Vietnam has great potential for developing wind energy projects, having a coastline of over 3,400 kilometers (km) with average wind speeds ranging from 4.5 meters per second (m/s) onshore to 10 m/s in certain offshore areas, as well as a high degree of solar irradiation which in some areas can exceed 4 kilowatt hours (kWh) per square meter (m²) per day on average. The technical potential for the development of wind and solar power in Vietnam has been estimated to be over 600 gigawatts (GW in) aggregate.1

Given environmental concerns over the continuing development of coal-fired and large-scale hydropower plants (and constraints in available financing sources) , the relatively slow development of the natural gas industry and the government's decision to suspend nuclear power development, solar and wind power is generally viewed as a viable alternative to meet Vietnam's future electricity generation needs. The sector has also been attracting direct investment from overseas as there are no foreign ownership restrictions that apply to the development of renewable energy projects in Vietnam.

This view has been supported by the exponential growth in the number of solar photovoltaic (PV) projects that have connected to the grid over the past two years, supported by relatively attractive feed-in-tariffs. Total installed solar capacity has reached 4,460 megawatts (MW) and is expected to hit 5,500 MW by the end of this year2, representing around 9-11 percent of Vietnam's total current installed generation capacity3 and exceeding the seven percent target for renewable energy set out in the government's revised Power Development Master Plan VII.

In contrast, there are still only a handful of operational wind farms (including one offshore) representing around 300 MW of installed capacity, although momentum is quickly growing. 4

The evolution of power purchase agreements (PPA)

The power market in Vietnam remains heavily state-dominated, despite the government's stated intention to establish a competitive market-driven environment. 5 To date, state-owned Vietnam Electricity (EVN) remains the sole electricity off-taker and distributor in Vietnam. 6

Large-scale thermal projects have historically been developed in Vietnam pursuant to build-operate-transfer (BOT) regulations and benefit from developed international market standard and foreign law governed concession agreements, power purchase agreements with EVN and government guarantees. Vietnamese renewables projects are, however, developed according to the generally applicable Law on Investment7 and sector specific regulations, 8 which provide for tariffs, incentives, and a standard form PPA to apply to EVN's offtake obligations over a period of 20 years.

The risk allocation in the standard PPAs has fallen short of international expectations however, 9 including with respect to transmission and distribution interruptions being a seller risk, the uncertainty over change in law protection, lack of a clear mechanism to calculate termination payments, and the dispute resolution mechanism.

This has not, however, slowed the progress of the development of renewables projects, in particular in the solar sector, which has been supported to a great extent by local bank and vendor financing - although it could help explain the slower momentum of wind power projects given the higher initial investment costs.

In response to market concerns, the standard wind PPA was replaced in January 2019 and now incorporates some changes which were welcomed by investors. These include removing limitations on EVN's liability where the PPA is terminated due to EVN default, 10 and provisions to allow scheduled commercial operation date to be extended by the seller in certain circumstances to which EVN may not unreasonably object (beyond the previously existing force majeure relief). 11 Looking to 2020, the hope is that further amendments will be made to both the wind and solar PPAs to help mobilise a far greater level of large scale foreign investment and credit.

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1 Vietnam Energy Outlook Report 2019, prepared by the Electricity and Renewable Energy Authority in Vietnam under the Ministry of Industry and Trade (MOIT) together with the Danish Energy Agency in collaboration with the Danish Embassy in Hanoi; Global Solar Atlas – Vietnam, published by The World Bank, ESMAP and Solargis, available here (last accessed 28 February 2020).

2 The attraction of solar power to investors, published in the E-Newspaper of the Government of the Socialist Republic of Vietnam, available here (last accessed 28 February 2020); Vietnam becomes Southeast Asia's hottest solar PV market, by Wood Mackenzie, available here (last accessed 28 February 2020).

3 Estimated based on range between recently reported value of 49GW for Vietnam's total installed power generation capacity at the end of 2018 (Vietnam Energy Outlook Report 2019, op. cit. 1) and target of 60MW for 2020 set out in the revised Power Development Master Plan.

4 Potential and Challenges for renewable energy development in Vietnam, published by Ministry of Industry and Trade of Tuyen Quang Province, available here (last accessed 28 February 2020).

5 In particular Decision No. 63/2013/QD-TTg by the Prime Minister regarding electricity market formation roadmap, dated 8 November 2013.

6 At the early stage of the competitive wholesale market five subsidiaries of EVN (Northern Power Corporation, Southern Power Corporation, Central Power Corporation, Power Corporation Hanoi and Power Corporation Ho Chi Minh City) are also permitted to purchase electricity in addition to EVN – see Circular No. 45/2018/TT-BCT by the MOIT on the operation of the competitive electricity wholesale market, dated 15 November 2018.

7 Law No. 67-2014-QH13 on Investment dated 26 November 2014.

8 Including, for wind: Circular No. 02/2019/TT-BCT of the MOIT on the development of wind power projects and the model PPA for wind projects, dated 15 January 2019; effectively replacing the previously applicable Circular 32/2012/TT-BCT dated 12 November 2012; and, for solar: Circular No. 16/2017/TT-BCT of the MOIT for the implementation of the Solar Decision on solar power projects in Vietnam, dated 12 September 2017, and Circular No. 05/2019/TT-BCT of the MOIT on the amendment of Circular No. 16/2017/TT-BCT, dated 11 March 2019.

9 For further detail see our briefing "Renewable energy in Vietnam", dated March 2019.

10 Under the previous iteration of the PPA, EVN's liability in these circumstances was limited to the value of the actual power output generated by the seller in the 12 month-period prior to the termination.

11 Circular No. 02/2019/TT-BCT of the MOIT on the development of wind power projects and the model PPA for wind projects, dated 15 January 2019.

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