Updates to Draft Decision on the Second FiT Program for Solar Power Projects in Vietnam.
Legal News & Analysis - Asia Pacific - Vietnam - Energy & Project Finance
9 October, 2019
On 19 September 2019, the Ministry of Industry and Trade (MOIT) submitted Report No. 1191 (Report No. 119) outlining its proposal to the Government on a new draft Decision on the policy on mechanisms for solar power projects in Vietnam (New Draft).
Unlike previous versions, the New Draft proposes a single national FiT for each of the three following solar technologies (without tariff classifications into two or four solar irradiance zones of Vietnam):
- For floating solar power projects: VND 1,758 per kWh (equivalent to US cent 7.69 / kWh);
- For ground-mounted solar power projects: VND 1,620 per kWh (equivalent to US cent 7.09 per kWh); and
- For rooftop solar power system: VND 2,156 per kWh (equivalent to US cent 9.35 per kWh).
In relation to energy storage, however, the New Draft still excludes an additional incentive of applying a higher tariff on solar projects with integrated energy storage systems. Instead, the MOIT only proposes promoting energy storage systems from 2022 - 2023, taking into account potential energy security issues in the Southern region of Vietnam.
Specific Implications for Private Investors
In the New Draft, the MOIT proposes applying the national FiT rates using the earlier proposed FiT rates of zone three under the previous option of classifying floating and ground-mounted solar farms into four zones.
Accordingly, for six central highlands and southern provinces of Vietnam, including: Phu Yen, Gia Lai, Dak Lak, Khanh Hoa, Ninh Thuan, and Binh Thuan in the previous zone four, compared to the previous draft, the New Draft:
- for ground-mounted solar farms, slightly increases the FiT rate from 6.67 US cent per kWh to 7.09 US cent per kWh;
- for floating solar farms, slightly increases the FiT rate from 7.24 US cent per kWh to 7.69 US cent per kWh.
However, for 28 northern provinces (under previous zone 1) and for six central provinces (under previous zone 2), the proposed FiT rates were reduced in the New Draft compared to the previous draft of four-zone option.
For rooftop solar systems for sale to EVN, the New Draft proposes a single national FiT of 9.35 US cent per kWh (instead of varying from 7.89 to 8.38 or 10.87 US cent per kWh under the previous two-zone or four-zone options).
Regarding Ninh Thuan Province, the New Draft continues incorporating the special policy for this provision by allowing certain solar power projects with the total combined capacity cap of 2,000 MW achieving actual commercial operation date (COD) before 1 January 2021 to be eligible for the extended FiT 1 of 9.35 US cents per kWh.
However, given the overall reduction on the proposed new FiT rates under the 2nd program compared to the 1st program of FiT 1 of 9.35 US cents per kWh by June 2019, this proposed 2nd FiT policy may have a significant impact on private investors' considerations on making investments in the solar farm space.
Policy Explanations from Government's Perspectives
According to Report No. 119, the option of a single national FiT without irradiance zonal classification was recently considered following the Government's meeting on 30 July 2019.
In Report No. 119, the MOIT explains that the 2nd FiT program aims to mobilize the development of
(i) projects already included in the master plan with a total capacity of about 4,800 MW and
(ii) a "part of other projects" with a total capacity of about 17,000 MW that have been registered for completion of requirements for approval for inclusion in the master plan and grid connection and/or preliminary development. We note that by "part of other projects", item
(ii) of the MOIT's explanation is not clear as to how much capacity will be mobilized.
As a concluding proposal to the Government, the MOIT proposed that a total capacity of 6.3 GW for solar power projects until 2023 should be considered for inclusion in the master plan during the 2nd FiT program.
Specifically, according to a preliminary calculation of the MOIT, during the 2021 - 2023 period, in addition to renewables projects already included in the master plan, the Government expects that its demand for newly proposed solar power projects to be included in the master plan will be about 6.3 GW or 8 GW (in case there are delays in schedule of major thermal power projects, together with an estimated additional capacity of 1.2 GW of wind projects, prioritizing the southern parts of Vietnam).
From the private sector's perspective, in applying for inclusion into the master plan for newly proposed greenfield projects, it is important to clarify how much room there will be for the government to approve additional capacity, taking into account various factors such as the market status of developing projects in the energy mix and progress of new grid system investments to meet demands and energy security.
Please note that the New Draft of 19 September 2019 is still in draft form, subject to the Government's further discussion and conclusion.
Please do not hesitate to contact us if you would like to understand more about:
- the rationales behind the proposed revisions of the New Draft;
- the likelihood of approval of this New Draft;
- other provisions of the New Draft as well as potential upcoming additional guidelines by the MOIT for implementation of this proposed Decision;
- potential impacts of the proposed New Draft to your specific projects and necessary steps going forward; and/or
- opportunities for development and investment in solar or other power projects in Vietnam
For further information, please contact:
Frederick Burke, Partner, Baker McKenzie
1 Report No. 119/BC-BCT dated 19 September 2019 of the MOIT regarding the Draft Decision of the Prime Minister on encouragement mechanisms for development of solar power projects in Vietnam (Report No. 119).