The treatment of municipal solid waste (“MSW”) is difficult for local authorities. Thanks to the development of new technologies, however, MSW is becoming a serious source of renewable energy. Vietnam began to shape its regulations and policies to develop solid waste power plants (“SWPP”) in 2012. Several investment incentives and favorable policies have now been issued to attract the private sector. This Article discusses regulations on SWPPs and power purchase agreements (“PPA”).
Legislation and PPAs. The policies and regulations are mainly set out in the Electricity Law adopted by the National Assembly on November 30, 2024, Decision 31/2014/QD-TTg of the Prime Minister dated May 5, 2014 (“Decision 31”), Circular 32/2015/TT-BCT of the Ministry of Industry and Trade (“MOIT”) dated October 8, 2015 (“Circular 32”), Circular 02/2022/TT-BTNMT of the Ministry of Natural Resources and Environment (“MONRE”) dated January 10, 2022 (“Circular 02”), Decree 96/2026/ND-CP of the Government dated March 31, 2026 (“Decree 96”), Decree 56/2025/ND-CP of the Government dated March 3, 2025 (“Decree 56”), Decision 1682/QD-TTg of the Prime Minister dated December 28, 2024 (“Decision 1682”), and Decision 768/QĐ-TTg of the Prime Minister dated April 15, 2025 (“Decision 768”) . According to Decision 31, the Group of Vietnam Electricity (referred to as EVN)–a state-owned corporation–is responsible to purchase the entire output of electricity generated from SWPPs. This policy assures investors that output can be sold. The sales, however, must be made according to a statutory PPA template set out in Circular 32. Although Circular 32 allows the contracting parties to change the template in order to reflect their agreement, the main contents must be consistent with the template.
Price factors. The price, of course, is a fundamental factor for the investor to make a decision to invest. The price of electricity can vary widely, depending on the method of power generation. For example, the current price of electricity generated from direct combustion of solid waste is US$10.05 cents per kWh. By contrast, the current price of electricity that power plants using gas generated from gasification can charge is only US$7.28 cents per kWh. These prices exclude VAT. Interestingly, prices can be adjusted by reference to the VND-US$ exchange rate. Recognition of exchange rate variation is a large assurance for foreign investors as it mitigates losses or risks resulting from devaluation of the Vietnamese dong during the project life. In addition to the price of electricity billable to EVN, a SWPP may be entitled to “gate fees” for treatment of solid wastes pursuant to waste treatment agreements between SWPPs and local authorities.
Term of PPA. The term of a PPA is 20 years commencing from the date on which commercial operations begin. The contracting parties may extend the PPA once its term expires. The contracting parties may also sign a new PPA in accordance with regulations that prevail at that time. Oddly, it remains uncertain whether the original favorable price under the original PPA can be applied upon renewal or when the contracting parties sign a new PPA. A large-scale SWPP will often require a substantial amount of capital. The question whether the price is sufficient to recover the investment capital and to earn a reasonable profit within a 20-year period requires careful consideration and assessment. The investor should seek the MOIT’s consent to extend the term of the PPA if there are any concerns or questions relating to the payback period. Agreement on extension of the term, and on the application of the original favorable price of electricity generated by SWPPs should be incorporated into the PPA.
Among other events specified in the PPA, the PPA can be terminated in the following two circumstances: (i) The seller (power plant) may decide to participate in the competitive market for the generation of electricity. In such case, the seller must send a 120-day notice or termination to EVN, and the PPA will be terminated after the 120-day period. If so, the seller and EVN will then need to enter into other contractual arrangements under which the price of electricity will be determined on a competitive basis (not based on a fixed price); (ii) The PPA can also be terminated following a force majeure event if the condition lasts for more than one year. The concept of a “force majeure event” should be well-defined.
Settlement of disputes. A dispute must first be addressed through amicable negotiation. If the contracting parties fail to reach an agreement, the dispute can be referred to the Electricity Regulatory Authority (“ERA”) or to a body agreed by the contracting parties. The PPA relates to EVN, a state-owned corporation under the MOIT’s administration. The ERA is also a state body, and it is controlled and managed by the MOIT. In case of a dispute, it would seem that ERA cannot act independently. It may be impractical for the contracting parties to choose an independent body at the time of a dispute. The choice (at the outset) of independent arbitration seems to be more practical.
Governing law. The PPA is governed by Vietnamese law. Although Vietnamese law provides certain protections and guarantees, these statutory protections may be seen to be insufficient if the PPA relates to foreign investors. It is common that foreign investors will seek other contractual protections. These contractual protections can be incorporated into the PPA in order to ensure that their interests are protected. As the PPA involves state-related entities, a private owner of an SWPP should endeavor to incorporate the following matters into the PPA: (i) waiver of sovereign immunity; (ii) protection against changes in the law; (iii) investment incentives; (iv) the government’s guarantee; (v) release in the event of force majeure; (vi) subsequent increases of price (if possible); (vii) optional renewal of PPA after its expiry (if desirable); (viii) settlement of disputes through an independent body.
Investment incentives. SWPPs are classified as “especially preferential projects” and so are entitled to several important incentives: exemption and reduction of land rental and land levies, favorable state loans and tax incentives (eg, import duty exemption for, say, machinery imported to create the project’s fixed assets). Import duty exemptions can also apply to materials, raw materials and semi-finished products that are unavailable in Vietnam and that must be imported. Preferential corporate income tax rates, corporate income tax reduction and tax holidays can also apply. These investment incentives can be obtained and documented during the licensing process.
Master plan for development of SWPPs. Among other conditions, a SWPP can be developed only if it can be included in the master plan for development of SWPPs. According to Decision 768 and Decision 1682, Vietnam has a plan to develop several SWPPs from now to 2035 (with a maximum capacity of 2,140 MW). The list of particular SWPPs can be found in Decision 1682 (Schedule 7) and in Decision 768 (Schedule 16). If a SWPP is not included in the master plan, owners of such SWPPs must obtain the Prime Minister’s approval to include its project in the master plan.
Licensing process. The municipal or provincial People’s Committees (“PC”) are authorized to issue investment registration certificates and other operational licenses to WSPPs. Before issuing licenses, the PC will often consult with other ministries (mainly the MOIT, the MONRE and the Ministry of Science and Technology). Among other conditions, a SWPP must be included in the national master plan. If a potential project is not included in the national master plan, the investor must seek the MOIT’s consent. The MOIT is authorized to evaluate SWPPs. The statutory duration for the MOIT to evaluate a project is 30 business days. The MOIT may engage independent and professional consultants to evaluate a SWPP. The owner of an approved SWPP can commence construction of its plant only after it has obtained a construction permit. This requirement applies to most power projects, and not just to SWPPs.
Restriction on foreign investment. There is no restriction on foreign ownership of SWPPs. The collection of waste that is discharged from households and local residents, however, is restricted to foreign investment under Decree 96. In other words, foreign-owned SWPPs must engage local service providers to collect waste from households and local residents.
Waste separation. The need to separate and concentrate solid waste applies to both household and industrial waste. This requirement is set out in Circular 02. In practice, the need to separate and concentrate household waste has been only slowly implemented. Consequently, SWPPs face a lack of feedstock and additional costs to separate solid household waste. The PPA does not impose obligation on SWPPs to compensate EVN if SWPPs fail to deliver a sufficient volume of electricity as agreed in the PPA as a result of lack of feedstock. However, to be prudent, this possibility should be carefully addressed and documented at the outset.
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At present, household waste, commercial, industrial and hospital wastes are collected and transported by non-profit entities owned by the state or by commercial companies. The current treatment of solid waste is mostly to recycle it or to discharge it into open garbage dumps. However, the volume of solid waste has increased both in big cities and industrial zones. As a result, garbage dumps have become overloaded, and the current practice has become inappropriate. There are serious environmental issues to consider (eg, negative impact on underground or surface water, spread of disease, unsustainable usage of land, etc.). The situation requires local authorities to find alternative solutions in order to manage and treat waste.
Although the development of SWPPs is more expensive in comparison with other methods, there are positive factors: treatment of waste is faster, it does not require a substantial amount of land, and the actual operating costs are manageable. That is, waste can be managed and treated on a sustainable basis and environmental issues can be managed. The Government is seeking technical and financial assistance and aid from government and non-government organizations. In parallel, the Government also encourages the private sector to develop SWPPs. Another option is the development of small scale SWPPs. This also seems to be practical and realistic.
