Oliver Massmann - Investing in Solar Energy in Vietnam - How to do it right?

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OLIVER MASSMANN - Partner, General Director
DUANE MORRIS VIETNAM LLC
INVESTING IN SOLAR ENERGY IN VIETNAM
How to do it right?
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AGENDA
• POTENTIAL OF SOLAR ENERGY INDUSTRY
IN VIETNAM
• GOVERNMENT’S POLICIES ON RENEWABLE
(SOLAR) ENERGY
• MARKET ACCESS FOR FOREIGN INVESTORS
• RECOMMENDATIONS
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Energy Sector Background
• Electricity demand is expected
to increase by up to 14.2 pct.
annually for the 2011-2015
period, 11.4 pct. for the 2016-
2020 period and 7 times to
800 billion Kwh in 2030
• Electricity consumption is
projected to increase from
85,932 gigawatt hours (GWh)
in 2010 to 251,763 GWh in
2020
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POTENTIAL OF SOLAR ENERGY INDUSTRY
IN VIETNAM
• Total number of sunshine hours up to 1400 – 3000
hours/year
• Potential: 4-6 kWh/m2
• Current use: 5 MW
• Solar energy can be used for water boiling, power
production and other purposes, as e.g. drying, cooking
etc.
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GOVERNMENT’S POLICIES ON RENEWABLE
(SOLAR) ENERGY
• Viet Nam currently does not have a full-fledged legal framework
on renewable energy, especially solar energy investment.
• Amended National Master Plan VII in Decision 48/QD-TTg
dated 18 March 2016
• Decision No. 2068/QD-TTg specifically on development plan for
renewable energy (biomass, wind, and solar energy) until 2030 and
with a vision to 2050
• Draft Decision on supporting regime for solar power projects is
now being re-amended by the General Directorate of Energy
(MOIT) after being considered by the new Prime Minister
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Amended Power Master Plan VII on the development
of electricity in Vietnam
• Amended Master Plan VII focuses on energy security, energy efficiency, renewable
energy development and power market liberalization
• Objectives:
– To increase the aggregate output of imported and produced electricity to 235-245
billion kWh by 2020; 352 – 379 billion kWh by 2025 and 506 – 559 billion kWh by
2030
– To prioritize to develop renewable energy generation so that the proportion of
electricity generation of renewable energy will be increased from the present 3.5% of
the total electricity production to 7% in 2020 and 10% in 2030
– To promote the rural electrification program so that most of the rural households
will have access to the electricity by 2020
– To build flexible operation of electricity grid, high automation of the transmission to
distribution process, development of substations with no requirement for operating
personnel.
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Amended Power Master Plan VII
• Strategies:
– Higher quality of electricity supply and more reasonable electricity price
– Diversification of domestic resources for power generation
– Developing new renewable power sources and updating technologies used in
existing plants
– Diversification of investment sources to overcome the lack of financial and technical
resources and also to improve economic efficiency
• Investment capital demand:
– Approximately USD 40 billion up to 2020: Two-thirds for power generation
development and one-third for power network development
– Approximately USD 108 billion for the period from 2021 to 2030: 74% for power
generation development and 26% for power network development
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Amended Power Master Plan VII
• State to keep monopoly on transmission
• Prioritize development of renewable energy
• Renewable energy target rate at 7 pct. of total energy
output by 2020 and more than 10 pct. by 2030.
• Increase the solar power output to 850 MW by 2020,
4,000 MW in 2025 and 12,000 MW in 2030.
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Vietnam’s electrical energy mix
• Vietnam policy emphasises the need to diversify the country’s
energy mix whilst maximising the use of local energy reserves
• Currently Vietnam is developing an energy mix sector with
the mainstay of coal fired power
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Capacity additions each year to 2030
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Cumulative capacity to 2030
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DRAFT DECISION ON SUPPORTING REGIME
FOR SOLAR POWER PROJECTS
• EVN has to purchase electricity from on-grid solar energy projects at
VAT-excluded price of 15 US cents/kWh
• For on-grid rooftop solar projects, the rate will be 11.2 UScents/
kWh – Now being asked by the new Prime Minister to reduce
• The rate in VND will be adjusted according to the fluctuation in the
VND/USD exchange rate.
• Rooftop solar projects of less than 50kW will not have to connect to
the grid. For those of more than 50kW, connection to the grid is
required and an electricity operating permit must be obtained.
• Term of solar energy PPAs: 20 years (renewable)
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ENERGY RETAIL PRICES
• Circular 12/2014/TT-BCT:
– 7-10% increase with MOIT approval
– More than 10% requires PM approval
– EVN can decide independently for less than 7%
increases?
• Energy retail prices are expected to increase  Raise FiT
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Market access and Forms of investment
• No foreign ownership restriction
• Investment forms:
ü A wholly-owned foreign enterprise
ü A joint venture company between a foreign investor and domestic investor
ü Investment pursuant to the BOT legal framework (which includes establishment
of a project entity in the form of a wholly-owned foreign enterprise by way of a
BOT contract with the MOIT which is implemented through a wholly-owned
foreign enterprise; or a joint venture company by way of a BOT contract with
the MOIT which is implemented through a joint venture with a Vietnamese
entity (usually including EVN, but it is also possible with a private domestic
IPP)
ü Through the purchase of shares in either an EVN subsidiary being or having
been equitized or a private IPP holding power assets. investment in the form of
establishment of a new company can be undertaken in one or more of the
following ways.*

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BOT – BEST INVESTMENT FORM
• Government’s Decree No. 15/2015/ND-CP on Public-
Private Partnership: making projects more bankable
• Easier to negotiate more favorable electricity rates.
• Easier to obtain more government guarantees, especially
in terms of EVN’s obligations to purchase all electricity
from the project.
• More fiscal and financial incentives.
• Precedent large-scaled BOT power projects in Vietnam:
Phu My, Vung Ang, Mong Duong 2
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INVESTMENT INCENTIVES
• Subject to the decision of the local People’s Committee where the project
is located
• Land: exemption of land rental within 3 years from the operation date of the
project, etc.
• CIT 10%
– 15 years for new enterprises investing in power plant projects
– tax exemptions within 4 years and tax reduction by 50% in the next 9 years.
• Import duty exemption
– on goods imported to create fixed assets of the projects; components, materials and
semi-finished products which are not available at home for the project’s operation.
• Investment capital
– investors could apply for a loan of up to 70% of the total investment capital of their
project with a term of maximum 12 years.
– investors could also enjoy export credit incentives in the form of a loan of up to
85% of the export/ import contract value or L/C value also with a term of
maximum 12 years.*

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Project planning
• Investors has to obtain prior agreement of EVN on power purchase prior to
licensing procedure.
• Commitment of banks or credit institutions on financing the project must be
obtained prior to issuance of Investment Registration Certificate .
• In-principle approval of the local People’s Committee is required prior to
issuance of Investment Registration Certificate depending on the project size
• A solar power plant must obtain a power generation permit from the competent
State authorities in order to conduct power generation operations in Vietnam
• Term of the permit: maximum 20 years for large power plants with particularly
important meaning on economy, society, national defense and security as per
the list approved by the Prime Minister; and 10 years for other power plants
projects.
• The permit cannot be renewed but the investor may apply for a new one within
60 days prior to the expiry date of the current permit.
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Project licensing
• Step 1: The investor obtains approval from the competent authority [e.g., Prime
Minister, MOIT] approving the solar power plant as part of the power
development master plan (if required).
• Step 2: The investor obtains in-principle approval from the competent People’s
Committee (or other competent authorities subject to the details of the project)
approving the solar power plant project, land demand / location, environment,
construction plan, other terms of the project.
• Step 3: Application for issuance of the Investment Registration Certificate and
the Enterprise Registration Certificate
• Step 4: Preparation of construction / operations of the solar power plant (for
example, acquiring land area, site clearance, preparation, land investigation,
conducting environmental assessment)
• Step 5: The project company to obtain necessary permits (e.g. electricity
generating permit) and relevant agreements (e.g. PPA) for its and the power
plant’s operation.
• Step 6: Construction of solar power plant and operation
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RECOMMENDATIONS FOR INVESTORS
• Difficult time but opportunities await.
• Public private partnerships (e.g. - BOT) should be the first option.
• Due care on negotiations of the PPA and grid connection agreement with EVN
• Electricity selling in off-grid areas can be a good choice
• Sound financing structure, good business model and great legal assistance are keys
to success.
• Accurate prediction of where the market is heading to, in the context of Vietnam’s
critical power shortage, should be considered.
• More pressure on the government to adequately address key issues on tariff
increase, demonopolization of the power market and government guarantee.
• Vietnam’s market is extremely in need of financing and EPC capability. There are
rooms for cost-effective and high quality EPC contractors and resourceful lenders.
• In many cases, you can “test the water” with a small power plant project.
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Contact email:
omassmann@duanemorris.com
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References (1)
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References (2)
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