LAWYER IN VIETNAM DR. OLIVER MASSMANN - VIETNAM – WHY YOU SHOULD INVEST IN RENEWABLE ENERGY NOW
1. VIETNAM – WHY YOU SHOULD INVEST IN RENEWABLE ENERGY NOW
It has never been easier and more beneficial to invest in renewable energy in Vietnam. The
country has one of the most sun hours during the year and boasts a 3000km coastline suited for
wind power development. The Government has been encouraging foreign investment in this
sector by naming renewable energy one of the 5 sectors eligible for Public-Private Partnership
development and the vast benefits thereunder, issuing standard Power Purchase Agreements
taking into account opinions of foreign investors as well as Feed-in-Tariff (FiT) rates for wind
and solar power projects, ratifying the EU-Vietnam Free Trade Agreement, the Comprehensive
and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and so on.
I. Analysis of the energy sector in Vietnam
Vietnam has attained many successful achievements in the energy sector in the past 10 years. Oil
and gas development output has increased, forming a number of large-scale petrochemical
refining facilities; wind and solar power projects developing at high speed. However, as energy
consumption increases and consumption structure shifts towards industrialization, Vietnam faces
increasing energy import. Some indicators of energy security are already moving in an adverse
direction. On top of this, the mass use of fossil energy sources has severely polluted the
environment despite strict penalties measures.
In response to this, the Government has promoted the development of renewable energy sources
to fully replace fossil ones. It is also encouraged to use wind, solar and hydrogen power for
electricity generation, especially rooftop and water surface solar projects as well as offshore
wind projects. Moreover, investors are encouraged to invest in the construction of power plants
using urban waste, biomass and solid waste.
Promoting the development of renewable energy sources is a feasible and effective solution to
counter power shortage issue because renewable energy projects can be constructed quickly and
promptly for operation in the period 2021-2023, while taking advantage of the country's natural
potential without relying on extraneous factors such as imported fuels and is eco-friendly.
By 2030, Vietnam expects to see about 20% of renewable sources in the total primary energy
supply. By 2045, this is anticipated to increase to approximately 30%. The Government is also
looking to import about 8 billion cubic meters of LNG by 2030 and 15 billion cubic meters by
2045.
Vietnam aims to make gas electricity an important power supply source, especially gas-fired
thermal power projects using LNG. The country is looking to improve technology for the
exploration and development of domestic gas sources. It is commendable to develop thermal
power projects synchronously from fuel supply, storage to plant construction phase with the
electricity-selling price determined through bidding.
Solar power energy
2. Under Decision 13/2020/QD-TTg, the FiT rate is 7,09 US cents/kWh for grid-connected projects
that have Decision on Investment Policy approved before 23 November 2019 and Commercial
Operation Date (COD) between 1 July 2019 and 31 December 2020. With respect to Ninh Thuan
province, purchase price of electricity in grid-connected solar power projects included in
electricity development planning with COD before 1 January 2021 and capacity of no more than
2000MW is 9.35 US cents/kWh.
The FiT rate for floating PV project is 7,09 US cents/kWh. For rooftop projects, the rate is
8,38US cents/kWh but this is negotiable if the purchaser is not Electricity Vietnam (EVN).
On 31 August, the Ministry of Industry and Trade issued Circular 18, which entails the new
standard Power Purchase Agreement (PPA) for grid-connected and rooftop solar power projects.
The new PPA has helped to solve the lack of regulations on solar power projects since July last
year. However, the template contains concerning provisions for investors, namely (i) the lack of
EVN’s payment obligation in case of transmission problem, (ii) the lack of transparent
possibility for international arbitration and (iii) the lack of bankability. Though parties can
supplement details to the Agreement, such changes must not derogate substantially from the
provision of the standard template.
Wind power energy
Under Circular 02/2019/TT-BCT, the FiT rate is 8,5 US cents/kWh for onshore projects and 9,8
US cents/kWh for offshore projects. The deadline for these rates is 1 November 2021. From then
onwards, the Government is looking into the option of implementing the auction mechanism for
the sale and purchase of wind energy with a view to promote competitiveness and transparency
within the power market. The Ministry of Industry and Trade has been proposing to extend the
FiT rate for wind power projects until the end of 2023 in order to give investors ample time to
put their plants into operation. The standard template for wind power purchase agreement is also
available under Circular 02.
Currently, the electricity grids in Vietnam is experiencing overload, leading to power plants have
to operate below their maximum capacity. This has evidently resulted in breakdown of
equipment and financial loss. EVN is the only company in Vietnam authorized to carry out
upgrade for grids, so it can be very time-consuming for investors having to wait while they also
have the expertise and funding to step in and ameliorate the grids. The issuance of a pricing
framework leads to more investment in off-grid projects, thus relieving pressure on the
transmission system.
Bioenergy
Bioenergy is the production of energy from biomass materials such as the byproducts of
agricultural, food and forestry industries, as well as domestic and industrial waste management
systems.
In Vietnam, metropolitans like Hanoi and Ho Chi Minh City have been dealing with rapidly
increasing amount of waste and air pollution caused by the popular method of burning them. For
3. instance, statistics produced by the Government show that HCM City produces more than 9000
tons of waste per day. As a result, Vietnam has strongly encouraged investment in the waste-to-
electricity sector in order to protect the environment and boost energy efficiency.
In 2014, the Prime Minister issued Decision 31/2014/QD-TTg on supporting mechanisms for
development of power generation projects using solid waste in Vietnam. Notable incentives
include: (i) An obligation on purchaser to buy all power produced by the plants under its
management, (ii) Exemption from import tax for goods imported to create fixed assets for the
project and (iii) Land rent reduction/exemption (subject to the project’s location). The FiT rate is
10.05 US cents/kWh for projects that burn solid waste directly and 7.28 US cents/kWh for
projects that combust gas collected from landfill. The standard PPA for solid waste-generated
power projects that are connected to the grid is issued in Circular 32/2015/TT-BCT.
Hydrogen power
The only materials required for hydrogen production are nature-granted elements water and
sunlight radiation, meaning hydrogen is an inexhaustible source of fuel. The use of hydrogen
power has been strongly encouraged by the Vietnamese government given its eco-friendly
characteristics and the fact that it can be used to build independent power stations that self-
supply to cities without being connected to the national grid – which is almost overstressed daily
during peak hours.
Hydropower is used in a fuel cell, which does not generate any types of pollution and has higher
efficiency rate as well as save more energy compared to internal combustion engines (used for
the burning of gas, oil and other fuels with air). Fuel cells are definitely a promising renewable
energy source and investors are encouraged to explore the option of developing hydrogen
projects in Vietnam.
II. The role of major trade agreements in supporting foreign investors
Foreign investors engaging in the energy sector can reap the benefits of various business
guarantees under the EU-Vietnam Free Trade Agreement (EVFTA), the EU-Vietnam Investment
Protection Agreement (EVIPA), the Comprehensive and Progressive Agreement for Trans-
Pacific Partnership (CPTPP), the Law on Investment in the form of Public-Private Partnership
(PPP), the new Law on Investment 2021 and so on.
The EVFTA came into force on 1 August 2020 and is applicable to investors from the European
Union. The EVIPA has been ratified and is pending the EU’s Parliament consent to be
enforceable. The CPTPP took effect since 14 January 2019, its signatories including strategic
allies to Vietnam such as Japan, Canada, Australia and Singapore. Many provisions under these
two major trade agreements are directly related to investment in renewable energy sector, namely
Government Procurement and Investor-State Dispute Resolution.
Government Procurement
4. Government procurement, in general, is the process in which a governmental authority (the
procuring entity) purchases goods or acquires services for public purposes. Vietnam, for the first
time, engages in international government procurement commitments through the CPTPP and
EVFTA. The Government Procurement Chapters (Chapter 15 in CPTPP, and Chapter 09 in
EVFTA) feature the determination of Vietnam to open the public procurement market.
Specifically, Vietnam commits to enhancing transparency in the selection of contractors by
disclosing bidding information and removing unnecessary qualification procedures. Concurrently,
Vietnam recognizes the fair, impartial and confidential treatment of tenders. At the moment,
Vietnam has implemented online bidding mechanism that allows investors to easily find
information on quantity and price of a bidding package. Template dossier used for goods
procurement and related consultancy are also published online.
It should be noted that there are some substantial differences between CPTPP and EVFTA with
regard to government procurement. First, in CPTPP, Vietnam only commits to opening
procurement by 21 ministries and central authorities. In the EVFTA, however, the scope of
procuring entities is broader. In addition to central authorities, sub-central authorities and state-
owned enterprises, public hospital, public institutes and universities are also entitled to partake in
government procurement process. Second, the EVFTA sets out more circumstances in which a
supplier shall be excluded from participating in procurement, including (i) insolvency; (ii) false
declarations; (iii) significant deficiencies in the performance of substantive obligations in prior
contracts and (iv) failure to pay taxes.
The Government Procurement mechanism is expected to provide opportunities and benefits for
foreign investors in a way that they can compete fairly and transparently with Vietnamese state-
owned enterprises (SOEs).
Dispute Resolution
Foreign investors are given high level of protection under the EVIPA. This Agreement is the
combination of the New York Convention 1958 and the ICSID 1965. The EVIPA and CPTPP
make it possible for foreign investors to sue the Vietnamese Government for its investment related
decisions. The final arbitral award is binding and enforceable regardless of questions from the
local courts regarding its validity.
In particular, EVIPA stipulates a two-tier arbitration mechanism, in which parties can appeal if
they are not satisfied with the first award issued by the arbitration panel. However, if neither
disputing parties has appealed against the provisional award, it shall become final and “shall not
be subject to appeal, review, set aside, annulment or any other remedy” (Article 3 of the EVIPA).
There have been more and more energy projects operated by foreign investors in Vietnam. This
inevitably leads to growing number of disputes between the State of Vietnam and investors. The
interests of foreign investors, however, shall be fairly and completely protected by the dispute
settlement mechanism under the EVIPA.
At the moment, Vietnam has reserved the right to fulfill this commitment for 5 years from the
effective date of the EVIPA. Nevertheless, Duane Morris Vietnam has the legal and technical
tools to make such provisions work in favor of investors from now.
5. ***
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.