Tag Archives: ppa

Rechtsanwalt in Vietnam Dr. Oliver Massmann Solarstrom läuft an – große PPA Neuigkeiten – Der Text des PPA ist veröffentlicht – Wie man damit arbeitet:

Nach Entscheidung Nr. 11/2017/QD-TTg des Premierministers über die Mechanismen fuer die Förderung der Entwicklung des Solarstroms in Vietnam (Decision 11) vom 12. September 2017, hat das Ministerium fuer Industrie und Handel offiziell das Rundschreiben Nr. 16/2017/TT-BCT (Circular 16) für die Ausführung der Entscheidung herausgebracht. Circular 16 zielt auf das zur Verfügung stellen von Regulierungen fuer Formulierung, Genehmigung und Anpassung des nationalen, sowie provinziellen Strom Master Plans ab. Zudem wird der Solarstrom Kaufvertrag (Solar PPA) in Circular 16 zur verpflichtenden Vorlage für zukünftige Stromnetz -und Dachzellensolarprojekte und damit von grossem Interesse für ausländische Investoren. Ferner wird erwartet, dass nur kleine Änderungen während der Vertragsverhandlungen zugelassen werden.

Im Kern ist der Solar PPA fast vollstaendig dem momentanen PPAs fuer Projekte erneuerbarer Energien gleichend. Das laesst Probleme fuer die Bankfaehigkeit von Solarprojekten entstehen und ist ein Hindernis fuer Investoren in der Planung einer Investition in diesem Sektor.

Feed-in-Tariff (FIT)

Circular 16 wiederholt den Solar FIT für die Stromproduktion eines Stromnetzprojekts und für überschüssige Stromproduktion von Dachzellenprojekten. Dieser soll laut Decision 11 bei 2086 VND/kWh oder bei 9,35 US cents/kWh liegen. Dieser Tarif wird nur bei Stromnetzprojekten und Dachzellenprojekten angewendet, deren kommerzielle Nutzung vor dem 30. Juni 2019 beginnt. Der Tarif gilt fuer 20 Jahre ab dem Beginn der kommerziellen Stromerzeugung. Wir heben hervor, dass der FIT für die Stromproduktion von Stromnetzprojekten nach dem Wechselkurs zwischen VND/USD angepasst wird, dies aber nicht für die Dachzellenprojekte gilt. Stattdessen bleibt der FIT fuer überschüssige Stromproduktion von Dachzellenprojekten im ersten Jahr gleich und der neue FIT des nächsten Jahres wird basierend auf dem Wechselkurs von VND/USD des letzten Arbeitstages des Vorjahres, angepasst.

EVNs Rechte und Pflichten als einziger Stromabnehmer

EVN ist nach den Bedingungen und Regelungen des Solar PPA für 20 Jahre verpflichtet, den gesamten produzierten Strom zu kaufen, der von Solarstromprojekten erzeugt wird. Es ist erwähnenswert, dass Circular 16 und der Solar PPA die Kaufpflicht EVNs unter bestimmten Umständen aufhebt, wie zB:

  1. Wenn EVN Ausrüstung installiert, Reparaturen durchführt, Komponenten ersetzt oder bei Inspektion und Prüfung der Netzverbindung vom Kraftwerk des Verkäufers.
  2. Wenn die Stromtransmission oder Verteilung zu EVNs Netz ein Problem hat oder bei direkter Verbindung mit EVNs Netz oder dem Verteilungsnetz und dort ein Problem auftritt; und
  3. Wenn EVNs Netz Unterstützung bei der Wiederherstellung nach einem Vorfall benötigt, gemäß den Bestimmungen ueber die Operation des Nationalen Stromsystems -und Standards und gemäß den technischen Regulierungen der Elektro-Industrie.

Leider enthält der Solar PPA keine Vorkehrungen zum Schutz der Interessen des Stromverkaeufers in den oben genannten Fällen. Fuer den Stromerzeuger ist es sehr riskant, wenn der Strom bereit steht, aber die Netzverbindung für die Verteilung nicht verfügbar ist. In Abwesenheit einer klaren Bestimmung des Solar PPA ein ,,take or pay“ Abkommen zu sein, werden es Investoren schwer finden die Gewinne und Umsätze ihrer Projekte zu sichern und zu gewährleisten.

Streitschlichtung

Der Solar PPA erlaubt es jeder Vertragspartei den Streit zu einem lokalen Gericht oder einer anderen energiebezogenen staatlichen Koerperschaft Vietnams (Generaldirektorat fuer Energie und die Elektrizitaets Regulierungsbehoerde von Vietnam) fuer dessen Vermittlung oder Lösung zu tragen. Der Solar PPA gewährt keine internationale Schiedsgerichtsbarkeit fuer eine Streitresolution. Das könnte eine grosse Sorge für ausländische Investoren darstellen, vor allem solche von Grossversorgungsprojekten.

Andere Schluesselprobleme als Grund zur Sorge

  • Keine Regierungsgarantie für die Verbesserung des Ansehens von EVN als einzigen Stromabnehmer;
  • Keine Regulierung greift das Risiko für Gesetzesaenderungen des anwendbaren Rechts auf; und
  • Der Solar PPA muss einer bestimmten Vorlage folgen, die nicht bankfaehig ist.

Zusammenfassung

Trotz der oben erwähnten Probleme hinsichtlich der Bankfähigkeit des Solar PPA, die der Probleme der anderen PPAs erneuerbarer Energien gleicht, haben Wir unseren Klienten bei verschiedenen Grossstromprojekten assistieren können – dies auch im Bereich erneuerbarer Energien mit dem Gewinn der Bankfähigkeit des PPAs mit EVN. Wir glauben mit fester Überzeugung, dass unsere Erfolgsbilanz Investoren helfen und zum gleichen Ergebnis bei Projekten mit dem Solar PPA führen wird.

***

Falls Sie irgendwelche Fragen haben bzw. Details erfahren wollen, zoegern 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!

 

 

 

Vietnam plays a calculated game of risk with new solar PPA

Vietnam appears to be betting on gung ho enthusiasm to kick start solar power development rather than taking bold steps to deliver a stable backbone to the industry.  It’s a gamble that may pay off in the short term but might also saddle the country with poorly-conceived and under-performing projects in the long term.

 

To much fanfare, Vietnam’s Ministry of Industry and Trade (MoIT) released Circular 16 in including final template power purchase agreements (PPA) for the solar energy sector. The circular and PPA templates follow a draft issued back in April this year, and are stated to be mandatory templates for utility-scale and rooftop solar projects.

 

The original draft PPA for utility scale grid projects was met with criticism, and declared non-bankable by most experts and commentators (despite hewing closely to the previously-issued standard PPA for wind projects). Unfortunately, little has changed with the final version of the PPA.  Would-be investors raised serious concerns over the amount and type of risk the PPA sought to shift to investors, and the message delivered was that unless the government was willing to address some of the most glaring problems, few reputable foreign solar players and, just as importantly, few reputable financiers would be likely to sign up.

 

Having largely ignored recommendations provided, the final text does little to inspire confidence. The final PPA does not improve upon the main critical issues highlighted in April.  Issues include a lack of measures to compensate producers for interruption in the ability to receive power, force majeure conditions, contract suspension, and settlement of disputes.

 

Tariff trouble

 

With the FiT rate of US$0.0935/kWh for grid-connected solar power projects confirmed, Circular 16 goes on to outline that the FiT is available for 20 years to projects, or parts of projects, that reach commercial operation before 30 June 2019.

 

As with the draft from April, the final PPA does not include any indexation of the FiT to the Consumer Price Index (CPI) to address inflation risks. In response to concerns over fluctuating exchange rates, the circular does state that “the FiT for the following year shall be adjusted according to the central exchange rates of the Vietnamese dong against the US dollar announced by the State Bank of Vietnam on the last working day of the preceding year.”  Annual adjustment is better than none but it wouldn’t have been difficult to spread adjustments throughout the year.

 

As a way to offset the relatively low tariff, and inflation risks, investors may be able to benefit from tax exemptions on raw materials and supplies imported for their projects, corporate income tax relief, and an exemption from land rental fees within the first three years of commencing commercial operation.

 

A risk too far?

 

Under Decision 11 (which also set the FiT) and the final version of the PPA appended to Circular 16, Electricity of Vietnam (EVN) is responsible for purchasing the entire power output from grid-connected projects at the stated FiT.

 

However, the PPA relieves EVN from payment obligations in cases where it is unable to take power due to a breakdown of the transmission or distribution grid. With many solar projects currently focused on few central locations, the capacity of existing facilities to absorb power must be a cause of some concern given the PPA’s transfer of such risk to power producers.

 

Worryingly, the PPA lacks any mechanism to compensate power producers should interruptions happen outside of their control. Not only does the PPA not provide for extension of time in case of force majeure, but if force majeure were to prevent a power producer from meeting its obligations for a year then EVN could unilaterally terminate the PPA with no compensation payable.  In such circumstances, the power producer is left alone in the dark.

 

Such arrangements might be acceptable to projects that manage to negotiate clear ‘take or pay’ terms and/or government guarantees, but it is highly questionable whether and to what extent either of these will be possible in the current climate.  As a direct consequence, it is equally questionable to what extent private finance will be prepared to bear the risk, a fact that will prompt capital to seek more favourable conditions in other markets.

 

Playing by house rules

 

If the above portends of problems in the relationship with EVN, investors may be further discouraged by the lack of specifics in terms of dispute resolution. The PPA is governed by Vietnamese law and does not itself expressly include the right to agree on international arbitration to resolve disputes, a condition that would typically be considered an important requirement.

 

As it stands, disputes can be submitted to the Electricity Renewable Energy Department (formerly the General Directorate of Energy) for mediation. If that doesn’t work, there is the option of escalating the issue to the Electricity Regulatory Authority of Vietnam (ERAV) or pursuing litigation in Vietnam’s courts.

 

The PPA does allow for “another dispute resolution body to be agreed by the parties”, which potentially opens the door for sellers to negotiate with EVN on dispute resolution, including offshore or even domestic arbitration.  But it is not clear if EVN will agree to directly amend PPAs to allow for express prior agreement on offshore arbitration or simply open the door for such a discussion at the time of a dispute.  Clearly in the latter case the deck is firmly stacked in EVN’s favour.

 

One step forward… wait and see

 

The MoIT is well aware of the deficiencies in the PPA and knows that, in its current form, it will not attract the kind of investment Vietnam needs if it is to meet both its energy demands and renewable targets. They know that investors were hoping for some of the shortfalls to have been addressed, and as such the agreement remains – for all intents and purposes – largely unbankable.

 

On the other hand however, the MoIT is also acutely aware of the significant interest in Vietnam’s solar sector. The vast potential of solar power is there for the taking, with abundant land available for the development of solar farms for first movers. With this in mind, the PPA can be considered an attempt to test the waters – asking how much risk investors are willing to bear in return for a piece of the action.

 

The MoIT is confident that smaller, nimble players will be attracted to Vietnam and make investments, regardless of the bankability of the PPA on paper. The question truly posed by Circular 16 is: exactly how much risk are investors willing to accept?  What better way to test it than in open market conditions?  If risk allocation adjustment need to be made in future, the Prime Minister, MoIT and EVN can make them relatively easily.

 

Ultimately, although the PPA is “final” on paper, the real trick is for investors to work hard and smart to agree adjustments on a project-to-project basis that re-align specific risks in acceptable ways.  Each project is a sum of many different elements and successful investors in the early days at least will be the ones that focus their energies on key issues for their projects where they can make meaningful progress.  Opportunity vs. risk: Vietnam is playing a calculated game at the dawn of the solar energy sector.  Where the chips fall remains to be seen.

 

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 SOLAR POWER – THE FIRST OFFICIAL PPA – VIETNAM INVESTMENT REVIEW INTERVIEWING DR. OLIVER MASSMANN

1. Could you point out for me the good point of this solar PPA?

While the previous draft solar PPA does not require the Feed-in-Tariff (FiT) conversion between USD and VND be according to the exchange rate at the time of payment, this newly issued solar PPA repeats the language in Decision No. 11/2017/QD-TTg (Decision 11) that the FiT will be adjusted according to the fluctuation in the VND/USD exchange rate. This is consistent with what is stipulated in Decision 11.
In addition, I note that while the FiT for power output from on-grid projects is adjusted according to the fluctuation in the VND/USD exchange rate, meaning at any time during the year, it is not the same for rooftop projects. Instead, the mentioned FiT for excessive power output generated from rooftop projects remains the same throughout the first year of operation, and the new FiT for the next year will be adjusted based on the announced VND/ USD exchange rate of the last working day of the previous year.

2. Are there any concerns of investors that the solar PPA has not solved?

The rights of the investors are not fully protected in the following cases:
– when EVN is in the process of installing equipment, or making repairs, replacement, inspection or examination of the grid connection of the seller’s power plant;
– when the transmission grid or the distribution grid connected to EVN’s grid has a problem or grid equipment directly connected to EVN’s transmission grid or the distribution grid has a problem; and
– when EVN’s grid needs support to recover after the incident in accordance with the provisions of operation of the national power system and the standards, technical regulations of the electric industry.
– allocation of feeding points into the grid
It is quite risky for the producer if the output is ready to be fed to the grid but the connection is not available to do so. Absent a clear indication of whether the Solar PPA is a ‘take or pay” agreement, investors will find it difficult to secure and ensure the profits and revenue of their projects.
• No international arbitration dispute resolution clause
• No Government guarantee to enhance the credit of EVN as the sole off-taker;
• No provision addressing the risks of changes in applicable laws; and
• The Solar PPA is required to follow a specific template, which is not bankable.

3. Is this PPA solar bankable or not?

This PPA is not bankable due to reasons specified in 2).

4. In your opinion, how Vietnam government should do in order to reach their target for solar power capacity in the coming to time?

There is an increasing interest of foreign investors in the sector, proven by the fact that there are many solar projects with total capacity of 10,000 MW registered with the MOIT. However, not many of them have submitted the pre-feasibility study to the MOIT for consideration. There are many reasons behind this, but the most important ones are the lack of Government guarantee of EVN’s payment obligation in the PPA and currency hedging. Thus, the Government should consider a mechanism where EVN has to fulfil its payment obligation and the investors are ensured that they will be able to remit their profits abroad in foreign currency.

***
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.
Thank you!

Solar deals despite doubts: bankable or not, investors dive in

Foreign interest in Vietnam’s solar sector had surged after the Ministry of Industry and Trade (MoIT) announced a solar feed-in tariff (FiT) and a draft solar PPA earlier this year.  Concerns over the bankability of the proposed agreement have done little to dampen enthusiasm, with a number of players eager to get a slice of a Southeast Asian success story.

Continue reading Solar deals despite doubts: bankable or not, investors dive in

The sun rises on Vietnam’s energy sector

Over the past three decades Vietnam has witnessed startling economic success thanks to the country’s openness to international trade and investment. The energy sector in particular has grown rapidly, with abundant hydrocarbons and hydropower resources allowing the country to keep pace with the energy demands of a rising population.

 

However, there may be clouds on the horizon. The most easily-accessible resources are running out and imports of coal and gas will be increasingly needed to keep industry chugging along. To maintain its high rate of growth Vietnam will be looking for huge investment over the coming years. In order to do this, and keep to its international greenhouse gas commitments, the government has set its sights on some ambitious targets for solar power generation.

 

Recent decisions issued by the government represent baby steps in this direction. Evidently, there is some enthusiasm for a solar-powered future, but is it enough?

Continue reading The sun rises on Vietnam’s energy sector

Vietnam – Wind Power Breaking News – One of the first foreign financed Wind PPAs signed – Duane Morris advised on this transaction – What you must know

 

EAB New Energy GmbH (“EAB”), a German privately held SME with business activities around the world (Asia, Latin America, South Africa), engaged Duane Morris Vietnam LLC to advise on one of the very first privately financed Wind Energy Power Purchase Agreements for a wind power project in Vietnam – the “Mui Dinh” wind project (SPV el-wind Mui Dinh LLC) with a total investment value at final stage of about 60 Million USD.

EAB, in close co-operation with its subsidiary in Vietnam – WPV Wind Power Vietnam LLC, has received the Construction Permit for the wind power plant in Ninh Thuan province and will start the wind farm construction works in due course. Duane Morris Vietnam LLC advised EAB in the negotiation of the Wind Power Purchase Agreement with the Electricity of Vietnam (“EVN”) to connect into to the national electricity and sell electricity to EVN (the “Project”). The Wind Power Purchase Agreement was signed on 01 February 2016. This is one of the first signed Wind Power PPA in Vietnam and EAB is one of the first foreign companies with this success.

Given the fact that Vietnam’s wind energy potential is highly appreciated by investors in comparison to its ASEAN neighbours, and very good for building large wind power plants, the success of this Project is considered to pave the way for development of another 40 wind power development in Vietnam, roughly 513,360 megawatts.

This is the beginning of a sizeable privately financed wind energy sector in Vietnam.

Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you want to know more details on the above or need our assistance in your project. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

 

 

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.
***
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.