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Rechtsanwalt in Vietnam Dr. Oliver Massmann – Solar Strom – Zahlungsmechanismen von Vietnam Electricity (früher Electricity of Vietnam, EVN) für den Solarstromproduzenten (Independent Power Producer, IPP) – Was Sie wissen müssen:

Rechtsanwalt in Vietnam Dr. Oliver Massmann – Solar Strom – Zahlungsmechanismen von Vietnam Electricity (früher Electricity of Vietnam, EVN) für den Solarstromproduzenten (Independent Power Producer, IPP) – Was Sie wissen müssen:

  1. Die Periodizität der Zahlung von Energieverkauf vom Kunden (EVN) zum IPP

Der IPP und EVN werden gemeinsam das Messergebnis auf monatlicher Basis eines gemeinsam beschlossenen Datums ablesen. Der IPP wird das Ergebnis schriftlich aufnehmen und gemeinsam mit der Rechnung an EVN, innerhalb von 10 Tagen ab Ablesedatum, schicken. Die Zahlungsfrist fuer EVN sind 15 Werktage vom Erhalt Rechnung des IPP.

  1. Frequenz der Preisanpassungen, sodass Zahlungen in VND dem entsprechenden USD-Wert entsprechen

Es ist in Entscheidung 11 und Rundschreiben 16 nicht klar formuliert, aber wir verstehen es so, dass die Anpassungen zur Zeit der Zahlung, fuer ins Stromnetz integrierte Projekte durchgefuehrt werden. Fuer Stromnetzprojekte wird die Anpassung jaehrlich durchgefuehrt. Vorschriften wurden in vorherigen Stromprojektdokumenten eingefasst.

  1. Mechanismen fuer Preisanpassungen (sprich: anwendbare Preisanpassungen sind nach dem Durchschnitt der Anpassungsperiode gewichtet, sodass der Verkäufer den VND/USD Wechselkursraten nicht ausgesetzt ist

Für Stromnetzprojekte wird die Anpassung zum Zeitpunkt der Zahlung durchgeführt. Fuer Stromnetz Dachzellenprojekte wird die Anpassung jährlich durchgeführt. Das heisst, dass der FiT fuer Stromnetzprojekte im gesamten Jahr gleich bleibt. Der FiT fuer Stromnetzprojekte des nächsten Jahres wird basierend auf dem Wechselkurs VND/USD am letzten Arbeitstag des Vorjahres bestimmt.

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Falls Sie irgendwelche Fragen haben bzw. Details erfahren wollen, zögern Sie bitte nicht Dr. Oliver Massmann unter omassmann@duanemorris.com zu kontaktieren. Dr. Oliver Massmann ist der General Direktor von Duane Morris Vietnam LLC.

 

Vielen Dank!

 

 

 

 

Lawyer in Vietnam Dr. Oliver Massmann – Solar Power – Payment mechanism from Vietnam Electricity (former Electricity of Vietnam, EVN) to Solar IPP – What you must know:

1. The periodicity of payment for energy sales by client (EVN) to IPP

The IPP and EVN will together read the metering result on a monthly basis on a mutually agreed date to determine the power delivered and received in a month. The IPP will record the result in writing and send it together with the invoice to EVN within 10 working days from the result reading date. The payment deadline for EVN is within 15 working days from the receipt of the IPP’s invoice.

2. Frequency of price adjustment such that payment in VND reflects equivalent USD value

It is not clear in both Decision 11 and Circular 16, but we understand that the adjustment will be made at the time of payment for grid connected projects. For on-grid rooftop projects, the adjustment is made annually. Provision have been included in previous power project documents.

3. Mechanism for price adjustment (e.g. is applicable price adjustment is weighted average of adjustment period such that seller is not exposed to changes to VND/USD exchange rate).

For on-grid projects, the adjustment is made at the time of payment. For on-grid rooftop projects, the adjustment is made annually. It means that the FiT for on-grid rooftop projects remains the same in a year. The FiT for on-grid rooftop projects for the next year will be adjusted based on the announced VND/USD exchange rate on the last working day of the preceding year.

Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above.

THANK YOU !

 

 

 

 

The price of power in Vietnam: not all dollars and cents

It’s clear that meeting Vietnam’s substantial energy demands over the coming years is a tall order even in the best of circumstances. It is hoped that renewable energy sources will play a large part in the country’s energy generation landscape, however, the dominance of large SOEs is blocking the entry of more efficient private operations and slowing down the pace of change.

 

Looking at recent trends in Vietnam’s energy sector, it seems that these state owned projects, backed by overseas development assistance, provide a costly and sluggish source of electricity.

 

Such projects can be up to 40% more expensive to build and take 5 years longer to power up than privately-developed plants. With demand surging, these kind of timescales will prove problematic if supply is to keep abreast of demand.

Continue reading The price of power in Vietnam: not all dollars and cents

Lawyer in Vietnam Oliver Massmann THE WORLD BANK REPORT ON RETAIL TARIFF INCREASE SOLUTIONS TO RECOVER ELECTRICITY OF VIETNAM

For the past few years, Vietnam has made the transition from a predominantly agricultural to a mixed economy with substantial development of commercial and industrial activities. Rapid growth in population and improvements in living standards together with the Government’s effort to improve access to electricity throughout the country have led to growing increase in the demand for electricity. This now poses a major challenge for Vietnam to maintain sustained growth of the power sector and to achieve energy security. Meanwhile, Vietnam’s electricity demand continues growing at double-digit number. Electricity infrastructure capacity is limited, operation of certain power projects has been delayed, and private investors are reluctant to invest in the sector due to their concern of low rates of return on equity and low feed-in-tariff. These factors, among others, have left the Electricity of Vietnam (EVN) with no option but to increase debts to cover its operation needs. This article studies and proposes some solutions to improve EVN’s operation in the coming years.

Current situation of the Vietnam’s power market
As of December 31, 2015, the total generation capacity in Vietnam’s interconnected power system was 141.34 billion kWh, an increase of 11.6% compared to 2014. During the period of 2011-2015, electricity generation output increases by 11%/ year on average. Meanwhile, according to World Bank’s report in 2014, Vietnam is one of the most energy intensive economies in the world, and more energy intensive than other countries in the Southeast Asia at the same level of development.[1] Electricity demand has grown at a rapid pace averaging 15% per year from 2008 to 2010 before dropping to 9% in 2011 due to the macroeconomic situation.[2] Electricity demand is expected to be twice as much as GDP growth between 2014 and 2020. The Power Development Plan VII (PDP VII) projects a strong increase in power demand to 2030.[3]

Amended PDP VII sets the target of electricity output in 2020 to be 235 -245 billion kWh, 352 – 379 billion kWh in 2025 and 506 – 559 billion kWh in 2030. In this amended PDP VII, in 2020, the targeted total capacity of power plants is 60,000 MW, in which electricity output from renewable energy sources will account for 9.9%. These numbers in 2025 will be 96,500 MW and 12.5% respectively. In 2030, a target of 129,500 MW being the total capacity of power plants and 21% of electricity output generated from renewable energy sources is also set.

Total investment in the power sector was US$2.6 billion in 2012 and slightly increased in 2013. This is relatively small compared to the investment requirements of about US$7.5 billion per year. Meanwhile, the Vietnam Government as well as state-owned enterprises in the sector is unlikely to invest more due to prohibition from investing in non-core businesses by state-owned enterprises. In addition, the total investment cost from 2014-2020 corresponding to the capacity requirements totals US$53 billion. Thus, most of the expected total investment during 2014- 2020, which is of about US$25 billion should come from private sector. EVN will then still need a substantial investment program, which is hard to be financed until 2020.

The role of EVN in the power market and its financial problems

EVN and its subsidiaries play a vital role in the power sector. Key activities of the subsidiaries are generation, transmission and distribution. EVN acts as the only off-taker from the generators. It incurred significant financial losses in both 2010 and 2011.

EVN’s operation results in 2012 were much better, from a loss of 12% of income in 2011 to a profit of 14% of income. The profitable results maintained in 2013, although the result in 2013 was not as good as in 2012 and investment was still far below the level of needs. EVN has also had a high and rising level of borrowing in foreign currency. EVN is in a total debt of VND86 trillion in 2007, increasing to VND284 trillion in 2013. Total debt is expected to increase from US$14.6 billion in 2014 to US$28.2 billion in 2020.

The reasons behind EVN’s unstable, inefficient and risky operation are largely beyond EVN’s control. In particular, we have to name hydrology, substantial devaluation in the Vietnamese dong against EVN’s major borrowing currencies, lack of strong Government’s commitments in adopting tariffs to cover full cost of power provision as main challenges to the power sector in general and EVN in particular.
In contrast, EVN’s subsidiaries in generation, transmission and distribution have a quite strong operational performance and are well managed. However, low tariffs and low level of equity have put them under considerable financial constraints.

These financial and investment challenges could be solved by appropriate actions from EVN, the Ministry of Industry and Trade – the parent ministry and the private sector. In the worst scenario that EVN could not fulfil its financial obligations, the Ministry of Finance – the guarantor of EVN’s loans must bear the payment responsibility for the loans, resulting in possible decrease in investment and increased levels of supply interruption accordingly.

EVN is not under immediate threat of insolvency. However, if the current delay in payment to its fuel suppliers due to a prolonged delay in increasing tariffs and a series of years with low rainfall continue, EVN could be placed under a much more serious financial pressure. Where its liabilities exceed its assets, insolvency is unavoidable.

EVN’s challenges and solutions

Challenges Solutions
Achieving sufficient level of private investment in the power sector to meet investment needs (1) Improving regulations on guarantees on the remittance of funds, licensing procedures, project appraisal mechanisms, negotiation process with EVN and reducing the numbers of required permits as much as possible;
(2) Maintaining dialogue with private sector;
(3) Improving the MOIT’s capacity to manage IPP projects; and
(4) Divesting GENCOs.
Addressing the current low retail tariffs to enable EVN to improve the electricity system, which in turn improves the reliability of power supply (1) Setting PPAs in line with international standards;
(2) Allowing market prices for new generation investment;
(3) Amending current regulations to attract more private investment; and
(4) Carrying out electricity tariff adjustments to the extent necessary. The tariff adjustment path should be phased over the next 3-4 years (about 40% in total) so that EVN could achieve full cost recovery and financial stability by 2018.
Improving operational efficiency at EVN (1) Appointing a senior EVN leader to coordinate among ministries and agencies to move the financial recovery plan forward;
(2) Better technical management by (i) maintaining a reasonable number of working staff to improve labor productivity; (ii) making use of older coal plants during poor rainfall season and efficiently managing capital program; (iii) enhancing service quality;
(3) Fully unbundling EVN into independent companies;
(4) Disposing non-core assets and focusing only on core business;
(5) Rehabilitating assets; and
(6) Improving governance.
Enhancing EVN’s capacity to manage financing risks (1) Increasing revenues arising from the implementation of cost-based tariffs;
(2) Negotiating with lenders to extend the loan terms;
(3) Establishing a stabilization fund to manage the risks that EVN faces; and
(4) Reducing foreign exchange risks.
We note that these above recommendations are not mutually exclusive. In other words, implementation of any single recommendation could facilitate the implementation and effectiveness of the others. Moreover, these recommendations are not exhausted considering the on-going changes in Government policies and power market situation.
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Please do not hesitate to contact Mr. Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

THANK YOU !

Vietnam Wind Energy – Eurocham Legal Sector Committee – Meeting with Chairman of EVN Mr Duong Quang Thanh – Presenting Major Legal Issues for Getting Deals Done

On 18 December 2015, Mr. Oliver Massmann, the Managing Partner of Duane Morris Vietnam LLC, Chairman of the Legal Sector Committee of Eurocham, attended the conference “EVN-HCMC Dialogue with Korean, American and European enterprises” held by EVN HCMC.

Besides the presentation on how to improve the quality of power supply in Vietnam of EVN HCMC, Mr. Massmann had an opportunity to give a speech in Vietnamese and raise major issues in relation to wind power energy projects in Vietnam, including:
– The Government offers low FiT rate in comparison to the investment of the investors;
– Power Purchase Agreement (PPA) is required to follow a specific template, which is not bankable;
– The PPA template is unclear whether it is a “take or pay” agreement;
– There is no clear guidance and procedure to obtain the approval for the amendment of the PPA template.

The speech received the sympathy from many foreign investors in the conference. Mr. Duong Quang Thanh, the Chairman of the Members’ Council of EVN, well received the comments with positive feedback and personally congratulated Mr. Massmann for the successful speech after the event.

Followings are the brief analysis of the issues and the response from Mr. Thanh to each issue.
1. Low FiT rate
– Mr. Massmann raised the concern that the FiT, as regulated in Decision No. 37/2011/QD-TTg, is 7.8 cents USD/kWh, equivalent to 1,614VND/kWh, is very low compared to the investment capital of the investors in the projects. Accordingly, such purchase price cannot ensure the profits for the investors. Therefore, instead of fixing the price, the Government can regulate the ceiling price and give the parties the rights to negotiate the price. In addition, it would be appreciated if EVN can share information about the exact timeline that the new FiT would be published.
– As discussed by Mr. Thanh, EVN understood the concern of the investors on the low FiT. The Government is considering the issue. However, Mr. Thanh could not say exactly when the new FiT will be published.
2. The PPA template is not bankable
– Mr. Massmann recommended to enhance the bankability of the PPA, such as to clearly define force majeure events (Articles 5.1 and 5.3 of the template PPA) and distinguish the natural force majeure event and force majeure event due to political issue; to clearly define events of default of either Seller and Buyer (Articles 6.2 and 6.3 of the template PPA).
– In response, Mr. Thanh explained that the purpose of PPA template is to cut down the negotiation process between the parties. EVN noted the comments and will propose to amend the template.
3. The PPA template is unclear whether it is a “take or pay” agreement
– Mr. Massmann suggested that in order to secure and ensure the profits and revenue of the project, it must be clear that it is a “take or pay” agreement. Because under the current template, EVN will be released from the obligation to purchase the power in specific circumstances.
– Said by Mr. Thanh, for the time being, it is difficult to make clear that this is a “take or pay” agreement as the power generated from the wind power projects will depends on many factors, such as speed and force of the wind. However, EVN noted the comment and will consider to amend the PPA template.
4. No clear procedure to obtain approval for amendment of PPA
– Mr. Massmann addressed that in practice, the parties will need to agree on the additional agreements suitable for each project. Therefore, although the template PPA is compulsory, in case the parties are willing to amend, there must be a clear procedure to obtain the approval for the amendment of the PPA.
– On behalf of EVN, Mr. Thanh noted the comment and will consider to propose appropriate changes.

Although the issues raised by Mr. Massmann could not be addressed in details during the conference, Mr. Thanh said that EVN would do their best to cooperate and would research on the appropriate solution and propose to the Government for amendment in the future.
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Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Lawyer in Vietnam Oliver Massmann Solar Power Vietnam Breaking News: First Ever Regulations GOVERNMENT’S INCENTIVES TO DEVELOP SOLAR POWER PROJECTS IN VIETNAM

Vietnam is among the countries with the world’s highest annual sunshine allocation on the world’s solar radiation map. This is an advantage for Vietnam in its efforts to develop a solar power industry, in the context of increasing demand for electricity and the potential risks of traditional electricity production sources.
To encourage investment in renewable energy projects, the Vietnam Ministry of Industry and Trade (MOIT) has proposed the first Draft Decision of the Prime Minister on incentives for solar power projects, especially in terms of investment capital, tax and land use rights. These incentives would apply to power generation projects using the photovoltaic method. The following analysis is based on the latest Draft Decision, which will be subject to further changes when the official decision is adopted.
Investment incentives
Investment capital: Investors may mobilize capital from domestic or overseas organizations and individuals to invest in solar power projects. Such projects are entitled to investment credit and export credit incentives. In particular, investors could apply for a loan of up to 70 percent of the total investment capital of their project with a maximum term of 12 years. Moreover, investors could also enjoy export credit incentives in a loan of up to 85 percent of the export/import contract value, also with a maximum term of 12 years.
Import duty: Solar power projects are exempted from an import duty on those goods imported to create fixed assets of the projects; these include components, materials and semi-finished products that are not available in Vietnam and that are needed for the project’s operation.
Corporate income tax: According to current taxation regulations, solar power projects will also enjoy the same corporate income tax exemption and reduction as projects in sectors that are receiving investment incentives. For example, a corporate income tax rate of 10 percent will be applied for 15 years, tax exemptions will occur within four years and taxes will be reduced by 50 percent in the next nine years.
Land: Solar power projects, lines and transformer stations connected to the national grid enjoy the same exemptions and reductions in land use and land rental as projects entitled to special investment treatment. Such incentives, among other things, include exemption of land rental within three years from the operation date of the project.
Who will be the off-taker?
According to the Draft Decision, the Electricity of Vietnam (EVN) or its authorized member units will be the power purchaser. The power sale and purchase will be conducted by negotiating and signing the power sale and purchase agreement according to the template agreement stipulated by the MOIT. Terms of the agreement extend 20 years from the commercial operation date of the project. Duane Morris will continue to monitor the issuance of the template agreement by the MOIT.
Feed-in-tariff (FIT) rate
EVN is responsible for buying the whole electric output from solar power projects, with the electric buying price at the point of electricity receipt to be 1,800 Vietnamese dong/kwh and 3,500 Vietnamese dong/kWh (equivalent to 12 U.S. cents/kWh and 16.7 U.S. cents/kWh).
For solar power projects installed on the roof of a house connected to the grid, if the electricty generated is more than that consumed, the difference to be bought at the point of electricity receipt is 3,150 Vietnamese dong/kWh (not including VAT, equivalent to 15 U.S. cents/kWh). This price will be adjusted based on the fluctuation rate between the Vietnamese dong and U.S. dollar. If the electricity generated is less than that consumed, the electricity received from the grid must be paid at the normal commercial price charged by the electricity purchaser.
The above FIT rate is still low compared to other neighboring Asian countries. In Thailand, the new FIT is THB 5.66/KWh (about 15.7 U.S. cents/kWh) for a solar farm of less than 90MW. For a solar rooftop, the FIT rate varies depending on the capacity of the project. With a solar rooftop of 250–1,000 KW, the FIT would be THB 6.01/kWh (about 17 U.S. cents/kWh). The FIT for solar rooftops of 10–250 KW and less than 10KW are THB 6.40/kWh (about 18 U.S. cents/kWh) and THB 6.96/kWh (about 19 U.S. cents/kWh), respectively. In the current Draft Decision, Vietnam does not draw any difference between the capacity of the solar rooftop projects but sets the FIT rate based on the difference between electricity consumed and generated. Meanwhile, the FIT in the Philippines for solar power projects is also higher than that of Vietnam, i.e., P 9.68/kWh (equivalent to 21 U.S. cents/kWh). As Vietnam’s FIT is still in the drafting process and not yet final, the anticipation is high for this to be amended in the next draft to reach regional levels. This is of vital importance to attract investment.
Conclusion
If the Draft Decision is adopted, it would be the first-ever legal document regulating solar energy in Vietnam. The Government of Vietnam strives to attract foreign investment in the sector and to take full advantage of the plentiful solar energy—an average solar radiation of 5kWh/m2 per day—across Vietnam. Foreign investors, especially those in the U.S, have been eyeing Vietnam for their investment in clean energy. The Government of Vietnam is aware of the need to garner support for these projects and is offering incentives. While these projects may not meet investors’ expectations in the immediate future, the movement appears positive. The developing agreement on the Trans-Pacific Partnership (TPP), affecting Vietnam, the United States and 10 other countries, points the way toward a developing energy sector in general—and clean energy in particular. Therefore, these factors suggest a growing market and plenty of investment incentives for U.S investors, as well as other members of the TPP.
Oliver Massmann is the General Director of Duane Morris Vietnam LLC. Mr. Massmann practices in the area of corporate international taxation and on power/water projects, matters related to oil and gas companies and telecoms, privatization and equitization, mergers and acquisitions, and general commercial matters for multinational clients in relation to investment and doing business in Vietnam. He can be reached at omassmann@duanemorris.com.

Disclaimer: This article is prepared and published for informational purposes only and should not be construed as legal advice. The views expressed in this article are those of the author and do not necessarily reflect the views of the author’s law firm or its individual partners.

Lawyer in Vietnam Oliver Massmann Liberalization of Distribution in Power Sector – Your Chance to get into business ?

1. What positive impacts will the absence of the current monopoly in distribution and production of power, petrol and coal have on the economy?

Answer: In Vietnam’s energy market, EVN has long been known as the state monopoly in transmission and distribution of electricity. Vietnam still features the Single Buyer Model with EVN’s purchase of all electricity generated from on-grid independent power projects. Investors find it extremely hard to negotiate the Power Purchase Agreement with EVN. Meanwhile, EVN keeps operating at loss with huge debts to PetroVietnam and Vinacomin.
The adoption of the list of goods and services subject to state monopoly will then limit the power of EVN. The State only maintains its monopoly over the operation of multi-purposes hydropower and nuclear power plants, transmission, facilitating as well as operation of the national electricity system of big power plants and those having special importance in terms of socio-economic and national defence and security. Trading in petroleum and oil is also no longer subject to state monopoly.
This is a positive movement of the Government in accordance with its international commitments on market access and its plan on privatization of certain state-owned enterprises. The Government has taken a step closer to Vietnam Wholesale Electricity Market, which is aimed to be launched at the beginning of 2016. More players will participate in the power market. The consumers would have more choices from whom they will buy electricity. A competitive and fair power market will be gradually formed, resulting in greater attraction to investment.

2. How important is it to private investors, especially foreign ones?
Answer: With an open and competitive market, foreign investors will find it more attractive to invest in this sector. They are now no longer required to sell the electricity they generate to EVN but can sell it to other distribution companies or even transmit/ distribute through their own system.
Foreign investors will also no longer face obstacles in negotiating the power price with the EVN. According to a recent report by Ban Viet Securities Joint Stock Company, although power retail price in Vietnam has doubled during the past ten years, from VND 781/kWh (3.5 US cents/ kWh) in 2005 to VND1,622/ kWh (7.3 US cents/ kWh) in 2015, this is still low compared with other countries like Cambodia, Thailand, and Singapore in the APEC. This is among major reasons that discourage investors from pooling their capital into the sector. However, power price is planned to increase from 2016 according to power increase schedule, which aims to ensure capital recovery and reasonable profits for investors. Accordingly, power retail price may increase at 8-9 US cents/ kWh in 2020, equivalent to an increase by 18.4% within the next five years. Power price should also reflect the demand and supply in the market. Foreign investors then find more incentives when making their investment decision.

3. What is your recommendation for Vietnam’s government to reduce its monopoly over the economy?
Vietnam is on its way to obtain its market economy status. In order to realize this objective, the Government should limit its intervention in the market, create fair competition and allow the market to operate on its own. In many countries, fair competition is created by limiting the possibility of monopoly. If the Government only allows the price to fluctuate according to the market situation, there will still be monopolies dominating and influencing the market. Then, together with the price policies and reduction in its monopoly, the Government should expedite the privatization process, make it substantial in nature to effectively create a real competitive market for the players.
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Please do not hesitate to contact Mr. Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Investments in the Energy Sector

Future market development and opportunities for foreign players
– Vietnam’s strategies and master plan with regard to the expansion of renewable energies by 2015 and visions for the years ahead…

General overview:

Vietnam’s requirement for renewable energies rises sustainably (in the past, in the present and in the future by an average of 10% per annum). The country becomes increasingly dependent on the world energy price because the growth of domestic energy sources is most likely not able to keep up with the economic growth rate. The high potential of the hydroelectric power will be consumed primarily in the next decade, with gas and coal supplies being limited, so that in the near future Vietnam will have to import coal for energy production. In this context, the Vietnamese government identified the necessity that the available resources of renewable energies have to be exploited and expanded, and the currently existing obstacles gradually removed.

Potential and current status of the expansion of renewable energies:

Vietnam has potential resources of renewable energies. These sources, which can be exploited and actually utilized, include small-scale hydropower, wind power, biomass, biogas, bio fuel, energy from domestic waste, solar energy and geothermal energy.

– Small-scale hydropower: taking into consideration the economic efficiency and profitability, it is classified as the most viable form of renewable energies. More than 1 000 locations show a potential for the development of small-scale hydropower in the range from 100 kW to 30 MW and a total capacity of more than 4 000.
– Wind power: Vietnam’s potential for wind power is classified as very high. However, as currently no reliable studies exist, the resources cannot be precisely quantified. In fact, available data on wind power potential show discrepancies. Figures from 1,785 MW up to more than 8 700 MW or even way above 100 000 MW are mentioned.
– Biomass: as the agriculture in Vietnam is widespread, so a high potential of power from biomass is available, too. The capacity for sustainable power production from biomass amounts to just 150 million tons per annum, 700 – 780 MW for electricity generation alone can be reached.
– Solar energy: Total number of sunshine hours up to 1400 – 3000 hours/year, the average total radiation amounts to 230 – 250 kcal/cm2, and strengthens towards the south. Solar energy can be used for water boiling, power production and other purposes, as e.g. drying, cooking etc.
– Geothermal energy: the recent figures show that Vietnam’s potential for geothermal energy amounts to about 200 – 340 MW.

Current status:
Currently, the consumption of renewable energies consists to the greatest extent in energy recovery from biomass in its original form. The proportion of energy from raw biomass to total energy requirement is high and amounts to roughly 38% of the entire final consumption of energy and about 30% of total initial energy consumption.

Power production for grid connection: There are only two kinds of small-scope hydropower with a capacity of over 300 MW; 30 MW from biomass (sugar cane waste) and 2.4 MW from household waste.

Network-independent power supply: Renewable energy sources have been utilized to supply rural areas, distant and remote territories as well as islands. 1.25 MW solar power, 1.2 MW wind power and more than 50 MW small and micro hydropower plants have been built and operated.

Biofuel: The government signed a decision on the approval of a project for “biofuel development”. In the country, 6 projects for ethanol production have been established, with each project showing an average capacity of 100 million liter /year. Several of the projects will start the production in 2010.

Summary of the strategies for the development of renewable energies and development targets in Vietnam

Development perspectives: – the development of renewable energy with economic feasibility is given priority; – the development of renewable energy to supply rural areas with electricity is fostered and supported; – support and investment in further development of certain technologies with regard to renewable energies which are not economically viable yet; – the development of renewable energies in cooperation with the government based on the principle of effective combination of market mechanisms; – the development of renewable energies in close relation to sustainable economic, social and environment-friendly development in order to reduce the effects of the climate change and the development of the environment.

Overall goals: – Improvement of the energy infrastructure, extension of energy sources, ensuring energy security, environmental protection and sustainable development, mitigation of damages with regard to the effects of climate changes; – to increase the national production and the national consumption of renewable energies; – Completion of the energy program in the mountainous region and contribution to the accomplishment of government objectives to provide electricity for rural areas.

Special goals: – to increase the share of renewable energies in the overall national energy production – from 1.3 billion kWh in 2008, by at least 7 billion kWh in 2015 and 20 billion in 2025; – by 2020, 100% of households in rural areas ought to be supplied with electricity; – increase of the number and the area of application of cooking devices which can be powered by solar energy, namely from the current very low percentage to 18 million m2 (in 2015) and 9 million m2 (in 2015); – increase and expansion of the area of application of biogas technologies from 0.12 million m3 of the current construction volume to 5 million m3 in 2015 and 15 million m3 in 2025; – to increase the number of households utilizing highly efficient biomass; – to increase the number of households using devices for conversion of efficient biomass (cooking devices with more than 30% efficiency) from the current low number to 1 million households in 2015 and 4 million households in 2025; – in 2015, the production of ethanol and vegetable oil should amount to 250 000 tons, which corresponds to 1% of the crude oil requirement. In 2015, the production of ethanol and bio-oil should reach 1.8 million tons and cover 5% of the crude oil requirement.

Solutions for implementation

General principles:

– all organizations, individuals, domestic enterprises, foreign enterprises and organizations have to be encouraged to participate; – promotion of projects concerning renewable energies in order to ensure better marketing;
– the government should support the national grid connection at the same or lower cost compared to avoidable economic cost of projects within the scope of renewable energies;
– the government should simplify the operation of the market; – preferential prices for renewable energies should be fixed on the basis of cost effectiveness aspects; – the government should support the use of renewable energies for the supply of rural areas with electricity;
– the government should support the initial phase for the promotion of installation and upgrading of technologies related to renewable energies for effective heat and fuel production and its use, based on the principles of standard and quality assurance.

Solutions and roadmap for implementation:
– establishing a national liaison body for the development of renewable energies; – preparation of a roadmap for organizational structure development; – preparation of a roadmap for supporting grid connection of the projects regarding renewable energies; – preparation of a roadmap for renewable energy development for heat and biofuel production; – preparation of most favorable terms of registration for CDM for projects based on renewable energies.

On financing of renewable energies in Vietnam: The basics

In order to be able to keep pace with growing requirement Vietnam’s for energy, an increase of the production capacity by approximately 4,000 MW per annum and its supply into the national grid are required.

Based on rapid shrinkage of Vietnamese gas and oil reserves (which will be exhausted within coming 20 to 30 years), the experts predict that, from 2020, in order to ensure the operation of its power plants Vietnam will have to import a volume of 100 million tons of coal per annum. Consequently, Vietnam will be dependent on the import of fossil fuels, unless it develops its enormous potential of renewable energy. Despite the negligible current capacities of renewable energy plants, Vietnam is blessed with considerable potential in this area which can be developed as alternative energy sources for the benefit of Vietnam. In spite of the fact that the current legal framework is very underdeveloped yet, the government, namely the Ministry of Industry and Trade, has adopted a constructive and supportive course which, in combination with political and financial assistance on the part of international institutions, makes this sector increasingly attractive for foreign investors.

Rich sources of clean energy

Vietnam has countless clean energy sources: Its abundance of streams, sources and nine main rivers gives Vietnam a place among the top 14 of countries with the best conditions for conversion of hydropower into electricity; its first-class coastal locations can boast a wind force of 860 to 1410 kWh/qm per annum or 800 to 1000 kWh/qm per annum; the tropical climate provides solar resources with a solar radiation between 3 and 4.5 kWh/gm/day in winter and about 4.5 to 6.5 kWh/qm/day in summer. Against this background, some experts even claim that Vietnam can completely cover its requirement for electricity by the use of renewable energies.

The government has gradually created a legal framework for the promotion of development of renewable energies in Vietnam. This new legislation does not establish any restriction for foreign investors that invest in renewable energies and introduces a favorable tariff for renewable power plants with an installed generation capacity of up to 30 kWh. According to this legislation, Electric of Vietnam (EVN), the only electric power company (and the only electricity buyer), will acquire electricity generated by such plants at approximately 11 US cent per kWh during peak load times of the dry season. The corporate income tax (CIT) for these project enterprises is limited to a rate of 10% and granted for a time frame of 15 years; in special circumstances, it can be even extended to just under 30 years. The entire equipment and machinery which are imported as inherent parts of solar or wind power plants are duty-free. Moreover, CDM projects (Clean Development Mechanism) are entitled to subventions provided that the production costs exceed the selling price.

… but challenges lie ahead …

Despite this country’s undisputable potential of resources of alternative energy, investors bringing in funds for Vietnam’s production efficiency within the scope of renewable energies are confronted with considerable challenges:

1 The lack of reliable legal framework conditions.

2 Protracted negotiations of electricity purchasing agreement with the EVN.

3 The lack of electricity supply tariffs which would be stringently required for successful renewable energy projects.

The supply tariff is a preferential price which is paid by power suppliers when purchasing electricity generated by an authorized producer of renewable energy for a timeframe from 15 to 20 years for electricity units fed into the grid. The payment for such renewable power plants is financed regularly by allocation of cost to all consumers as well as partly by government aid for renewable energies. The combination of preferential tariffs and the obligation to purchase enables feed-in tariffs to function in monopolistic or oligopolistic markets. Presently, the Vietnamese law does not provide for any feed-in tariffs. Article 31 of the Electricity Law provides principally that the producer price (i.e. the selling price ex power plant) must not exceed the tariff determined by the competent government agency.

EVN still refers to an out-dated rate according to Decision No. 2014/QD-BCN (of 2007) with a tariff for hydropower between 2 and 5 US$ cent and for combined gas turbine power plants from 3.5 to 4.7 US$ cent. Despite the fact that the preferential tariff was fixed for smaller renewable power plants, the price of 11 US$ cent /kWh is applied only during peak periods in the raining season. Energy purchasing at other times costs about 11 cent/kWh.

The main obstacle for electricity purchasing by EVN at an increased price is the low retail price. Even though from 2010 the electricity rates will be based on market prices, the prices for households being ultimate consumers remain a matter of annually determined fixed prices. Meanwhile, a fixed maximum price for consumers form the industry and service sector is applicable. Against the background of the risk of social unrest, a substantial increase of the retail price in the short term is not realizable.

The monopoly of the EVN is one of the main reasons why investors are discouraged from entering the renewable energy market. EVN is currently de facto the only buyer and controls the electricity feed-in, transmission and supply to ultimate consumers. A free competition in electricity generation can hardly be guaranteed because EVN, being the only buyer, operates also enterprises just in this sector. It was criticized that the National Load Dispatch Center or A0, a subdivision of EVN that is authorized to electricity feed-in for the entire national grid, does not draw on the capacity of expensive oil-fired or gas turbine power plants even in case of marginal underload of the power grid.

There is a great deal of administrative barriers which have to be broken down by investors when initiating a power project in Vietnam. A power plant project has to be in accord with the master plan at national level or at the level of a particular province. If a project is not listed in these master plans, it requires the approval on the part of the Prime Minister or the Ministry of Industry and Trade. Furthermore, before obtaining the investment certificate, foreign investors have to conclude a Power Purchase Agreement with the EVN. PPA negotiations and application for investment certificates as well as power plant operator’s licenses may take months if not years.

How can investors survive?

Projects in the renewable energy sector are – as long as no feed-in tariffs are introduced – not viable. Insofar, 2015 should be a good year with a prospect for implementation of a meaningful legislation in this area; namely, the national Master Plan for Renewable Energies and the Decree on power feed-in tariff. The adoption of such documents will clarify the attitude of the government towards the development in the renewable energy sector.

At this stage, a clear and feasible strategy regarding the investment form is a prerequisite for economic involvement in this growth sector. Project financing (as limited recourse financing) is a classical but effective approach to capital raising on a bigger scale. No large projects in the range of renewable energies have been realized in Vietnam so far, but there were already a number of financially intensive BOT power projects in the thermal power sector (namely Phu My 2.2 and Phu My 3) which can have a role model function also in the renewable energy sector. Moreover, on a case-by-case basis, preferential tariffs and other financial incentives as a basis for BOT projects can be negotiated.

Certified emission reductions (CER) trading can be taken into consideration because of continuing great demand for CERs from projects with high sustainability value for local community. The focus should be on CDM projects with smaller and medium financial volume as well as lower guarantee and delivery risk. However, CER trading should not be regarded as primary financing option. In view of yet very rudimentary legal framework for CDM projects as well as the lack of precise and official statistics on the basis of which future emissions would be determined, the validation necessary for such trading is much more difficult. It is to be stated that from 85 projects selected for validation in Vietnam yet only eight have been verified, and only one project (Rang Dong oilfield gas separation and utilization) was granted a CER.
In a growth market like Vietnam, well thought-out planning and thorough understanding of local legal situation and the obligatory approval procedures are basic prerequisites for successful investments. The renewable energy sector is no exception here.

Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

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