Client Alert April 2019

Transcription

1 Renewable Energy Vietnam Client Alert April 2019 For more information, please contact: Frederick Burke Managing Partner Dang Chi Lieu Partner Nguyen Thanh Hai Associate Updated draft policy on Feed-in-Tariff Program from 1 July 2019 to 31 December 2021 for solar power projects in Vietnam Recent developments On 12 April 2019, the Ministry of Industry and Trade of Vietnam ("MOIT") released the third updated draft (the "Third Draft") of the Decision of the Prime Minister on the mechanism for encouraging the development of solar power projects in Vietnam (the "Draft Decision"). Most notably, the Draft Decision provides for a second Feed-in-Tariff ("FiT") program with FiT rates varying by location for application during the period from 1 July 2019 until 31 December Compared to the second draft, released in February 2019 ("Second Draft"), the Third Draft has made certain improvements for investors, including, among other things: extending the duration of the 2 nd FiT program to apply for two-and-ahalf years, from 1 July 2019 until 31 December 2021 (instead of being until 30 June 2021 under the Second Draft); increasing the FiT rates for "Floating solar power projects" by about 5.7%; incorporating the special policy for Ninh Thuan Province of Vietnam allowing certain solar power projects in Ninh Thuan Province with the total combined capacity cap of 2,000 MW achieving actual commercial operation date ("COD") by the end of 2020 to be eligible for the extended FiT 1 of 9.35 s per kwh. However, the Third Draft has removed "Solar power projects with integrated storage system" from the Draft Decision together with the previously proposed tariff, as previously proposed under the Second Draft. In addition, the Third Draft remains unchanged (compared to the Second Draft) regarding the irradiance zonal classification of provinces and cities into four different zones of Vietnam for purposes of the proposed tariff levels, as well as the specific tariff rates for "Ground-mounted solar power projects" and "Rooftop solar power projects/ systems". The Draft Decision of the second FiT program is proposed to replace the current Decision No. 11 (as revised by Decision No. 02) of the Prime Minister providing for the first FiT program with one single FiT rate of 9.35 s per kwh, in effect only applying to solar power projects achieving actual COD before 30 June 2019 (except for certain projects in Ninh Thuan Province as mentioned above). 1 Unlike the first format of the FiT, the Draft Decision proposes varying levels of geographical tariffs according to location and technology, classified by 4 different irradiance zones and involving 3 different solar power technologies. 1 Decision No. 11/2017/QD-TTg of the Prime Minister dated 11 April 2017 on the mechanism for encouragement of the development of solar power projects in Vietnam ("Decision No. 11") as amended by Decision No. 02/2019/QD-TTg of the Prime Minister dated 8 January 2019 ("Decision No. 02").

2 Specifically, the Draft Decision provides for a wide range of tariffs, which vary in the range from 6.67 s per kwh to s per kwh. However, under the Third Draft, there are still significant differences in tariff rates among different zones, provinces and solar technologies. Specifically, the MOIT continues to propose higher tariffs for provinces with lower solar irradiance (primarily the Northern provinces of Vietnam) and vice versa, lower tariffs for provinces with higher solar irradiance (namely those Southern and central provinces of Vietnam). This change still illustrates the Government's policy to diversify the locations for solar investments and navigate energy security priorities across different zones of Vietnam. However, this may have a significant impact on many ongoing solar power projects already under development or construction in Vietnam (whether they can achieve actual COD before 30 June 2019 or not) given that the majority of on-going projects are being developed in southern provinces and the central highlands of Vietnam with higher solar irradiance. Like the Second Draft, the Third Draft separates 6 provinces - namely Ninh Thuan, Binh Thuan, Khanh Hoa, Dak Lak, Gia Lai and Phu Yen - into a new group of irradiance zonal classifications (i.e., Zone 4) with the lowest tariff rates, ranging from 6.67 to 7.89 per kwh depending on solar technologies (except for certain projects in Ninh Thuan Province as mentioned above). Specific Tariffs proposed under the Third Draft Solar Power Technologies "Floating solar power projects" "Groundmounted solar power projects" "Rooftop solar power projects/ systems" Zone 1 Tariff Zone 2 Tariff Zone 3 Tariff Zone 4 Tariff / kwh 2 / kwh / kwh / kwh 2, , , , , , , , , , , , Compared to the Second Draft, the Third Draft has: increased the tariffs for "Floating solar power projects" by about 5.7%; left unchanged the tariffs for "Ground-mounted solar power projects" and "Rooftop solar power projects/ systems"; and removed "Solar power projects with integrated storage system" together with the previously proposed tariff of 8.72 s per kwh for Zone 3 and 8.21 s per kwh for Zone 4 under the previous Second Draft in February In relation to energy storage, in the Third Draft, 2 For the purpose of the Draft Decision, the MOIT applies the USD/ central exchange rate announced by the State Bank of Vietnam on 9 December Under the previous Second Draft in February 2019, "Solar power projects with integrated storage system" was defined as "grid connected solar power projects using an electrochemical storage system for the purposes of storing electrical power directly connected to the Power Purchaser s grid, with a required minimum storage capacity being 25% of alternating current (AC) capacity in 2 hours", but it has been removed under the Third Draft. 2 Baker McKenzie April 2019

3 the MOIT is required to formulate regulations and standards on energy storage; and Vietnam Electricity (EVN) is required to research and invest into energy storage solutions for the power systems to ensure stable operation when connecting and integrating power from renewable energy resources. Irradiance zonal classification For the purpose of the tariffs proposed above, as in the Second Draft, under the Third Draft, the four zones of Vietnam are classified as follows: Zone 1: comprises 28 northern provinces of Vietnam, including: Ha Giang, Bac Kan, Cao Bang, Tuyen Quang, Thai Nguyen, Lao Cai, Yen Bai, Lang Son, Quang Ninh, Phu Tho, Vinh Phuc, Bac Giang, Hai Duong, Hoa Binh, Hanoi, Ha Nam, Bac Ninh, Hung Yen, Hai Phong, Ninh Binh, Thai Binh, Ha Tinh, Nam Dinh, Quang Binh, Thanh Hoa, Lai Chau, Nghe An, and Son La. 4 Zone 2: comprises 6 central provinces of Vietnam, including: Quang Tri, Dien Bien, Thua Thien Hue, Quang Nam, Da Nang, and Quang Ngai. 5 Zone 3: comprises certain (23) central highlands and southern provinces of Vietnam, including: Kon Tum, Ca Mau, Hau Giang, Binh Dinh, Bac Lieu, Kien Giang, Soc Trang, Can Tho, Vinh Long, Tra Vinh, Lam Dong, Ben Tre, Tien Giang, An Giang, Dak Nong, Ho Chi Minh City, Dong Nai, Dong Thap, Ba Ria Vung Tau, Long An, Binh Duong, Binh Phuoc and Tay Ninh. Zone 4: comprises certain (6) central highlands and southern provinces of Vietnam, including: Phu Yen, Gia Lai, Dak Lak, Khanh Hoa, Ninh Thuan, and Binh Thuan. 6 Classification of solar power projects For the purpose of the tariffs proposed above, the Third Draft classifies solar power projects as follows: Floating solar power projects, which are defined as "grid connected solar power projects" having solar PV panels installed on structures floating on the water surface. 7 Ground-mounted solar power projects, which are defined as (i) "gridconnected solar power projects" having solar PV panels installed on the ground and (ii) rooftop solar power projects having solar PV panels installed on rooftop or civil buidlings with installed capacity of larger than 1 MWp. 8 4 Zone 1's provinces have an annual solar irradiance of 1, ,432.8 kwh/m 2 /year or daily solar irradiance of kwh/m 2 /day (according to the First Draft of 29 January 2019). 5 Zone 2's provinces have an annual solar irradiance of 1, ,676.1 kwh/m 2 /year or daily solar irradiance of kwh/m 2 /day (according to the First Draft of 29 January 2019). 6 Zone 3 and Zone 4's provinces have an annual solar irradiance of 1, ,910.3 kwh/m 2 /year or daily solar irradiance of kwh/m 2 /day (according to the First Draft of 29 January 2019). 7 "Grid-connected solar power projects" are defined by the Third Draft as solar power projects directly connected with the national grids, except for "Rooftop solar power systems". 8 Please note that the threshold of "installed capacity of larger than 1 MWp" is to be confirmed if it is "installed capacity of larger than 1 MWp" (i.e., exclusive of 1MWp) or "installed capacity of 1MWp or larger" (i.e., inclusive of 1MWp). 3 Baker McKenzie April 2019

4 Rooftop solar power projects, which are defined as solar power projects having solar PV panels installed on the roof, or attached to a building, and having an installed capacity of 1 MWp or less. In the Third Draft, the proposed tariffs will apply to part or the whole of solar power projects achieving actual COD between 1 July 2019 and 31 December 2021 (i.e., about 2 and a half years) for application for a PPA term of 20 years from the COD. Compared to the Second Draft, the Third Draft has extended this next (second) FiT Program's COD deadline from 30 June 2021 to 31 December 2021 (i.e., added an additional 6 months). Special Policy for certain solar power projects in Ninh Thuan Province Following the special policy for Ninh Thuan Province previously approved under the Government's Resolution No. 115, the Draft Decision incorporates the same and clarifies the tariff policy for solar power projects in Ninh Thuan Province as follows: 9 For Ninh Thuan Province's grid connected solar power projects, which were "already included in the Power Development Plans at levels", have a COD prior to 1 January 2021, and with the total capacity not exceeding 2,000 MW, the tariff will be 2,086 per kwh (exclusive of VAT), equivalent to 9.35 s per kwh (according to the USD / central exchange rate as announced by the State Bank of Vietnam on 10 April 2017 (USD 1 = 22,316). For Ninh Thuan Province's solar power projects achieving COD during the period from 1 January 2021 to 31 December 2021, the tariff under the second FiT program, as mentioned in the table of tariffs above, will apply (i.e., the currently proposed 7.24 s per kwh for "Floating solar power projects"; or 6.67 s per kwh for "Ground-mounted solar power projects"; or 7.89 s per kwh for "Rooftop solar power projects/ systems" as proposed under the Third Draft of the Draft Decision). We note that the Draft Decision and Resolution No. 115 are both still not entirely clear as to which specific solar projects in Ninh Thuan Province are confirmed to be eligible for the extended FiT 1 of 9.35 s per kwh. The Draft Decision appears to indicate a "first-come-first-serve" policy based on actual progress of relevant projects by setting the total capacity cap of 2,000 MW and the actual COD deadline before 1 January 2021 for relevant solar projects to progress to achieve actual COD as soon as possible during 1 July 2019 until 31 December 2020 to be eligible for the extended FiT 1 of 9.35 s per kwh. By "already included in the Power Development Plans at levels", it appears that the 2,000 MW package is meant to be open for solar power projects in Ninh Thuan regardless of whether they were approved for inclusion in the national-level or provincial-level Power Development Plans (or whether their installed capacity is up to 50MWp or larger than 50MWp). 9 Resolution No. 115/NQ-CP dated 31 August 2018 of the Government of Vietnam on special policies and mechanisms supporting socioeconomic development in Ninh Thuan Province from ("Resolution No. 115"). 4 Baker McKenzie April 2019

5 However, it is not entirely clear as to what is the point of time to determine when specific projects are approved for inclusion in the Power Development Plan ("PDP") for purposes of determining eligible projects. Particularly, it is not clear whether eligible projects must be approved in the PDP prior to 31 August 2018 (i.e., the effective date of Resolution No. 115) or a sooner date or before 1 July 2019 (i.e., the effective date of this proposed Decision) or another later date during the second FiT program period until 31 December 2020). Under the Draft Decision, the People's Committee of Ninh Thuan Province is required to coordinate with EVN to supervise and monitor grid connected solar power projects in Ninh Thuan Province achieving actual COD before 1 January 2021 with a total capacity not exceeding 2,000 MW under this proposed Decision and Resolution No Baker & McKenzie (Vietnam) Ltd. 12th Floor, Saigon Tower 29 Le Duan Blvd District 1 Ho Chi Minh City Socialist Republic of Vietnam Tel: Fax: Baker & McKenzie (Vietnam) Ltd. Hanoi Branch Office Unit 1001, 10th Floor Indochina Plaza Hanoi 241 Xuan Thuy Street Cau Giay District, Hanoi Socialist Republic of Vietnam Tel: Fax: * * * The Draft Decision indicates a clear trend for the next FiT period as well as setting certain priorities and perspectives of the Government of Vietnam. Please note that the proposed FiT rates, business models and specific requirements under the Third Draft are still in draft form although the likelihood and scope of any further potential revisions may vary. Please do not hesitate to contact us if you would like to: understand the rationales behind the proposed revisions of the Draft Decision; discuss legal feasibility, licensing and technical requirements for different solar power business models; discuss the likelihood and scope of upcoming additional guidelines by the MOIT for implementation of this proposed Decision and potential revisions going forward; discuss the potential impacts of the proposed Draft Decision to your specific projects and necessary steps going forward; and / or discuss opportunities for development and investment in solar, wind or other renewable power projects in Vietnam Baker & McKenzie (Vietnam) Ltd. All rights reserved. Baker & McKenzie (Vietnam) Ltd. is a member firm of Baker & McKenzie International, a global law firm with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a partner means a person who is a partner or equivalent in such a law firm. Similarly, reference to an office means an office of any such law firm. This may qualify as Attorney Advertising requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome. 5 Baker McKenzie April 2019