VIETNAM – SOLAR POWER AUCTION SYSTEM: WHAT YOU MUST KNOW

In late January 2021, the Ministry of Industry and Trade (“MOIT”) issued the draft Decision of the Prime Minister guiding the selection of investors implementing solar power projects under the bidding mechanism (“the Draft”). Since the latest Decision 13/2020/QD-TTg applies to grid-connected projects with Commercial Operation Date (“COD”) by 31 December 2020 latest, it is expected that the Draft will soon be finalized and become effective so solar energy developers as well as relevant government authorities can have guidelines for projects with COD from 2021. As of July 2021, it is reported that a newer version of the Draft is being prepared by the MOIT and will soon be published for public comments. MOIT is directing its Electricity and Renewable Energy Department to coordinate with international agencies including the World Bank and Asian Development Bank to develop the bidding mechanism for renewable energy development that is expected to apply after 2021

According to the Draft, the Decision would be applicable to projects with grids connected directly to the national power network. The Ministry of Industry and Trade shall coordinate with the Electricity of Vietnam and the People’s Committees of localities to organize the formulation and approval of the renewable energy power source development plan for a period of 5 years and every 2 years to serve as a basis for the bidding system. In addition, every 02 years, the Ministry of Industry and Trade shall issue a Price Framework for electricity generation in order to determine the ceiling price for bidding to select investors of solar power projects with COD in the next 02 years.

The plan for development of renewable energy power sources for a period of 5 years shall include the total capacity scale for each renewable energy power source in the 5-year period, the total capacity scale for each renewable energy power source for each load region (8 regions) and a list of transmission lines and substations (220 kV at least) to be put into operation for a period of 5 years. The 02-year plan shall have similar content but for a 2-year period only and shall be more provincial specific.

Some notable points in the Draft

Selection of investors to implement solar power projects is conducted either by (i) Bidding to select investors according to project location or (ii) Investor approval. Bidding for projects or for project development areas will be implemented if at least 02 independent investors participate.

Requirements for Investors participating in bidding:
a) Investors must be independent legally financially independent from each other;
b) The investor is not named in two or more Technical Proposals as an independent investor or as a member of a consortium;
c) Investors do not have shares or contributed capital of more than 20% of each other when participating in the pilot program; and
d) An investor (or a member company of the investor) does not share a controlling shareholder (holding 26% of the shares of the enterprise) with any other Investor (or a member company of this investor).

Applicable solar power purchase price
is the price for the connection point proposed by the winning bidder/investor in the bidding dossier (excluding value added tax).

Adjustment to investment schedule: if the investor is permitted to adjust the investment schedule and the project’s COD occurs after the commitment date stated in the bidding documents, the applicable electricity price of project is the electricity selling price specified in point (1) with a cumulative reduction rate of 4% for every 90 days of schedule delay. Project delay time must not exceed 12 months.

Bidding guarantee: Investors must apply the bid security measure, which is equal to 0.5% of the total project invesment, before the bid is closed.

The standard power purchase agreement issued alongside as part of the Decision must be used in transactions between Power Seller and Power Buyer being EVN or an entity authorized by EVN. The power purchase agreement is valid for 20 years from commercial operation date.

Costs associated with the investor selection process are to be borne by the local Provincial Committee or another legal funding source and to be accounted for as part of the project’s total investment capital. Expenses related to the preparation of Bids (including technical proposals and financial proposals) are the responsibility of the investor.

Bidding procedure: Within 6 months since the Ministry of Industry and Trade approved the Solar Power Development Plan for a 2-year period, the Provincial People’s Committees shall organize the formulation, approval and completion of the implementation of the Plan for selecting investors to develop solar power projects locally every 2 years.
The plan for selecting investors of a solar power project must be publicly announced on the National Bidding Network System, serving as a basis for determining the number of investors and investment projects registered to participate. The content of information to be disclosed include investor selection plan, solar power investment project, time limit for receiving bids, contact information of the bid organizer and competent state agencies.
The bidding organization applies the open bidding process according to the one-stage, two-envelope bidding process. People’s Committees of localities to publish the bidding dossiers. The investor submits a Bid which includes Technical Proposal and Power Price Proposal. Bid opening will be conducted twice, Technical Proposal will be opened right after the deadline for submission of bids, investors who satisfy technical requirements will have their Power Price Proposals examined for evaluation.

Documents to be submitted by the Investor to participate in bidding:
• Decision of the competent authority approving the inclusion of the project into a power development plan;
• Documents proving the investor’s eligibility;
• Financial statements for the last 2 years, audited or certified by tax authorities, and other documents proving the investor’s independent financial accounting;
• Documents proving the investor’s capacity and experience; and
• Documents proving the ability of the investor to raise investment capital.

Once the Draft comes into effect, the Feed-in tariff (FiT) mechanism will no longer apply to solar energy projects. MOIT has proposed that the same strategy to be executed for wind power projects after 2023. The employment of bidding method will enable for the selection of capable developers through transparent procedures in order to eliminate projects that run behind schedule for years.

The Vietnam Government has continuously promoted the development of renewable energy sources as a feasible and effective solution to counter the country’s ongoing power shortage issue because renewable energy projects can be constructed quickly and promptly for operation in the period of 2021-2023, while taking advantage of the country’s natural potential without relying on imported fuels and is eco-friendly. By the end of 2020, the total solar power capacity (including floating solar energy systems) put into operation was about 17 GW, concentrated in the southern provinces and the Central Highlands. The Government plans to bring the total solar power capacity to about 40 GW by 2045.

For more information on the above, please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.