With respect to investor’s risks in the PPA – risks which you noted that have not been adequately addressed so far – do you expect any significant policy change/improvements this year? Overall, how do you assess the Vietnamese government/MOIT’s receptiveness to industry’s recommendations so far?
We have been informed by our contacts in the Ministry of Industry and Trade (“MOIT”) that the MOIT is considering to adjust and issue new template PPAs for both wind and solar power projects within this year to improve the bankability of the current template PPAs. Thus, we could expect that the final template PPAs for renewable energy to be more bankable though details of such improvements are a question mark. Among other issues, Vietnam’s transmission infrastructure is still underdeveloped and the power retail price is highly controlled, thus Vietnam must aim to manage a reasonable low number of renewable power projects connected to the grid to ensure the stability and capacity of the network and balance the costs / finance burden by the State and EVN to support renewable energy projects.
Also ERAV of MOIT is working on pilot direct PPAs that would enable renewable generators to have bankable power plants projects with finance supports directly from the industrial consumers. We believe this pilot policy will be the key development / change for investment in renewable energy sector in Vietnam.
Overall, Vietnamese government / MOIT is welcoming all comments, recommendation and contributions from the business and legal community. However, so far, other than the pilot direct PPAs, almost all key industry’s recommendations on renewable policy have not been considered and reflected in the regulations of Vietnam.
The changes made in the new wind PPA shows that the government is listening to investor’s concerns. They do not go as far as many would like but they are a step in the right direction. The MOIT is working on a post-feed in tariff world where investors will bid for projects at auction and allow the market to set prices. At that point there will be true motivation to improve the PPA as all parties know that a better PPA will mean more and cheaper financing. That, in turn, will lead to lower competitive bids and thus a better financial result for EVN.
Question #2: With the proposed new FiT tariffs for solar energy projects operational after June 2019, how do you expect investors’ interest in the sector to change going forward?
Regarding new Fit tariffs for solar energy projects after June 2019, the business opportunity in this sector is still promising but foreign investors must carefully consider its project location, technology and installed capacity. For example, regarding high capacity (e.g., 100MW or more) project and location in developed infrastructure location, it is likely feasible for foreign investors to have sufficient leverage to achieve more bankable PPAs with EVN, and / or seek support from other sources to implement its projects in Vietnam (such as Multilateral Investment Guarantee Agency or MIGA). In addition, direct PPAs, when fully implemented, could promote several renewable projects as the pilot may address the costs burden of EVN / its power companies in relation to current FiT based renewable energy projects.
We may see some more interest in the North which to date has had very little activity from solar developers. The irradiation is obviously lower in the North but the new proposed FiT is commensurately higher. I hope this will spread the projects around a bit more, something that is critical to sustainable and effective development of solar power.
Question #3: In your opinion, what will be the main driver(s) of continued investment in Vietnam’s renewable energy sector?
We believe there are two main drivers of continued investment in Vietnam’s renewable energy sector: (i) direct PPAs pilot when it is to be fully implemented (hopefully end of this year), and (ii) high installed capacity solar / wind energy (100MW or more) projects that could achieve bankable PPAs and / or co-invest / support in the development of local transmission network.
The main driver in the short term will remain the FiTs but the prospect of a functioning corporate PPA market is very exciting and could spur great change in a short period of time. Nearly half of all RE100 companies are present in Vietnam some with very substantial energy-intensive operations. I believe they could be a big demand driver and there are many developers who will be interested to meet their demands.
If you have any question, please let us know.
Please do not hesitate to contact Dr. Oliver Massmann under email@example.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.