10 October, 2017
The Ministry of Industry and Trade (MOIT) recently proposed to the Prime Minister a new draft Decision amending Decision No. 37 on the support mechanisms for development of wind power projects in Vietnam (Draft Decision).1This comes following a couple of earlier drafts proposed last year and earlier this year. The Draft Decision proposes an increase of the Feed-in-Tariff (FiT) from 7.8 UScents per kWh to UScents 8.77 per kWh (for onshore wind power projects) and to UScents 9.97 per kWh (for offshore wind power projects). In addition, it includes some clarifications and updates in terms of the development of wind power projects.
Specific provisions on the FiT for grid-connected projects
Under the Draft Decision, tariffs at the delivery point are as follows:
- For onshore wind power projects: VND1.920 per kWh (exclusive of VAT, equivalent to USD cents 8.77 per kWh); and
- For offshore wind power projects: VND2.183 per kWh (exclusive of VAT, equivalent to USD cents 9.97 per kWh).
The MOIT specifies that the proposed tariffs are based on the exchange rate of USD1 = VND21,896, as the central VND-USD exchange rate announced by the State Bank of Vietnam on 4 January 2016. Under the Draft Decision, the tariffs shall be adjusted in accordance with the fluctuation of the VND-USD exchange rate.
Classification of onshore and offshore projects
For the purpose of the proposed tariffs, the MOIT defines:
- "onshore wind power projects" as "grid-connected wind power projects that have wind turbines constructed and operated onshore and on coastal land areas having the outer border being the average lowest sea edge over several years (18.6 years);" and
- "offshore wind power projects" as "grid-connected wind power projects that have wind turbines constructed and operated outside the average lowest sea edge over several years (18.6 years) off the coast."
Limitations on the FiT
Similar to the recently issued guidelines for solar power, the MOIT proposed a deadline for wind power projects to reach eligibility for the FiT. Specifically, the FiT is proposed to apply only to a part or the whole of grid-connected wind power plants that reach the commercial operation date (COD) before 1 January 2021 and will be applied to a period of 20 years from the COD.
Under the Draft Decision, the COD is defined as the date on which a part or the whole of a grid-connected wind power plant is ready to sell electricity to the power purchaser and meets all of the following conditions:
- The power plant has completed the initial commissioning for a part or the whole of the grid-connected wind power plant and the connection facilities;
- The grid-connected power plant has been granted a power operation/generation license; and
- The power seller and the power purchaser have fixed the meter indices to commence payment.
In addition, the Draft Decision clarifies that the projects that enjoy the FiT under this proposed Decision will not be entitled to any other price support mechanisms relating to power output under other legal regulations.
Requirements for project development
Under the Draft Decision, the project owner may commence construction of a wind power plant only when said owner has (i) obtained a decision on investment policy or an Investment Registration Certificate; (ii) signed a power purchase agreement (PPA) with the power purchaser; (iii) signed a grid connection agreement with the relevant power distribution or transmission entity and (iv) had a wind measurement report covering a continuous period of at least 12 months. We note, however, that this is not an exhaustive list of approvals and licenses required for a wind power project to commence construction under Vietnamese law, as a wind power project is governed by not only the Electricity Law and the Investment Law, but also a number of other laws on land, construction, enterprises and environmental protection in Vietnam.
In addition, the Draft Decision proposed abolishing Decision No. 37's regulation that the development of a wind power project can be terminated if the project owner fails to commence construction of the main facilities of the power project within a period of 12 months from the issuance of the investment certificate (now, the investment registration certificate).
We note, however, that for power projects with capacity of 30MW or larger, they will be subject to a recent regulation of the MOIT on project development commitments and the mechanisms for handling power plant projects failing to meet committed development milestones.2
The above proposed regulations are still in a draft form by the time of issuing this alert. We will issue an update once this proposed Decision has been officially issued.
In the meantime, if you would like to discuss opportunities for investment in wind or other renewable power projects in Vietnam and how our Firm can assist you in your business in Vietnam, please do not hesitate to contact us.
1Decision No. 37/2011/QD-TTg of the Prime Minister dated 29 June 2011 on the support mechanisms for development of wind power projects in Vietnam (Decision No. 37).
2Circular No. 43/2016/TT-BCT of the MOIT dated 30 December 2016 on project development commitments and the mechanisms for handling power plant projects failing to meet committed schedules.
For further information, please contact:
Frederick Burke, Partner, Baker McKenzie
frederick.burke@bakermckenzie.com
