonable terms and conditions, investors need be cautious when negotiating the terms of the PPA.
In conclusion, although there have been current efforts to support wind power projects which are laudable, the Government still needs to further improve and adopt more mechanisms to develop wind power, to help meet the international obligations under the 2015 United Nations Climate Change Conference on the development of the economy without compromising environmental protection, and to achieve the very optimist targets under Vietnam’s power development plan.