Vietnam's Green Future and COVID-19

Co-authored by Justine Barthe-Dejean, Reed Smith and Nguyen Thi Xuan Trinh, Partner, VNA Legal

Against the backdrop of the COVID19 pandemic, Vietnam appears to be forging ahead with its commitment to renewable energy development.

The Vietnamese Government took prompt and decisive action to curb domestic COVID19 transmissions and, as a result, the country is set to emerge from the pandemic in a better position than many of its neighbours. While other markets in the region are likely to suffer a recession due to the consequences of COVID19, Vietnam is set for another year of positive economic growth, albeit lower than previous years (anticipated to be in the range of 2.7-5% compared with 7% in 2019). This may temper the demand projections for new electricity (the baseline scenario being an increase from 42,080 MW in 2020 to 90,651 MW in 2030), however delivery delays impacting thermal power projects in the country and suspension of investment in the Ninh Thuan nuclear power plant augur well for a continued role for Vietnam’s renewable energy sector to meet demand.

Four key proclamations this year provide guidance on the role renewable energy could play in meeting demand growth:

• Resolution No.55 - On 11 February 2020, the Politburo issued Resolution No.55-NQ/TW on the orientation of Vietnam’s National Energy Development Strategy to 2030 with a vision toward 2045.
• MOIT Report No.1931 - On 19 March 2020, the Ministry of Industry and Trade (“MOIT”) issued Report No. 1931/BCT-DL with proposals to the Prime Minister for the development of wind power sources.
• MOIT Report No.2491 - On 9 April 2020, the MOIT issued Report No. 2491/BCT-DL with proposals to the Prime Minister for extension of application period of FITs for wind power projects until 31 December 2023.
• Decision No.13 - On 6 April 2020, the Prime Minister issued Decision No. 13/2020/QD-TTg on encouragement mechanisms for the development of solar power in Vietnam, effective from 22 May 2020.

Why are the proclamations required?
The 9.35 US cents / kWh feed-in-tariff (“FIT”) for ground mounted solar energy issued in 2017 triggered an unprecedented rush of solar energy investment in Vietnam. Prior to the COVID19 pandemic total installed solar capacity was expected to reach 5,500MW by the end of 2020 (around 9-11% of Vietnam’s total current energy generation capacity and in excess of the Government’s solar capacity target for 2025 under the Power Development Plan VII (“PDP VII”)). Unfortunately, most of the solar power development has been in the southern provinces of Binh Thuan and Ninh Thuan that have the highest irradiation rates in the country, leading to grid overload and a mandatory reduction of power output of between 38-65% of installations’ design capacity. With solar tariff qualification having expired or near expiry, investment has stalled due to uncertainty surrounding returns on investment due to the tariff uncertainty (and curtailment risk).

Meanwhile the development of wind power has lagged behind solar PV despite Vietnam having one of the longest coastlines and strongest average wind speeds in the region. Asides from approvals delays, many have pointed to less unattractive FITs (8.5 US cents / kWh and 9.8 US cents /kWh for onshore and offshore projects respectively, already an increase from the flat 7.8 US cents / kWh prior to November 2018), and lack of visibility on the FIT several years ahead. The current FITs only apply to projects completed prior to 1 November 2021 and prior to the MOIT Report No.2491 there had been no indication what FIT will apply to projects completed after that date, which is needed given the higher investment costs and longer construction time required for wind power projects (compared with solar power projects).

What do the proclamations mean?
Resolution No.55 on the orientation of Vietnam’s National Energy Development Strategy to 2030 with a vision to 2045 is only a guideline for agencies, socio-political organizations and stakeholders for the coordination and implementation of tasks and solutions within the energy sector. Resolution No.55 proposes prioritizing renewable energy sources to “replace fossil energy sources to the largest possible extent” as a solution. It identifies the need to “encourage development of rooftop and floating solar power” and for “breakthrough policies and mechanisms for offshore wind power development in association with the implementation of the Vietnam Sea Strategy.”

The MOIT Report No.1931 has no mandatory effect, although it does make a number of recommendations to the Prime Minister for his consideration and decision in relation to addition of further wind power projects into the power master plan, including:

(i) approving an adjustment to the wind power development target for 2025, from 4,800MW under the PDP VII, to 11,630MW in view of short-term power shortages and delays in completion of the large thermal power projects),

(ii) supplementing the proposed wind power projects in the PDP VII with specific connection plans and capacity release conditions,

(iii) supplementing and accelerating existing power grid projects to develop an adequate grid infrastructure fully coordinated with power projects. MOIT recommends that Vietnam Electricity (EVN) be requested to “urgently” invest in coordinated power grid projects to dispatch the capacity of wind power projects, and

(iv) having People’s Committees of provinces with wind power projects urgently review land use plans/master plans and other master plans under their mandate, to execute land use purpose conversion procedures for renewable energy projects already added to the power master plan, giving priority to land areas of low economic value with high renewables development potential.

The MOIT Report No.2491 also has no mandatory effect although it does make a number of recommendations to the Prime Minister for his consideration and decision in relation to extension of the application period of FITs for wind power projects, including:

(i) extending the timing for application of FITs for wind power projects until the end of 31 December 2023,

(ii) delegating to the MOIT to calculate and propose the new FITs for wind power projects having COD in the period from 1 November 2021 to the end of 31 December 2023 for the Prime Minister’s consideration and approval, and

(iii) after 2023, wind power projects to be subject to competitive tendering and an auction mechanism.

In contrast to Resolution No. 55 and the MOIT Reports Nos.1931 and 2491, Decision No.13 has legal effect from 22 May 2020. It brings into force the MOIT’s recommendations in its report of 6 February 2020, including the draft mechanism for encouraging the development of solar power in Vietnam. Decision No. 13 confirms:

(i) FITs of 7.69 US cents / kWh and 7.09 US cents / kWh will apply to grid connected floating solar and ground mounted solar power projects respectively that were approved for investment policy by the relevant authorities prior to 23 November 2019 and that achieve a COD in whole or part between 1 July 2019 and 31 December 2020,

(ii) a FIT of 9.35 US cents / kWh will apply to grid-connected solar power projects in Ninh Thuan province that are already included in the power development master plan and that achieve a COD before 1 January 2021, up to a total accumulated capacity not exceeding 2,000MW,

(iii) the power purchase price for grid-connected solar power projects not meeting conditions set out in (i) and (ii) above will be determined through a competitive process, and

(iv) a FIT of 8.38 US cents / kWh will apply to roof top solar power projects where EVN is the offtaker and the time for operation and generation of power, and electricity meter is confirmed between 1 July 2019 and 31 December 2020. If the purchaser is not EVN or its authorized member companies, the purchase price and the PPA will be agreed by the purchaser and the seller.

Together the proclamations paint a picture of a Government working towards a cohesive renewable energy strategy and an identification of the critical need for synchronous development of grid infrastructure. Notably however, the time frames for award of the FITs under Decision No. 13 do not seem to take account of supply chain and labour disruptions as a result of COVID19 lockdowns and border closures. Further, successful future wind and solar PV capacity deployment will be contingent on approval of appropriate MOIT recommendations and, for solar PV, the terms of the auction processes adopted.