28 January, 2020
The Ministry of Industry and Trade of Vietnam ("MOIT") recently proposed a Draft Decision ("Draft Decision") amending Decision No. 24/2014/QD-TTg dated 24 April 2014 ("Decision No. 24") on support mechanisms for the development of biomass power projects in Vietnam. The Draft Decision, among other revisions, proposes increasing Feed-in-Tariffs ("FiT") for biomass power projects.
Specific provisions on the FiT for grid-connected biomass power projects
Under the Draft Decision, tariffs at the delivery point are to be amended as follows:
- For combined heat and power ("CHP") biomass power projects: 6.77 US cent per kWh (exclusive of VAT) (increased from 5.8 US cent per kWh under the current Decision No. 24); and
- For other biomass energy projects: 8.47 US cent per kWh (exclusive of VAT) (instead of the avoided cost tariff under the current Decision No. 24).
The proposed FiT shall be adjusted in accordance with the fluctuation of the VND-USD exchange rate on the date of issuance of the relevant invoice. The proposed FiT is to be applied throughout the PPA term of 20 years from the commercial operation date.
Explanations of the MOIT on the proposed Draft Decision
According to the MOIT, there are approximately 10 CHP biomass power projects operating in Vietnam. Most of these are active in utilizing bagasse from sugar mills for self-consumption and were established before the issuance of Decision No. 24 on 24 March 2014. However, throughout Decision No. 24's approximately six-year implementation, no other gridconnected biomass power projects have been constructed or operated.
Further, the amended Power Development Plan VII previously set a target of power production from biomass energy to constitute 1% (in 2020), 1.2% (in 2025) and 2.1% (in 2030) of the country's total energy mix.
In order to achieve this target, the MOIT has proposed this Draft Decision to increase the FiT for biomass power projects and encourage investment.
The proposed changes detailed above are still in draft form at the time of issuing this alert and are therefore still subject to the final approval of the Prime Minister. Vietnam has great potential for developing biomass resources such as rice husk, rice straw, energy wood, coffee husk, and bagasse. However, a key issue for developing biomass projects is how to structure supply arrangements and make bankable biomass supply agreements with biomass feedstock suppliers, in order to secure the quality, quantity and price/costs of biomass supply over the duration of the project.
For further information, please contact:
Frederick Burke, Partner, Baker McKenzie
frederick.burke@bakermckenzie.com
