Updated Draft Policy On Feed-in-tariff Program From 1 July 2019 To 31 December 2021 For Solar Power Projects In Vietnam.

Recent developments

 

On 12 April 2019, the Ministry of Industry and Trade of Vietnam ("MOIT") released the third updated draft (the "Third Draft") of the Decision of the Prime Minister on the mechanism for encouraging the development of solar power projects in Vietnam (the "Draft Decision"). Most notably, the Draft Decision provides for a second Feed-in-Tariff ("FiT") program with FiT rates varying by location for application during the period from 1 July 2019 until 31 December 2021.

 

Compared to the second draft, released in February 2019 ("Second Draft"), the Third Draft has made certain improvements for investors, including, among other things:

 

• extending the duration of the 2nd FiT program to apply for two-and-a- half years, from 1 July 2019 until 31 December 2021 (instead of being until 30 June 2021 under the Second Draft);

• increasing the FiT rates for "Floating solar power projects" by about 5.7%; incorporating the special policy for Ninh Thuan Province of Vietnam allowing certain solar power projects in Ninh Thuan Province with the total combined capacity cap of 2,000 MW achieving actual commercial operation date ("COD") by the end of 2020 to be eligible for the extended FiT 1 of 9.35 US cents per kWh.

 

However, the Third Draft has removed "Solar power projects with integrated storage system" from the Draft Decision together with the previously proposed tariff, as previously proposed under the Second Draft.

 

In addition, the Third Draft remains unchanged (compared to the Second Draft) regarding the irradiance zonal classification of provinces and cities into four different zones of Vietnam for purposes of the proposed tariff levels, as well as the specific tariff rates for "Ground-mounted solar power projects" and "Rooftop solar power projects/ systems".

 

The Draft Decision of the second FiT program is proposed to replace the current Decision No. 11 (as revised by Decision No. 02) of the Prime Minister providing for the first FiT program with one single FiT rate of 9.35 US cents per kWh, in effect only applying to solar power projects achieving actual COD before 30 June 2019 (except for certain projects in Ninh Thuan Province as mentioned above).1

 

Unlike the first format of the FiT, the Draft Decision proposes varying levels of geographical tariffs according to location and technology, classified by 4 different irradiance zones and involving 3 different solar power technologies. 

Specifically, the Draft Decision provides for a wide range of tariffs, which vary in the range from 6.67 US cents per kWh to 10.87 US cents per kWh.

 

However, under the Third Draft, there are still significant differences in tariff rates among different zones, provinces and solar technologies. Specifically, the MOIT continues to propose higher tariffs for provinces with lower solar irradiance (primarily the Northern provinces of Vietnam) and vice versa, lower tariffs for provinces with higher solar irradiance (namely those Southern and central provinces of Vietnam).

 

This change still illustrates the Government's policy to diversify the locations for solar investments and navigate energy security priorities across different zones of Vietnam. However, this may have a significant impact on many on- going solar power projects already under development or construction in Vietnam (whether they can achieve actual COD before 30 June 2019 or not) given that the majority of on-going projects are being developed in southern provinces and the central highlands of Vietnam with higher solar irradiance.

 

Like the Second Draft, the Third Draft separates 6 provinces – namely Ninh Thuan, Binh Thuan, Khanh Hoa, Dak Lak, Gia Lai and Phu Yen – into a new group of irradiance zonal classifications (i.e., Zone 4) with the lowest tariff rates, ranging from 6.67 to 7.89 US cent per kWh depending on solar technologies (except for certain projects in Ninh Thuan Province as mentioned above).

 

Specific Tariffs proposed under the Third Draft

 

 

Compared to the Second Draft, the Third Draft has:

 

• increased the tariffs for "Floating solar power projects" by about 5.7%;

• left unchanged the tariffs for "Ground-mounted solar power projects"

  and "Rooftop solar power projects/ systems"; and

• removed "Solar power projects with integrated storage system" together with the previously proposed tariff of 8.72 US cents per kWh for Zone 3 and 8.21 US cents per kWh for Zone 4 under the previous Second Draft in February 2019.3

 

In relation to energy storage, in the Third Draft, 

 



Rooftop solar power projects, which are defined as solar power projects having solar PV panels installed on the roof, or attached to a building, and having an installed capacity of 1 MWp or less.

 

In the Third Draft, the proposed tariffs will apply to part or the whole of solar power projects achieving actual COD between 1 July 2019 and 31 December 2021 (i.e., about 2 and a half years) for application for a PPA term of 20 years from the COD. Compared to the Second Draft, the Third Draft has extended this next (second) FiT Program's COD deadline from 30 June 2021 to 31 December 2021 (i.e., added an additional 6 months).

 

Special Policy for certain solar power projects in Ninh Thuan Province

 

Following the special policy for Ninh Thuan Province previously approved under the Government's Resolution No. 115, the Draft Decision incorporates the same and clarifies the tariff policy for solar power projects in Ninh Thuan Province as follows:9

 

• For Ninh Thuan Province's grid connected solar power projects, which were "already included in the Power Development Plans at levels", have a COD prior to 1 January 2021, and with the total capacity not exceeding 2,000 MW, the tariff will be VND 2,086 per kWh (exclusive of VAT), equivalent to 9.35 US cents per kWh (according to the USD / VND central exchange rate as announced by the State Bank of Vietnam on 10 April 2017 (USD 1 = VND 22,316).

• For Ninh Thuan Province's solar power projects achieving COD during the period from 1 January 2021 to 31 December 2021, the tariff under the second FiT program, as mentioned in the table of tariffs above, will apply (i.e., the currently proposed 7.24 US cents per kWh for "Floating solar power projects"; or 6.67 US cents per kWh for "Ground-mounted solar power projects"; or 7.89 US cents per kWh for "Rooftop solar power projects/ systems" as proposed under the Third Draft of the Draft Decision).

   

We note that the Draft Decision and Resolution No. 115 are both still not entirely clear as to which specific solar projects in Ninh Thuan Province are confirmed to be eligible for the extended FiT 1 of 9.35 US cents per kWh.

 

The Draft Decision appears to indicate a "first-come-first-serve" policy based on actual progress of relevant projects by setting the total capacity cap of 2,000 MW and the actual COD deadline before 1 January 2021 for relevant solar projects to progress to achieve actual COD as soon as possible during 1 July 2019 until 31 December 2020 to be eligible for the extended FiT 1 of 9.35 US cents per kWh.

 

By "already included in the Power Development Plans at levels", it appears that the 2,000 MW package is meant to be open for solar power projects in Ninh Thuan regardless of whether they were approved for inclusion in the national-level or provincial-level Power Development Plans (or whether their installed capacity is up to 50MWp or larger than 50MWp). 

 

 

1 Decision No. 11/2017/QD-TTg of the Prime Minister dated 11 April 2017 on the mechanism for encouragement of the development of solar power projects in Vietnam ("Decision No. 11") as amended by Decision No. 02/2019/QD-TTg of the Prime Minister dated 8 January 2019 ("Decision No. 02").