Amendments to power purchase agreement called for more FDI

"We have so far put three wind power projects into operation in Vietnam. We also expect to have another project come on stream by 2019 and do a lot more in the future”, said Tommaso Rovatti Studihard, South East Asia sales director for wind power firm Vestas Asia Pacific.

Studihard further said Vestas is eager for the Vietnamese market with great wind resources. The country sees huge opportunities to have some gigawatts of wind power within the next five years, in the wake of the Government’s recent feed-in tariff (FiT) revision.

Under the Decision 39/2018/QD-TTg dated September 10, the FiT for wind power rises from US cents 7.8/kWh to US cents 8.5 for onshore generation and US cents 9.8 for offshore, respectively. This decision took effect from November 1 this year.

Wind turbines in the central coastal province of Binh Thuan - a locality with a high potential to develop the wind power sector further in Vietnam.

“We are working on a lot of activities and projects in Vietnam”, said Studihard, but noting that the power purchase agreement (PPA) between renewable power producers and the state-run Electricity of Vietnam Group (EVN) poses some challenges.

He underlined the bankability of the PPA as a major challenge to many investors, explaining that no clear termination clause and force majeure (a clause that is included in contracts to remove liability for natural and unavoidable catastrophes) prescribed in the PPA make it difficult to attract international financing. As a result, not many overseas banks and credit institutions are willing to finance the PPA.

Other insiders are concerned about risks emerging from the PPA as there has been no guarantee from the Government for EVN’s payment obligation if there is an interruption of transmitting power generated by the producer to the grid.

Solar and wind power set to lure US$2 billion

PPA-related issues were once again tabled at Vietnam Business Forum 2018 (VBF 2018) held this week in Hanoi, with the participation of Prime Minister Nguyen Xuan Phuc.

The VBF 2018 power and energy working group recommended that when outlining the country’s Power Master Plan 8 (PMP8), the Ministry of Industry and Trade (MoIT) need to consider improvements for key terms of the model solar PPA that might apply from July 1,2019 and model wind PPA.

Risks in a PPA should be fairly allocated and the PPA should be well drafted, with minimal uncertainty as to the meaning of provisions or scope for disputes in relation to interpretation of the contract. Contractual certainty is of paramount importance to international investors and financiers.

The working group cited a forecast that if the PPA is improved to meet the standard acceptable to international and domestic banks, the financing costs of solar power plants can immediately reduce and the FiT can attract US$2 billion of foreign direct investment in solar and wind energy by 2021.

The MoIT was urged for making most important improvements and amendments to the model solar and wind PPA, including termination payments, risks and failure to take and pay by EVN and dispute resolution or arbitration clauses.

The working group also called for the extended application of the FiT for 20 years from the commercial operation date under the PPA for new solar projects which reach their commercial operation deadline by June 30 2021 with a revised FiT. 

It would be logical to also make similar improvements and amendments to model PPAs for biomass and waste-to-energy projects, the working group said.

The solar power development in 2017-2018 may achieve initial success, but local bank finance resources are now fully utilized, the working group added, calling for the policies leveraging local banks in cooperation with international banks and investors to work with local power developers to co-invest in bankable solar projects.

In response at the VFB 2018, MoIT Deputy Minister Cao Quoc Hung affirmed the PPA as the most important contractual arrangement in a power project. He said his ministry will mull over relevant improvements and amendments in the time to come, but giving no specific date.