Vietnam’s New Pricing Plan for Renewable Energy Projects

February 16th, 2023
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Energy

We comment on new development regarding Vietnam’s pricing of renewable energy.

The electricity price to the consumer, is, of course, a fundamental factor in any plan.  Remarkably, the selling price at which a power plant sells its electricity to EVN varies widely depending on the method of power generation, technology, project location, and when the project reached commercial operation. 

The table below provides (i) a good summary of appliable tariffs of existing renewable energy projects, and (ii) a list of government bodies authorized to determine the tariff for renewable energy projects–basically:  wind, solar, biomass, waste.

Tariffs above apply only to projects that achieved commercial operation before June 30, 2019 or from July 1, 20196 to December 31, 2020 (in case of solar power projects) and before November 1, 2021 (in case of wind power projects). These requirements do not apply to waste-to-energy projects nor to biomass power projects. 

Due to Covid and to other reasons, several solar and wind power projects failed to achieve commercial operation by the deadline set for them (“Transitional Projects”). Consequently, Transitional Projects are not entitled to enjoy the subsidized tariff set out in the signed power purchase agreements (“PPAs”) with EVN.        

The MOIT has recently issued a number of key new regulations (Circular 157, Decision 218 and Circular 019). They provide (i) maximum prices at which EVN will purchase electricity generated by the Transitional Projects; (ii) general framework for EVN to negotiate a contractual tariff that applies to each of these Transitional Projects.   

Under Decision 21, the maximum electricity price (exclusive of VAT) for each type of Transitional Project is as below:

Based on these maximum prices, EVN will negotiate with each of these Transactional Projects and incorporate the agreed price in the amended PPAs. The ceiling tariffs for the Transitional Projects are lower than the tariffs that apply to previous solar and wind power projects. This change would definitely affect the bottom line of the Transitional Projects.

Circular 01 is also new. It has removed provisions of the template PPA that allow the electricity price to be denominated in US dollars.  Now, the electricity price of these Transitional Projects must be fixed and denominated only in Vietnamese dong. This is another negative change.

At this point, there is no pricing mechanism for new solar and wind power projects. It is uncertain whether prices can be denominated in US dollars for new projects, and whether the feed-in-tariff mechanism will continue to be applied or whether an auction/bidding mechanism will apply to new solar and wind power projects.

We refer to Vietnam’s COP26 commitments on decarbonization, and its execution of the Just Energy Transition Partnership (“JETP”) with developed countries in December 2022. The private sector will probably play the central role to assist the country to develop green energy and to achieve Vietnam’s commitments and goals. As such, the current legal framework should be changed in such a way that the electricity price will be fair in consideration of: (i) the full investment cost including a reasonable margin, and (ii) appropriate risk-allocation among power plants (as sellers), EVN (as a purchaser), and banks (as lenders) that provide project financing for these renewable energy projects.

A number of foreign chambers in Vietnam have requested the Government to reconsider these new regulations.

 

Food notes:

1 Decision 37/QD-TTg of the Prime Minister dated June 29, 2011 (“Decision 37”) which was amended by  

  Decision 39/TTg-QD of the Prime Minister dated September 10, 2018 (“Decision 39”).

2 Decision 11/2017/QD-TTg of the Prime Minister dated April 11, 2017 (“Decision 11”) which was amended by

    Decision 02/2019/TTg-QD of the Prime Minister dated January 8, 2019 (“Decision 02”).

3 Decision 13/2020/QD-TTg of the Prime Minister dated April 6, 2020 (“Decision 13”).

4 Decision 24/2014/QD-TTg of the Prime Minister dated March 24, 2014 (“Decision 24”) which was amended byDecision 08/2020//TTg-QD of the Prime Minister dated March 5, 2020 (“Decision 08”).

5 Decision 31/2014/QD-TTg of the Prime Minister dated May 5, 2014 (“Decision 31”).

6    There is an exception. That is, the favorable tariff (US cents 9.35/kWh) applies to solar power projects in Ninh  

    Thuan Province as approved by the Prime Minister, if these solar power projects were able to commence commercial operation before December 31, 2020.

7    Circular 05/2022/TT-BCT of the MOIT dated October 3, 2022 (“Circular 15”).

8   Decision 21/QD-BCT of the MOIT dated January 7, 2023 (“Decision 21”).

9    Circular 01/2023/TT-BCT of the MOIT dated January 19, 2023 (“Circular 01”).

10 USD1=VND23,500.

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