The Real Test for Solar Energy in Vietnam is in the PPA

In March 2016, Vietnam announced its plans for a greener future via a revision to its seventh Power Development Plan (PDP), an outline of the country’s energy production goals through the year 2030. The revised PDP calls for an increase in renewable energy from 5.37% of installed capacity in 2015 to 21% in 2030, with solar capacity to reach 850 MW in 2020 and 12,000 MW by 2030. Despite the government’s best intentions however, solar energy production in Vietnam has remained impractical without the implementation of a feed-in-tariff (FIT) and power purchase agreement (PPA).

Things changed in April 2017 when Prime Minister Nguyen Xuan Phuc issued Decision No. 11/2017/QD-TTG (Decision 11). Decision 11 implemented a FIT of 9.35 US cents per kWh as well as import duty exemptions on goods brought in for solar power development, a preferential corporate income tax rate for developers, and land use fee exemptions. The announcement was accompanied by the first draft of a PPA, which confirmed the major details of Decision 11 and named Vietnam Electricity (EVN) as the purchaser for all electricity generated by solar power projects.

While Decision 11 is a step in the right direction, there are significant flaws. Of note, the policy is only applicable until 30 June 2019, leaving developers just two years to complete their projects and reach the country’s target of 850 MW of installed capacity by 2020. Further, local industry veterans that we spoke with say they will wait and see whether EVN can come up with a PPA that will enable long term, low cost financing for developers. The draft PPA does not address take-or-pay risk, inflation risk, and a bevy of other concerns not to mention doubts as to the credit-worthiness of EVN as the sole purchaser. As a result, developers will not be able to get non-recourse debt financing from international institutions and instead will be forced to rely on local banks with limited loan capacity and high interest rates.

On the surface, Decision 11 appears to be an early success, with an estimated 94 projects worth a combined 18,000 MW currently registered. As things stand now however, doubts remain over local financing capabilities and until EVN can come up with a PPA suitable for long term international project financing, solar energy will continue to be hampered in Vietnam.

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