Tag Archives: power

VIETNAM – BIOMASS POWER PROJECTS – NEW LAWS AND HOW TO GET HIGHEST LEVELS OF LEGAL CERTAINTY AND BANKABILITY UNDER EU-VN INVESTMENT PROTECTION AGREEMENT (“EVIPA”) AND COMPREHENSIVE AND PROGRESSIVE TRANS-PACIFIC PARTNERSHIP (“CPTPP”)

On 07 July 2020, the Ministry of Industry and Trade (“MOIT”) issued Circular No. 16/2020/TT-BCT to amend and supplement certain provisions of Circular No. 44/2-15/TT-BCT dated 09 December 2015 of the MOIT Minister on project development, avoided cost tariff and standardized power purchase agreement for biomass power projects.

In particular, this new Circular provides that investors be only allowed to build on-grid biomass power investment projects, which have been included in the approved Power Development Plan or Provincial Power Development Plan.

In addition, feed-in-tariff for on-grid biomass power projects will follow Decision No. 08/2020/QD-TTg dated 05 march 2020, which increases the feed-in tariff for biomass co-generation heat power to 7.03 US cents per kilowatt hour (up from 5.8 US cents), and for other types of biomass projects to 8.47 US cents per kWh (up from 7.3 to 7.5 US cents depending on location).

Investors whose projects operated before 25 April 2020 will sign a new Power Purchase Agreement (“PPA”) with the buyer in order to be entitled with the abovementioned feed-in-tariff from 25 April 2020 until the expiry of the signed PPA.

How to get highest levels of legal certainty and bankability under the EU-Vietnam Investment Protection Agreement and the CPTPP

The recent EVIPA and CPTPP further open the market to foreign investors. The investors now can bring their technology and know-how, especially those from countries with high level of development in renewable sectors to Vietnam with less market access barriers and being more secured. In particular, the CPTPP and the EVIPA make it possible that foreign investors could sue Vietnam’s Government for its investment related decisions according to the dispute settlement by arbitration rules. The final arbitral award is binding and enforceable without any question from the local courts regarding its validity. This is an advantage for investors considering the fact that the percentage of annulled foreign arbitral awards in Vietnam remains relatively high for different reasons.

Although the transition period for the aforementioned Investor-State Dispute Settlement (ISDS) mechanism is 5 years from the effective date of the EVIPA, Duane Morris Vietnam has the legal and technical tools to make such provisions work in favor of investors from now.

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.

3 Things About Vietnam’s Updated Legal Framework for Biomass Power Projects

Despite abundantly available biomass feedstock of agricultural origin, ranging from sugar bagasse, wood chip to rice husks and stalks, biomass as a source of renewable energy does not seem to have received the same amount of attention from the government of Vietnam as solar or wind power. It took the government more than six years to acknowledge the modest results of the current incentives package and adopt measures to give a new push to the development of biomass power plants. This was done on 5 March 2020 when the Prime Minister issued Decision No. 08/2020/QD-TTg (“Decision 08“) amending Decision No. 24/2014/QD-TTg dated 24 March 2014 (“Decision 24“) on support mechanisms for the development of biomass power projects in Vietnam. Decision 08 introduces a number of important changes which will take effect on 25 April 2020.

Increase of the Feed-in-Tariffs (“FiT”)

The FiT for electricity produced by combined heat and power (“CHP”) biomass power plants will increase from USD 5.8 cents per kWh to USD 7.03 cents (VND 1,634) per kWh.

The government has also abandoned the use of avoided cost schedules (calculated based on the cost of electricity produced by coal-fired power plants) published annually for determination of the electricity purchase price from non-CHP biomass electricity producers. The FiT for these projects is set at USD 8.47 cents (VND 1,968).

The FiTs are exclusive of value-added tax and are adjusted according to USD/VND exchange rate. The new FiTs will be also benefit the biomass power projects which have started operating before 5 March 2020 for the remaining terms of their power purchase agreements (“PPAs”).

Technical standards for electricity generation equipment

Decision 08 introduces a new requirement to comply with technical standards applicable to biomass electricity generation equipment and quality norms applicable to electricity produced by biomass power plants. Similar requirements already exist in recent regulations applicable to solar and wind power projects. The technical standards and norms will be elaborated by the Ministry of Industry and Trade (“MOIT”) which is also responsible for the issuance of a new model PPA for biomass projects.

Possibility of alternative off-takers

Under Decision 08 Electricity of Vietnam (“EVN”) (directly or through its authorised group entities) remains the sole off-taker of the electricity generated using biomass. However, the new decision also opens the door to “organisations assuming the rights and obligations” of EVN (or its relevant group entities) to become biomass electricity off-takers. This new development is in line with the government’s road-map for the liberalisation of Vietnam’s electricity markets (wholesale and then retail) by 2025. It is not clear whether this would improve the bankability of biomass PPAs, since EVN, as a State-owned enterprise, still enjoys strong government support while such backing may not be available to other off-takers in the future.

The possibility of selling electricity produced by biomass power plants directly to end users is not contemplated by the government at this stage. A recently published draft regulation on pilot Direct PPAs does not seem to include biomass power projects.

The hope is that above changes will make biomass power projects more attractive for investors. Whether the government’s target to increase the share of electricity produced from biomass to 2.1 percent of the total generated electricity by 2030 set out in the Revised Power Development Master Plan VII is achievable still depends a great deal on the new biomass PPA and technical requirements for biomass power projects to be issued by the MOIT in the coming months.

 

 

 

 

 

 

Crunch time for PM’s decision on solar FIT2

In a 6 Feb 2020 report to the PM, the MOIT shares views received from the Ministry of Justice and Ministry of Finance on the long-awaited new FIT regime for solar projects. Interestingly, a new option has emerged: that FIT 2 could apply to all projects approved in principle prior to 23 November 2019 and that reach COD by 31 December 2020. While December 2020 is still very close and thus a practical limit, this option is still markedly broader than the MOIT’s earlier proposal that only projects that had commenced construction (with very narrow criteria of what that means) prior to 23 November 2019 (and reach COD by 31 December 2020) should be entitled to FIT 2.

If the PM accepts this new option it would significantly increase the number of already-approved solar projects potentially eligible for FIT 2. that would be welcome news for approx. 40 projects currently in FIT limbo.

With this document, it appears that all involved ministries and other stakeholders such as EVN have been formally consulted and their opinions formally shared with the PM. The ball is firmly in the PM’s court now.

See the original text of the 6 Feb report here: FIT 2

For more information about Vietnam’s energy sector, please contact Giles at GTCooper@duanemorris.com or any of the lawyers in our office listing. Giles is co-General Director of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.

VIETNAM – ROOFTOP SOLAR POWER PROJECTS – NEW POLICY TO ADDRESS NET-METERING ISSUE

On 8 January 2019, the Prime Minister has issued Decision No. 02/2019/QD-TTg (“Decision 02”) to amend certain articles of Decision 11/2017/QD-TTg dated 11 April 2017 of the Prime Minister on mechanism for encouragement of development of solar power in Vietnam (“Decision 11”). Decision 02, became effective on 8 January 2019, promulgates new payment scheme to address the net-metering issue of the rooftop solar power projects under Decision 11. We elaborate the above topic further as below:

In 2017, Decision 11 introduced the net-metering scheme for rooftop solar power projects. In brief, rooftop projects must be implemented in net-metering with two-way electricity meters. In a trading cycle, if the amount of electricity generated from rooftop projects is greater than the consumed amount, the surplus will be carry forward to the next trading cycle. At the end of the year or when the contract is terminated, the surplus amount of energy will be sold to EVN at the rate mentioned in the power purchase agreement signed by the seller and EVN either at the end of the relevant year or upon termination of the agreement. Circular 16/2017/TT-BCT (“Circular 16”) dated 12 September 2017 of the Ministry of Industry and Trade (“MOIT”), requires a solar power generator, as the seller, to enter into a model power purchase agreement (in the form attached to Circular 16) with EVN or its authorized subsidiary. However, in practice, the model power purchase agreement has not been applied by EVN since the MOIT and the MOF had no guidance on the finalization, payment scheme and invoicing mechanism for such net-metering purposes. Other words, EVN claimed that it is very challenging for them to calculate and invoice the power based on net-metering scheme.

In order to address the net-metering issue, Decision 02 now has introduced a new payment scheme for rooftop solar power projects. In brief, the power generated by rooftop solar power project will be metered independently and paid by EVN to the seller. The power sold by EVN or its power company to consumers being rooftop solar power investors will be metered as usual like other households / consumers.

All rooftop solar power projects having their commercial operation date (operation and metering confirmation) prior to 1 July 2019 will enjoy FIT of US$9.35 / KWh under Decision 11. The price of rooftop solar power for following years must be adjusted according to the last year exchange rate between Vietnamese Dong and USD issued by the State Bank of Vietnam.
The MOIT shall promulgate technical regulations on solar power, regulations on measurement of energy of solar power projects and provide instructions on the connection, installation of electricity meters and the calculation of rooftop solar power project.

We will keep you informed with any new guidance from the MOIT for rooftop solar power projects.

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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. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Vietnam – Power Energy Action Plan – With Outlook on the Major Trade Agreements CPTPP, EUVNFTA and Investment Protection Agreement

A. Overview of the Power Master Plan 8

Vietnam contains huge potential regarding the production of clean energy. It has best conditions for developing solar power due to being one of the countries with the most sun hours during the year and best conditions for creating wind power due to 3000km coastline. As a result, Vietnam in general, is able to attract many Foreign Direct Investments (FDI) for developing clean energy projects.

Therefore, the aim of the current Power Master Plan 8 (PMP8) is to develop power sources, in which renewable energy (wind, solar, bio) will be prioritized, in order to stepwise increase the proportion of electricity generated from renewable energy sources. Core elements are to establish links between international and domestic companies. Thus, the international finance and technology should be connected to the domestic banks and the expertise of domestic companies. In addition, a market must be developed that attracts large-scale companies and small and medium sized enterprises (SMEs) equally.

Furthermore, there will be improvements to the solar power market and the Solar Power Purchase Agreement (PPA) model, which could apply from 1 July 2019. If the PPA is improved to meet the standards of international and domestic banks, the cost of financing solar power plants can be reduced. Feed-in tariffs could provide 2 billion USD in foreign investment in solar energy by 2020.

The new PPA should focus on the key areas termination payments, curtailment and failure to take or pay by Vietnam Electricity (EVN), dispute resolution / arbitration clauses and the application of the feed-in-tariff for 20 years the PPA for new solar projects, which reach their commercial operation date by 30th June 2021 with a reduced feed in tariff. These improvements should equally apply to the standard PPAs for wind power, biomass and waste to energy.

In addition, a government market-driven electricity price system should be created, which includes a welfare state price system and thus supports low-income citizens. To make this possible, the price for the middle class has to be raised. Furthermore, the need for government guarantees must be reduced. In order to counteract electricity wastefulness, incentives for private sector investment in distributed clean energy generation and energy efficiency with fair and transparent electricity tariffs are necessary.

With regard to the price of electricity, there will be essentially three types of movement. First, the daytime hourly tariff will be redesigned for commercial and industrial consumers. This is intended to reduce the peak load of the transmission system and transmission losses. Second, regional differences in retail tariffs are developed. Third, a market-based electricity tariff is set, which contains flexible regulations and thus allows adjustments and increases in efficiency.

It will be important for the government to upgrade transmission and distribution. A regulator regime is to build, which allows and encourages construction and use of bio-mass, solar, wind and other clean sources of power generation for private and public users – office, residential, manufacturing, communities, and industrial – small scale and large scale, and to speed up decision making and set predicative procedures to encourage development of off shore gas, LNG, efficiencies, and renewables.

B. Future recommendations for VL Direct Power Purchase Agreement

The Application of PPA should be extended and even used for commercial power consumers (offices, hotels, resorts and supermarkets), hence they can reduce their electricity costs. The project aim should be to make a major investment in clean energy generation. Guidelines could be to reach at least 300MW of new clean energy generation in 2018/2019 and to invest about 400 Million USD.

The Electricity Regulatory Authority of Vietnam (ERAV) and EVN must define as soon as possible a so-called “wheeling fee”. Wheeling is the transportation of electric energy (megawatt-hours) from within an electrical grid to an electrical load outside the grid boundaries. At least for the first 5 years of operation the fee should be fixed. Afterwards, an increase is possible in agreed in conjunction with business groups and WE.

C. Outlook on Major Trade Agreements TPP 11, EUVNFTA and Investment Protection Agreement

In January 2017, US President Donald Trump decided to withdraw from the US’ participation in the TPP. In November 2017, the remaining TPP members met at the APEC meetings and concluded about pushing forward the now called CPTPP (TPP 11) without the USA. The provision of the agreement specified that it enters into effect 60 days after ratification by at least 50% of the signatories (six of the eleven participating countries). The sixth nation to ratify the deal was Australia on 31 October 2018, therefore the agreement will finally come into force on 30 December 2018. Recently, on the 12th November 2018, Vietnam has officially become the seventh member of the CPTPP.

The CPTPP is targeting to eliminate tariff lines and custom duties among member states on certain goods and commodities to 100%. This will make the Vietnamese market more attractive due to technology advances, reduction of production costs and because of the high demand on renewable energy. Sustainable environments are a primary concern of the CPTPP agreement.

An increase of trade should not mean negative influence to the environment. In contrary, due to the increased focus on the need for energy efficiency and reduced emissions renewable energy could experience a crucial growth. The agreement is suitable to support Public-Private-Partnerships (PPPs), which could lead to a positive impact in development of innovative technologies and alternative energy sources. Lower or no trade tariffs can lead to lower import costs for the essential components of renewable energy production. This, in turn, results in lower investment costs and lower production costs, thus increasing the cost-effectiveness of introducing renewable energy technology.

One another notable major trade agreement is the European Union Vietnam Free Trade Agreement (EUVNFTA). The EUVNFTA offers great opportunity to access new markets for both the EU and Vietnam and to bring more capital into Vietnam due easier access and reduction of almost all tariffs of 99%, as well as obligation to provide better conditions for workers, which is a key aspect in terms of working at power plants. In addition, the EUVNFTA will boost the most economic sectors in Vietnam. Moreover, the EUVNFTA will provide certain tax reductions to 0% for clean technology equipment as well as equal treatment for companies. Due to easier opportunity on making business, trade and sustainable development will be a good consequence for an even more dynamic economy and even better investment environment in Vietnam in general and especially in the power/energy industry.

Both agreements promise great benefits for the energy sector in Vietnam and will help the PMP8 to connect international to domestic companies. The elimination of the tariff lines and custom duties are advantages to major companies and SMEs alike.

To enable at least some parts of the FTA to be ratified more speedily at EU level, the EU and Vietnam agreed to take provisions on investment, for which Member State ratification is required, out of the main agreement and put them in a separate Investment Protection Agreement (IPA). Currently both the FTA and IPA are expected to be formally submitted to the Council in late 2018, possibly enabling the FTA to come into force in the second half of 2019.

Furthermore, the Investor State Dispute Settlement (ISDS) will ensure highest standards of legal certainty and enforceability and protection for investors. We alert investors to make use of these standards! We can advise how to best do that! It is going to be applied under the TPP 11 and the EUVNFTA. Under that provision, for investment related disputes, the investors have the right to bring claims to the host country by means of international arbitration. The arbitration proceedings shall be made public as a matter of transparency in conflict cases. In relation to the TPP, the scope of the ISDS was reduced by removing references to “investment agreements” and “investment authorization” as result of the discussion about the TPP’s future on the APEC meetings on 10th and 11th November 2017.

Further securities come with the Government Procurement Agreement (GPA), which is going to be part of the TPP 11 and the EUVNFTA. The GPA in both agreements, mainly deals with the requirement to treat bidders or domestic bidders with investment capital and Vietnamese bidders equally when a government buys goods or requests for a service worth over the specified threshold. Vietnam undertakes to timely publish information on tender, allow sufficient time for bidders to prepare for and submit bids, maintain confidentiality of tenders. The GPA in both agreements also requires its Parties assess bids based on fair and objective principles, evaluate and award bids only based on criteria set out in notices and tender documentation, create an effective regime for complaints and settling disputes, etc.

This instrument will ensure a fair competition and projects of quality and efficient developing processes.

If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Thank you very much!

VIETNAM – POWER SECTOR – NEW FEED-IN-TARIFFS FOR WIND ENERGY PROJECTS

THE PRIME MINISTER’S IN-PRINCIPLE APPROVAL
On 11 September 2018, the Prime Minister has approved a draft decision on new feed-in tariffs (FITs) applicable to wind power projects in Vietnam. This FITs decision will become effective 1 November 2018 (the “PM Decision”). The PM Decision will amend and revise certain articles of the Prime Minister’s Decision No. 37/2011/QD-TTg on the mechanisms supporting the development of wind power projects in Vietnam.

FITS PRICE FOR WIND ENERGY PROJECTS
FITs price for wind power projects will be increased from the current 7.8 US cents / kWh to (i) 8.5 US cents / kWh applicable to onshore wind power projects, and (ii) 9.8 US cents / kWh applicable to offshore wind power projects.
Onshore and offshore wind power projects are roughly defined in the PM Decision as follows: (i) onshore wind power project means on-grid wind power project that having its wind turbines to be built and operated on inland areas and coastal zones (NB: boundary of such inland areas and coastal zones is the average low water line for 18.6 years), and (ii) offshore wind-power project means on-grid wind power project that having its wind turbines to be built and operated outside inland areas and coastal zones to the sea.
We believe that the MOIT should provide further guidelines for a better definition of onshore and offshore wind power projects.

COD FOR NEW FITS – WIND POWER PROJECTS
The new FITs price must apply to a part or the whole of a wind power project that achieves commercial operation date (“COD”) before 1 November 2021, and such new FITs will apply for 20 years from the COD of such wind power project.
For wind power projects that have achieved COD prior to the effective date of the PM Decision (i.e., 1 November 2018), the new FITs price may apply for the remaining term of the relevant signed wind power purchase agreement (PPA). However, it is not crystal clear if the new FITs price will automatically apply to the current operating wind power projects, or it is still required to re-negotiate and revise the current signed wind PPA with EVN. In case of the latter, it will be very challenging to re-negotiate and revise the current signed wind PPA with EVN.

AUCTION MECHANISM AFTER 1 NOVEMBER 2021
According to the PM Decision, MOIT must prepare and submit a policy on auction for selection of new wind power projects and wind power prices since 1 November 2021 onward.

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Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com or any lawyer in our office listing if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Vietnam – Power Sector Reform Competitive Auction Mechanism For New Generation Investment – What You Must Know:

On 31 August 2018, Asian Development Bank (ADB) and Ministry of Industry and Trade (MOIT) co-arranged a workshop to introduce the first ADB’s Technical Assistance (TA) on competitive auction mechanism for new power generation investment in Vietnam. The TA aims at improving the arrangements for investment to ensure adequate energy supply and to be compatible with Vietnam Wholesale Electricity Market (VWEM) in Vietnam’s power sector.
Please find below key topics of the workshop since this may affect the power generation sector and its policy in the upcoming years.

1. MOIT’s Highlights on Current Status and Challenges for New Generation

Vietnam has enjoyed one of the world’s most rapid economic growth rates i.e., an average of more than 6% p.a. Vietnam has a wide range of primary energy sources such as crude oil, coal, natural gas and hydropower for economic development. However, it has still relied heavily on less “environmentally friendly” primary fossil fuel, though it started to promote renewable energy recently.
The revised Power Development Plan for 2011 – 2020, vision to 2030 (revised PDP VII), adopted in 2016, is evidence of a growing appreciation of the role alternative sources of energy, targets a 7% share of electricity generated from renewable energy by 2020 and 10% plus by 2030. The revised PDP VII forecasts the electricity demand using an annual average growth rate at 10% from 2011 to 2030. The demand will increase from 86 TWh in 2010 to 265 – 278 TWh in 2020 and 572-632 TWh in 2030. The estimated installed capacity would be 60 GW in 2020 and 129.5 GW in 2030.

2. Foreign investment is a must!

Vietnam desperately need a significant amount of investment on new power generation to achieve its demand under the revised PDP VII, approx. US$7 billion to US$10 billion annually. However, the Government of Vietnam does not currently provide guarantee for this sector, and ODA loan is not a viable option for new generation investment. Local financing and resource are also constrained as Electricity of Vietnam (EVN)’s credit limit has been reached. Currently, several power generation projects have been delayed for 3 to 5 years, that would cause the revised PDPVII’s estimates for 2025 to be outdated very soon.
It is also noted that Vietnam is facing a high risk on fuel guarantee for power generation as one of its key sources (natural gas) is unstable as a result of crisis at Bien Dong area (or South China Sea). In fact, the progress of Block B and Blue Whale are very risky and delayed.
Accordingly, Vietnam must reform its playfield and framework to harmonize the system and policies to attract more foreign investment projects on power generation sector.
Vietnam Full Wholesale Electricity Market is coming soon!
The MOIT reported its 4 steps timeline for implementation of full VWEM: (i) 2016: Pilot VWEM Step 1 (Paper Market), (ii) 2017 to 2018: Pilot VWEM Step 2, (iii) 2019: Initiating VWEM under MOIT’s decision 3038, and (iv) finally after 2019: implementing full VWEM under MOIT’s Decision 8266.
Full VWEM will have the following key features:
– Market Model (Mandatory Cost-Based Gross Pool): (i) all generators (30MW or more) is required to directly participate the full VWEM to sell its power, (ii) all retailers (5 Power Corporations under EVN) must buy energy from the full VWEM, and (iii) gradually, the cost-based Pool will be transformed to Price-Based Pool.
– Trading and Dispatch intervals: will be reduced to 30 minutes from 1 hour.
– Generation Scheduling: will apply the model of full transmission network stimulation when the full market IT system available.
– Key types of contracts under VWEM: vesting contract, bilateral contract and centrally contract auction.

3. Competitive Auction Mechanism for New Generation Investment

The TA is to recommend the Vietnam Government to consider and implement policies for implementation of Competitive Auction Mechanism for new generation projects with the following key features:
– To ensure that new power generation projects to be selected through auction process based on least cost and greatest value;

– To improve and ensure the competition between domestic and international developers, and competition between technologies;

– To consistently implement VWEM-compatible contracting framework irrespective of type of developer or technology; and

– To apply and prefer BOO like long term CFDs (contracts for difference) rather than current PPAs (power purchase agreements) as the CFDs are more bankable and may produce more efficient outcome over the generator’s lifetime.

Unfortunately, details of Competitive Auction Mechanism such as forms of PPAs, CFDs, BOO projects, auction process, currency exchange and repatriation guarantee, will be researched and presented by ADB later within this year.

4. Other MOIT’s Highlight on Renewable Power Projects

At the workshop, the MOIT’s representative also commented on certain new policies for renewable power projects as below:

– The MOIT is drafting a policy to introduce new Feed-in Tariff (FIT) and draft PPA for Solar Power Projects that fail to meet COD deadline under Decision 11. The MOIT confirmed that such new FIT will be lower than the current 9.35 US Cent. This policy is likely to be approved by the Government within this year.

– The MOIT is drafting a policy to promulgate new FITs and draft PPAs for wind projects. This policy is likely to be issued within this year.

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Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com or any lawyers in our office listing if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

What’s next for green energy in Vietnam – 4 steps to the future

Now that the United States has retreated from the Paris Climate Accords, and relinquished its leadership role in the fight against climate change, it remains to be seen whether smaller nations will stick to their pledges of greenhouse gas reduction.

Eyes are on countries like Vietnam to see if they keep to their commitments or revert to the pursuit of cheap and dirty coal-powered solutions for their energy needs.

Vietnam, in particular, faces some of the biggest risks. Global warming is a major threat to the country, where rising sea levels are predicted to swallow up nearly half of the Mekong Delta, a crucial area for domestic food production, in coming decades.

Currently, coal-fired plants in Vietnam contribute to thousands of premature deaths and air quality in big cities is getting worse. In 2017, the capital Hanoi enjoyed just 38 days of clean air, with contaminant levels four times those deemed acceptable by the World Health Organization.

Business as usual?

Unlike Obama, the Trump administration seems unlikely to apply any real pressure on other countries to pursue clean energy or combat climate change, and so it will be up to domestic forces to really push for change.

According to the government’s current national plan, electricity generated from coal will rise five-fold between now and 2030, and GHG emissions will increase in lockstep. This is at odds with Vietnam’s pledge to the Paris Climate Accord, which targets 8 percent emissions reduction by 2030, and could rise as high as a 25 percent reduction with international support, such as financing for solar panels and wind turbines.

Energy and environment experts worry that the country’s next national power development plan, which is under revision this year, could hold to those figures or, worse, embrace a more aggressive coal strategy.

The story, however, is not all doom and gloom. Vietnam does have the potential to become a regional clean energy leader, if only the country’s energy development and investment environment can be reshaped. Business involvement in this process will be crucial, as the commercial and industrial sectors consume more than 60 percent of Vietnam’s electricity.

Khanh Nguy Thi, founder of the Vietnamese nonprofit Green Innovation and Development Centre, recently won the 2018 Goldman Environmental Prize for her work convincing state agencies to increase their use of renewable energy. Her efforts were instrumental in halting the construction of two hydropower plants in a national park and securing a 20,000 MW reduction in planned coal expansion.

Government leaders have also demonstrated a desire to utilise Vietnam’s abundant sunlight and over 2,026 miles of coastline in the pursuit of renewable energy.

4 solutions for a sustainable energy sector

Clearly, clean energy opportunities are available, the question is how to encourage more investment. Obstacles persist with the regulatory environment, preventing the country from tapping its potential in this area. Here are four small changes which could bridge the gap between policy and implementation, ensuring the green energy dream becomes a reality:

  1. Streamline regulations regarding Power Purchase Agreements (PPA) and support the use of Direct Power Purchase Agreements (DPPA).

Negotiating standard PPAs with EVN, the sole power purchaser, is time-consuming, which cause rising total project costs. The streamlining of such deals would render them more attractive to power producers and cut lengthy approval time, which often leads to execution delays or complete abandonment of projects.

USAID and Vietnam’s Ministry of Industry and Trade are working together to enable private sector electricity buyers and renewable energy providers to enter into DPPA. This would allow industrial energy buyers to purchase electricity directly from independent renewable energy producers.

Such a mechanism would help companies enjoy constant power prices and ultimately save power costs. By signing a long-term DPPA to buy power from a clean energy generator, businesses can have a constant power price, reducing risk and helping firms establish long-term business plans with no surprises down the road.

  1. Improve the transparency of electricity rate forecasting.

Electricity prices will have to increase in order for Vietnam’s national utility to finance new energy projects, but the schedule for such increases remains vague. Better transparency of expected price increases will allow buyers and investors to more accurately value fixed-cost renewable energy contracts, which can offer some price protection.

Additionally, improving the quality and sourcing of data on renewable energy can help clarify for investors available locations, infrastructure capabilities and government targets, as well as other information to help reduce risk on investment decisions.

  1. Encourage supporting industries.

Supporting industries plays a crucial role in the development and adoption of renewable energy technologies. The government should promote domestic SMEs through capital subsidy and incentives such as tax breaks and preferential loans. A competitive supporting industry will help in reducing the tariff and investment costs for renewable projects, nurturing their development as part of Vietnam’s energy sector.

  1. Develop a renewable energy model for industrial parks.

Given the expectation that industrial areas will continue to play a big role in Vietnamese manufacturing and commerce, these parks are an important place to explore renewable solutions. Aggregating demand from tenants in the parks would help scale clean energy and make it more affordable for all.

Green power pioneer

Renewable energy has the capacity to power Vietnam and with the right policies in place, the country can deliver affordable, safe and clean power for continued economic growth.

Vietnamese businesses and the government could chart an unprecedented course for clean energy, and represent a role model for Southeast Asia — if they can address some key barriers. The changes detailed above would help drive the country’s energy transition toward a sustainable, greener future, and demonstrate that the fight against climate change can continue without American leadership.

For more information about Vietnam’s renewable energy sector, please contact Giles at GTCooper@duanemorris.com or any of the lawyers in our office listing. Giles is co-General Director of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.

L’impact de l’initiative “La Nouvelle Route de la Soie” sur le développement de l’infrastructure au Vietnam

Peu abordé au Vietnam, “La Nouvelle Route de la Soie” est le sujet de ma présentation lors d’un colloque sur les PPP organisé par la Chambre de Commerce et d’Industrie France-Vietnam et L’Association des Juristes en Coopération Economique et Affaires Internationales (AJCEAI) le 2 mai 2018 à l’Institut Français de Hanoi. OBOR-Vietnam Infrastructures-AJCEI-2018-05-02-S

Vietnam – Power/Energy Sector – Current Issues and Solutions for Investment and Outlook on Major Trade Deals TPP 11 and EUVNFTA

A. OVERVIEW
Vietnam contains huge potential regarding the production of clean energy. It has best conditions for developing solar power due to being one of the countries with the most sun hours during the year and best conditions for creating wind power due to 3000km coastline. As a result, Vietnam in general, is able to attract much FDI for developing clean energy projects.
Furthermore, the new Solar PPA was issued this year to solve the lack of regulation on solar power projects. Moreover, the issuance of the Circular 16/2017/TT-BCT on the power distribution of rooftop solar plants and the alleviation of the Operating License for power plants (lmw capacity) are notable developments in the power/energy industry in Vietnam. Moreover, the implementation of the Direct Power Purchase Agreement could step into pilot phase in the next time, thus, it is estimated to create better access to clean energy and increase of investment up to USD 2 billion in clean energy.
Another notable fact is the increase of the wind tariff in early August 2017. Now, Vietnam has implemented a wind power project with a capacity of 160 MW. The new tariff shall attract new and more foreign investments in the wind power industry in Vietnam.
B. ISSUES
1. Environment
The government is implementing more and more measures on protection of the environment. Vietnam plays a proactive role on reduction of emission and CO2 but the penalties for violation are very low. Furthermore, new regulations have to be issued to ensure more environmental protection, especially in terms of fossil power projects known to be a great danger for environment regarding to huge amounts of emissions and pollution. The project developers should be obliged to develop projects using highest environmental standards.
2. Solar PPA Policy
There are issues in the solar power policy necessary to be addressed.
In general, the goals on producing clean energy in large scale and the attraction of FDI cannot be reached sufficiently yet due to issues regarding electricity pricing and the content of the final power purchase agreement. These issues lead to restraining investments and delayed development of the clean energy industry in Vietnam.
Further, there are continuing concerns about lack of transparency regarding to solar power prices and due to lack of a published Roadmap for the retail sector. This leads to uncertainty of foreign investors regarding to stability of prices. Price transparency measures should be included in the Energy Plan and a Roadmap for the retail sector should be published. The issuance of a pricing framework can also lead to more investments in off-grid projects causing relieve of EVN’s pressure on power transmission, thus, the transmission system does not have to run near overstressing at daily peak hours. Moreover, the final template of the Solar PPA contains concerning provisions for investors such as (i) lack of EVN’s payment obligations in cases of transmission problems; (ii) lack of transparent possibilities for international arbitration; (iii) the lack of PPAs’ bankability. The final PPA needs to be amended to grant more security to investors and to attract more FDI. Moreover, the administrative regulations must be simplified for more efficiency in solar power project development as well as for easier market access, especially with regard on major trade agreements like TPP 11 and the EUVNFTA.
3. Power Storage
The Solar Battery is the most common way of storing energy but the technology is not well-developed yet in Vietnam. However, the country has the possibility to become leader in the new storage technologies in the eastern part of the world. This is another reason for the necessity of development of the solar industry and extremely important as power storage solution on remote islands in order with power production in those areas.
4. Project Applications
Currently, there is a very large number of applications for solar plants existing. This leads to concerns regarding to create a ,,bubble effect” which is causing gridlocks in project developing an delays in investment as well as uncertainty among investors.
For investors, to improve the chance on winning tendered biddings, it is important to provide conditions like (i) ensured safety for wildlife, people, environment or households; (ii) maintained grid connection, (iii) enough financial solvency regarding feasibility of the project; (iv) successful projects in energy or infrastructure areas in the past.
On the other hand, the Ministry of Industry and Trade (MOIT) guarantees that all investors of power projects will be able to connect the plants to the national grid. According to the MOIT, the total reserved capacity of all planned projects is only 30% of the whole capacity, so that, there is no reason for concerns regarding to finalized projects not able to start power producing because of missing opportunity on generating turnover.
C. OUTLOOK ON MAJOR TRADE AGREEMENTS TPP 11 AND EUVNFTA
In January 2017, US President Donald Trump decided to withdraw from the US’ participation in the TPP. In November 2017, the remaining TPP members met at the APEC meetings and concluded about pushing forward the now called CPTPP (TPP 11) without the USA. The agreement shall be signed by all member states by the first quarter of 2018. After that, it has to be ratified in each member state before taking effect.
The effects of the TPP 11 promising great benefits for the energy sector in Vietnam. The TPP 11 is targeting to eliminate tariff lines and custom duties among member states on certain goods and commodities to 100%. This will make the Vietnamese market more attractive due to technology advances, reduction of production costs and because of the high demand on renewable energy.
One another notable major trade agreement is the EUVNFTA between the European Union and Vietnam. The EUVNFTA offers great opportunity to access new markets for both the EU and Vietnam and to bring more capital into Vietnam due easier access and reduction of almost all tariffs of 99%, as well as obligation to provide better conditions for workers which is a key aspect in terms of working at power plants. In addition, the EUVNFTA will boost the most economic sectors in Vietnam. Moreover, the EUVNFTA will provide certain tax reductions to 0% for clean technology equipment as well as equal treatment for companies. Due to easier opportunity on making business, trade and sustainable development will be a good consequence for an even more dynamic economy and even better investment environment in Vietnam in general and especially in the power/energy industry.
Furthermore, the Investor State Dispute Settlement (ISDS) will ensure highest standards of legal certainty and enforceability and protection for investors. We alert investors to make use of these standards! We can advise how to best do that! It is going to be applied under the TPP 11 and the EUVNFTA. Under that provision, for investment related disputes, the investors have the right to bring claims to the host country by means of international arbitration. The arbitration proceedings shall be made public as a matter of transparency in conflict cases. In relation to the TPP, the scope of the ISDS was reduced by removing references to “investment agreements” and “investment authorization” as result of the discussion about the TPP’s future on the APEC meetings on 10th and 11th November 2017.
Further securities come with the Government Procurement Agreement (GPA) which is going to be part of the TPP 11 and the EUVNFTA.
The GPA in both agreements, mainly deals with the requirement to treat bidders or domestic bidders with investment capital and Vietnamese bidders equally when a government buys goods or requests for a service worth over the specified threshold. Vietnam undertakes to timely publish information on tender, allow sufficient time for bidders to prepare for and submit bids, maintain confidentiality of tenders. The GPA in both agreements also requires its Parties assess bids based on fair and objective principles, evaluate and award bids only based on criteria set out in notices and tender documentation, create an effective regime for complaints and settling disputes, etc.
This instrument will ensure a fair competition and projects of quality and efficient developing processes.

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If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com . Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Thank you very much!