On 22 February 2019, the Ministry of Industry and Trade of Vietnam ("MOIT") released an updated draft (the "New Draft") of the Decision of the Prime Minister on the mechanism for encouraging the development of solar power projects in Vietnam (the "Draft Decision"). Significantly, the Draft Decision provides for a 2nd Feed-in-Tariff ("FiT") at rates varying by location for application from 1 July 2019. Compared to the first draft, released on 29 January 2018 ("First Draft"), there have been certain revisions to, among other parts, the proposed tariff rates and irradiance regional classifications.
Given that the current Decision 11 of the Prime Minister providing for the FiT of 9.35 US cents per kWh is in effect only until 30 June 2019, the Draft Decision would provide for a new FiT program for an additional 2 years from 1 July 2019 through 30 June 2021, for solar power projects in Vietnam.1
Unlike the first format of FiT (establishing one FiT rate for all solar power projects), the Draft Decision proposes varying levels of tariffs according to location and technology, classified by 4 different irradiance regions of Vietnam and involving 4 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.
Compared to the First Draft, the New Draft no longer divides the new FiT period into 2 separate one-year periods, with a gradual reduction of tariffs in the second year compared to the first. Instead, the New Draft sets a single commercial operation date (COD) deadline of 30 June 2021 (which is still to be confirmed) for this new FiT program.
However, under the New Draft, there are still significant differences in tariff rates among different regions, 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 illustrates the Government's policy to diversify the locations for solar investments and navigate energy security priorities across different regions of Vietnam. However, this may have a significant impact on many on-going solar power projects already under development or construction in Vietnam given that the majority of on-going projects are being developed in southern provinces and the central highlands of Vietnam with higher solar irradiance.
Compared to the First Draft, the New Draft separates 6 provinces, namely Ninh Thuan, Binh Thuan, Khanh Hoa, Dak Lak, Gia Lai and Phu Yen, into a new group of irradiance regional classifications with the lowest tariff rates, ranging from 6.67 to 8.21 US cent per kWh depending on solar technologies.
Specific Tariffs proposed under the New Draft
Irradiance regional classification
For the purpose of the tariffs proposed above, under the New Draft, the four regions of Vietnam are classified as follows:
- Region 1: comprises 28 northern provinces of Vietnam, including: Ha Giang, Bac Kan, Cao Bang, Tuyen Quang, Thai Nguyen, Lao Cai, Yen Bai, Lang Son, Quang Ninh, Phu Tho, Vinh Phuc, Bac Giang, Hai Duong, Hoa Binh, Hanoi, Ha Nam, Bac Ninh, Hung Yen, Hai Phong, Ninh Binh, Thai Binh, Ha Tinh, Nam Dinh, Quang Binh, Thanh Hoa, Lai Chau, Nghe An, and Son La.3
- Region 2: comprises 6 central provinces of Vietnam, including: Quang Tri, Dien Bien, Thua Thien Hue, Quang Nam, Da Nang, and Quang Ngai.4
- Region 3: comprises certain (23) central highlands and southern provinces of Vietnam, including: Kon Tum, Ca Mau, Hau Giang, Binh Dinh, Bac Lieu, Kien Giang, Soc Trang, Can Tho, Vinh Long, Tra Vinh, Lam Dong, Ben Tre, Tien Giang, An Giang, Dak Nong, Ho Chi Minh City, Dong Nai, Dong Thap, Ba Ria Vung Tau, Long An, Binh Duong, Binh Phuoc and Tay Ninh.
- Region 4: comprises certain (6) central highlands and southern provinces of Vietnam, including: Phu Yen, Gia Lai, Dak Lak, Khanh Hoa, Ninh Thuan, and Binh Thuan.5
Classification of solar power projects
For the purpose of the tariffs proposed above, the New Draft classifies solar power projects as follows:
- Floating solar power projects, which are defined as grid connectedsolar power projects having solar PV panels installed on structures floating on the water surface, directly connected to the grid of the Power Purchaser (i.e. EVN or its successors).
- Ground-mounted solar power projects, which are defined as grid connected solar power projects having solar PV panels installed on the ground, directly connected to the grid of the Power Purchaser and rooftop solar power projects having an installed capacity of more than 1 MWp directly connected to the Power Purchaser's grid.
- Solar power projects with an integrated storage system, which are defined as grid connected solar power projects using an electrochemical storage system for the purposes of storing electrical power directly connected to the Power Purchaser's grid, with a required minimum storage capacity being 25% of alternating current (AC) capacity in 2 hours.
- 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.
The proposed tariffs will apply to part or the whole of solar power projects achieving actual commercial operation date before 30 June 2021 (which is still to be confirmed) for application for a PPA term of 20 years from the commercial operation date.
The Draft Decision indicates a clear trend on the next FiT period as well as certain priorities and perspectives of the Government of Vietnam. Please note that the proposed FiT rates, business models and specific requirements under the New Draft are still in draft form although the likelihood and scope of potential revisions may vary among these details. When the MOIT released this New Draft, it specifically mentioned that members of the private sector can send in any comments and feedback before 15 April 2019 to the MOIT's Electricity and Renewable Energy Authority.
Please do not hesitate to contact us if you would like to discuss legal feasibility and implications for different solar business models, the likelihood and scope of upcoming additional guidelines and potential revisions going forward, the potential impacts of the proposed Draft Decision to your specific projects, necessary steps going forward, as well as opportunities for investment in solar or other renewable power projects in Vietnam.