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Vietnam: Draft decision on solar auction pilot program released to create a transition phase for future competitive auction mechanisms

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In brief

On 25 September 2020, the Ministry of Industry and Trade of Vietnam (MOIT) circulated to the relevant line ministries and Vietnam Electricity (EVN) the draft proposal letter to the Prime Minister (“Draft Proposal“), together with the full text of the draft Prime Minister’s Decision on the pilot program for competitive selection of solar power projects (“Draft Decision“).

The pilot program targets a limited number of solar power projects that have been included (or will be included soon) in the power development master plan, but are not eligible for Feed-in-Tariff (FiT) 1 and FiT 2 (“Pilot Program“). Under the Draft Proposal, this program will tentatively take place from November 2020 to May 2021 (to be finalized) as a transition phase for future competitive auction mechanisms (such as “substation-based” and “solar park” models).

To participate in the Pilot Program, among other criteria, the project must:

  1. have been included in the power development plan
  2. be included in the list of solar projects eligible for the Pilot Program prepared by the MOIT (and such list is subject to further review by local Provincial People’s Committees)
  3. have a proposed Commercial Operation Date (COD) before 1 July 2022

Specific selection criteria will focus on the proposed electricity sale/purchase price (i.e., among projects that have met the eligibility criteria above, projects with lowest proposed electricity sale/purchase price will be selected) as a key principle. Under the Draft Decision, the ceiling price is proposed to be same as FiT 2 under Decision No. 13.1 Currently, the MOIT proposes that the PPA template for FiT 2 projects under Circular No. 18 also apply to the pilot program.2

The Draft Decision also imposes certain other legal restrictions on projects selected through the Pilot Program, among other things:

  • a maximum capacity for the whole Pilot Program (at 60% of all projects participating in the program) and maximum capacity for project(s) of one investor (at 20% of all projects selected through the Pilot Program)
  • a restriction on “project transfers” before COD
  • an expansion of circumstances where the projects may not be able to get a refund of security deposits
  • a reduction of electricity sale price by 5% per quarter of delay in COD beyond the required long stop date of 30 June 2022

Recommended actions

The contents of the Draft Proposal and the Draft Decision circulated by the MOIT on 25 September is in draft form only. Final contents are subject to the Prime Minister’s Decision, to be issued for the pilot program.

Please do not hesitate to contact us if you would like to know more about any of the following:

  • The upcoming regulations related to the solar auction/competitive bidding program
  • Necessary legal considerations for existing and newly proposed solar farms to best prepare for participation in the Pilot Program, and/or other alternative mechanisms
  • Specific selection procedures as proposed under the Draft Decision, including the contents of the MOIT’s template RfP/electricity sale price proposal form
  • Specific opportunities and challenges, as well as legal and practical solutions for development and investment in solar power projects in Vietnam

Click here to access full alert.

1 Decision No. 13/2020/QD-TTg dated 6 April 2020 of the Prime Minister on encouragement mechanisms for solar power development in Vietnam (“Decision No. 13“).
2 Circular No. 18/2020/TT-BCT dated 17 July 2020 of the MOIT regulating on project development and model PPAs for solar power projects (“Circular No. 18“).

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Author

Frederick Burke is a member of Baker McKenzie’s Global Policy Committee, comprised of the Firm’s Managing Partners globally, responsible for driving the overall strategy of the Firm. He is also the Managing Partner of our Baker McKenzie offices in Vietnam, more particularly in Hanoi and Ho Chi Minh City. He has more than 30 years’ experience practicing in the areas of corporate law, real estate, international trade and is highly regarded for his work on foreign investment projects in Vietnam and China for key players in property development, trade, IT/C, and project finance, among other areas. Mr. Burke is the go-to advisor for big deals in Vietnam’s flourishing industries including: renewable energy, agribusiness, airlines, hotels, resorts and tourism and large scale infrastructure projects. He is currently the representative of the American Chamber of Commerce in Vietnam to the Prime Minister’s Advisory Council on Administrative Reform in Vietnam and he has been recognized by the Ministry of Justice of Vietnam for his “Outstanding contributions in the field of international legal cooperation”. Mr. Burke is consistently ranked as a Leading Lawyer in Corporate / M&A by leading legal publications in Vietnam (Legal 500 AP 2007-2018; Chambers and Partners AP 2012-2018; IFLR1000 2010-2018).

Author

Thanh Hai Nguyen is a partner based in Baker McKenzie's Hanoi office. He has been serving as Chair of the Legal Committee of the American Chamber of Commerce in Hanoi (AmCham Hanoi) since April 2017, as well as an active member in the Vietnam Business Forum (VBF)'s Power & Energy Working Group and Investment & Trade Working Group. He is an admitted lawyer in Vietnam and a member of the Hanoi Bar Association.

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