Lawyer in Vietnam Oliver Massmann – Vietnam a future International Competitor in Wind Energy ? Oliver Massmann – Ho Gia Le Hoang

Potential of Wind Energy Industry in Vietnam
Vietnam has a significant potential for wind energy with an average wind speed of more than 6m/s, surpassing that of all neighbouring Southeast Asian countries. With more than 3,000km coastline and plenty of islands, the total potential of wind energy in Vietnam is estimated to be as high as 713,000MW – 510,000 MW on land and 203,000 MW in islands. In comparison, this is 200 times more than the production volume of the largest hydropower plant, Son La (Vietnam), in Southeast Asia and 10 times larger than the projected total capacity of the electricity industry in 2020.
Since the electricity demand in Vietnam is forecasted to increase by up to 14.2 pct. annually for the 2011-2015 period and 11.4 pct. for the 2016-2020 period , and the electricity demand is expected to increase 7 times to 800 billion Kwh in 2030, Vietnam will then have to invest in energy sources to meet this big demand. Such investment is vital given Vietnam’s expected dependence on imported coal, one of their primary resources for electricity production, by 2015. Additionally, hydroelectric energy is quite abundant in Vietnam but poses certain underlying risks. Therefore, Vietnam will have no choice for power development other than renewable energy in general and wind energy in particular.
Government’s Policy On Development Of Renewable Energy
The important role of renewable energy in general and wind energy in particular is recognized by Vietnamese government and reflected in the Master plan VII about energy development in Vietnam. The renewable energy is increasingly accounting for power sources (4.5% in 2020 and 6.0% in 2030 of the total power supply). The Master plan VII sets the renewable energy target rate at 5.6 pct. of total primary energy consumption by 2020 and 9.4 pct. by 2030. The Government’s target is to increase the wind power to 1,000 MW (0.7 pct. of electricity production) by 2020 and 6,200 MW (2.4 pct.) by 2030.
Moreover, as the energy prices in Vietnam are not very high, there are many incentives and preferential treatment offered by the Vietnamese Government to the wind power industry. Decision 37 offers the following incentives and preferential treatment in terms of funding, tax and fee to wind energy project as follows:
i. Funding: The investor can raise funds in different forms permitted by relevant lawsfrom individuals and organizations in and out of the country and may have access to State credit for investment pursuant to the laws.
ii. Tariff: The investor is exempted from tariff on goods imported to create fixed assets and goods used as raw materials, input or semi-finished products that are not available at home for the project’s operation in line with the Law on Import and Export Duties , Law on Tax Mangagement and other relevant regulations on export and import duties.
iii. Corporate income tax: Wind power projects enjoy the same preferential treatment in investment in terms of exemption and reduction of corporate income tax as for other projects in line with the Law on Investment , Law on Corporate Income Tax and other documents guiding the enforcement of these laws : Perferential corporate income tax rate of 10% applies to newly-established enterprises for 15 years.
If the given project is classified as a large scale project, a project using high or new technology and in special need of investment, the above preferential tax rate may be extended to less than 30 years following a decision of the Prime Minister.
In addition, other preferential treatments in infrastructure for wind energy projects are available as follows:
i. Projects on installing wind powers, lines and transformer stations connected to the national grids enjoy the same exemptions and reductions in land rental as projects being entitled to special investment treatment.
ii. In line with the approved power development plan, the provincial people’s committee allocates land to the investor to implement wind power projects. The compensation for existing land users and support for site clearance complies with the provisions of land law in force.
In addition, in accordance with Decision 37, Electricity of Vietnam (“EVN”) is to buy all of the plant’s wind energy outputand the Vietnam Environment Protect Fund will accordingly subsidize to EVN with the current subsidized tariff of 204 VND/kWh (about 01 UScent).
Market Access Of Foreign Investor
Currently, there is no foreign ownership restriction in energy sector in Vietnam. The foreign investor may choose among permitted investment forms: 100% foreign invested company, joint venture or public private partnership (“PPP”) in the form of BOT contract.
Wind energy projects require high investment rates, while the electricity production costs are always high. Though the Government agrees to buy wind energy at high price, the investors still do not dare to pour their money into the sector for fear of the risks resulting from unstable policies.
In such circumstances, PPP is the most reasonable solution. Recently on 14 February 2015, the Government issued a long-awaited Decree on PPP models, Decree 15/2015/ND-CP which will replace previous legal regulations on PPP or BOT with the intention of promoting private investment in infrastructure to boost economic growth in Vietnam. The PPP model can help ease the burden on capital arrangement, share and minimize risks, take full advantage of the management resources and improve the policies’ transparency, thus bringing the highest possible effectiveness of the projects. For its great advantages, PPP has been applied in many countries in the world.
In Vietnam, BOT is the best investment form for energy projects since it is easier to negotiate more favorable electricity rates and obtain more government guarantees, especially in the context that EVN – a state-owned electricity company, is obliged to purchase all electricity from the projects. Moreover, the investor can receive more fiscal and financial incentives.
Wind energy will be an interesting sector in Vietnam for a foreign investor in the middle and long term, especially at the stage of fully competitive retail market. Despite the main obstacles to foreign investors such as high production cost, time taken for investors for investment capital recovery, and the lack of a competitive sale price, foreign investors still receive many preferential policies and incentives. When Vietnam energy market becomes a fully competitive retail market, the wind energy project will play a more important role and the investor will gain higher actual profits.
Starting Up A Wind Energy Project
Generally speaking, the start-up process in Vietnam is now still pretty complicated with the involvement of many licensing authorities and state agencies that make time-consuming and costly for developers. However, with the recent promulgation of new Investment Law and Enterprises Law which will take effect from 01 July 2015, the Government of Vietnam has showed the sign on improvement of bussiness and investment enviroment and both new laws are aimed at reducing licensing complexity and granting easier market access.
Currently there has yet been any national plan for wind energy and consequently, there is no specific procedure for investment in wind energy project. Thus, until such a plan is finalized, the investment procedure remains uncertain. Wind energy projects must be in alignment with the national energy sector’s development and priorities will be given to those with high economic and financial efficiency, as well as plans to connect with national or regional grids.
Acording to Decision 37 , until the planning is completed and approved, the Prime Minister will have to decide on any wind energy project. Moreover, under Circular 32 , the investor can only invest in the wind energy project included in the list of wind energy projects approved by the Ministry of Industry and Trade (“MOIT”). The MOIT requires project owners follow its guidelines and stipulates that capital investment from a project owner must exceed 20 percent of the project total investment capital. The provincial people’s committees will be the sole authorities to grant licenses after getting approval from the MOIT.
In order to commence the construction, the investor must satisfy many requirements, including but not limited to obtaining the investment certificate, having signed the power purchase agreement and electricity integration agreement. Gerally speaking, the start-up process involve many state authorities from local level to the central level.
For reference, according to the GIZ/MOIT Wind Energy Project , to set up a wind energy project, the developer must take the following steps:
Step 1: Site selection – Due to the absence of a national wind power plan, site selection is based on relevant past data such as wind data, wind energy atlas, etc. Permission from the provincial people’s committee (PPC) and provincial Department of Industry and Trade (DoIT) is needed for site surveying and resource assessment is needed for a feasibility study.
Step 2: Assessment of wind resources at the selected site – Wind measuring poles are installed (if not available at the selected site) and wind is measured for at least 1 year.
Step 3: Pre-feasibility study and request for inclusion in the power development plan – If the project area has wind resources, a pre-feasibility study for investment in the area is prepared and submitted to the MOIT together with a request to include the project in the power development plan. The MOIT shall consider and submit it to the Prime Minister for approval (as wind power is still new in Vietnam and there is a missing protocol for it, all wind power projects larger than 50 MW need approval by the Prime Minister. After the Prime Minister approval, the project documents are to be submitted to the DoIT for approval.
Step 4: Investment report (Feasibility study) – After the DoIT approval of the pre-feasibility study, an investment report (feasibility study) is prepared and submitted to the MOIT for appraisal.
Step 5: Signing of power sale contract with the EVN – In accordance with Decision 37, EVN is to buy all of the plant’s wind power output. Contracts on power sale, grid connection and electric measurement system design must be signed.
Step 6: Project implementation – The project will not start until the approval of the technical design and investment report by the related agencies such as DoIT, Department of Construction, Department of Natural Resources and Environment and others.
Step 7: Building – Building starts.
Above steps are the technical approval process that a wind power developer needs to comply with to be approved for project implementation. However, the developer needs also to work with the licensing authorities (i.e. the Department of Planning and Investment of the province where the project is located and the Ministry of Planning and Investment) in line with the investment procedure under the Investment Law. In Vietnam, the investment certificate is an official legal document issued by the State authority to certify the rights and obligations of the project developer and also the incentives that the developer may enjoy from the project implementation.
The developer needs to perform the procedures for obtaining investment certificate in parallel with the technical approval since the beginning of the site selection steps . The current Investment Law provides for a 45-day time frame for issuance of an investment certificate (while the New Investment Law which takes effect from 01 July 2015 shortens this time frame to 15 days), starting from the date of receipt of a ‘complete’ application dossier. Our experience in dealing with typical investment projects indicates that you should anticipate this process to take longer than the statutory time limit, even from 6 to 8 months at least.
Vietnam – Future International Competitor In Wind Energy?
Theoritically speaking, Vietnam can be seen as an international competitor in wind energy because it has a significant potential for wind energy, an increase of electricity demand and Government’s preferential policies and incentives to facilitate renewable energy in general and wind energy in particular. According to World Bank research to build wind power potential map for Vietnam, Thailand, Laos and Cambodia, Vietnam has higher wind power than other South East Asia countries with 8.6 percent of Vietnam’s territory having wind energy development potential (in comparison with 2.9% in Laos, and just 0.2% in Cambodia and Thailand). In practice, there are increasing interest and new projects in wind energy from Vietnamese and foreign investors. According to the website of GIZ Wind Energy Project:, until May 2012, there are 67 wind energy projects in Vietnam which are developing at different stages and this number is expected to increase in the upcoming time.
Although Vietnam possesses considerable potential for the development of wind power, an energy sector which has attracted strong interest from domestic and foreign investors, the current wind energy project development has only tapped into a small portion of Vietnam’s wind potential, and there are still many things Vietnam needs to change and take stronger action. Otherwise, Vietnam can hardly become an international competitor in wind energy.
Up to now, the total potential of wind energy in Vietnam is only an estimate while a final issue for the bankability of a wind energy project is the wind speed feasibilty studies for that the investors need reliable wind speed studies and wind speed towers to measure. In practice, the standard requirements of foreign banks are such feasibility studies involve about 2 years of measurement. However, the “reliable” studies in Vietnam’s wind energy are still lacking to our best knowledge.
At present, Vietnam still features the “Single Buyer Model” with EVN who is the only offtaker, except for power generation projects under 3 MW. The EVN monopoly in power sector should be removed and EVN must be restructured by splitting up into many corporations with separate powers and duties (i.e, operation, transmion, distribution).
In the meantime, Vietnam needs to highly prioritie the application of more transparent policies and mechanisms. Under Circular No. 32/2012/TT-BCT, Vietnam provides a standard power purpose agreement (“PPA”) form for all wind energy projects on power sale, grid connection and electric measurement system design. This standard PPA is a good start but still needs to be improved to make wind energy projects bankable. However, the negotiation process of the PPA signing with EVN is very time consuming and it is almost impossible to predict how long it will take to negotiate the relevant PPA with EVN, even it has taken up to 6 years in some cases to negotiate a PPA for a coal fired power plant with EVN in the past. That is a deterrent for foreign investors if they cannot calculate that into the development costs. Meanwhile with such red-tape hurdle, the operation costs for wind energy projects in Vietnam are still much more an overal “estimate” than a “real and realistic calculation”.
The low power purchasing price is also a big barrier to wind energy projects. The Government should also adopt a feed-in tariff (“FIT”) for wind energy in particular and renewable energy in general. The basics of a FIT mechanism is that additional costs for production of energy will be divided among electricity users to assure a stable cash flow for renewable energy developers. Under Decision 37, EVN has the responsibility for buying the whole electric output from wind power projects with the electric buying price at the point of electricity receipt is 1,614 dong/kwh (excluding VAT, equivalent to 7.8 UScents/kwh). This current subsidized tariff is too low in comparison with that in other ASEAN countries (19 UScents/kWh in Thailand and 21.8 UScents/kWh in Philippines ). In practice, the wind energy producers in Vietnam keep complaing about very low purchasing price while the current cost of electricity generated from wind power plants is still quite high due to large technical investment.
Recently, Vietnam’s Prime Minister issued Decision 31/2014/QD-TTg on solid waste-to-energy projects to provide a ground-breaking feed-in tariff for power suppliers of up to “VND 2,114/kWh (equivalent to 10.05 US cents/kWh)”, whichis more than 25 percent higher than the 7.8 cent applicable to wind energy projects. From the internet, we have also been told that the MOIT proposed to the Government to approve for an FIT increase of up to 12 UScents/kwh to make the wind energy projects become more financially feasible. With this trend of development, the Goverment showsan effort to pave the way for the development of more wind power projects in Vietnam.
If the FIT is not increased to region levels and until there is no clear roadmap for negotiating the PPA, it will be very difficult to attract foreign investors. The foreign investors have the choice in which country they will invest and if the FIT, for example, in the Phillipines is about TRIPLE more than that in Vietnam, then the investors will not think twice whether to come to Vietnam or invest in the Phillipines
Please do not hesitate to contact Mr. Oliver Massmann under if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.



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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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