Knowledge Highlights 16 March 2023
Effect of Circular 01 on renewable energy regulations in Vietnam
Knowledge Highlights 15 March 2023
On 19 January 2023, the Vietnam Ministry of Industry and Trade (“MOIT”) issued Circular No. 01/2023/TT-BCT (“Circular 01”), which came into effect on the date it was issued. Circular 01 annuls certain provisions in:
- Circular No. 02/2019/TT-BCT, which regulates the implementation and development of wind power projects (and contains the template Power Purchase Agreement (“PPA”) for wind power projects) (“Circular 02”); and
- Circular No. 18/2020/TT-BCT, which regulates the implementation and development of grid connected and rooftop solar power projects (and contains the template PPA for solar power projects) (“Circular 18”).
This article elaborates on the annulled provisions and the effect of Circular 01.
Material provisions annulled pursuant to Circular 01
Annulment of FIT references
References to the Feed In Tariff (“FIT”) rates when calculating the electricity prices for both wind and solar projects have been annulled by Circular 01. Given that the FIT rates regime has long since ceased to apply for new wind and solar projects, it is expected that the annulment will not have a material effect on the implementation of new projects or on brownfield projects. Please see below for a more comprehensive analysis in this regard.
Annulment of USD indexation
Provisions relating to US dollar (“USD”) indexation for the electricity price payable by Vietnam Electricity (“EVN”) for wind and solar projects have also been annulled. This is not surprising, given that in October 2022 the MOIT announced that the electricity prices payable for the “transitional” wind and solar projects (i.e. where the project investors had already signed PPAs with EVN by certain prescribed dates but were not eligible for the FIT regime) was denominated in Vietnam Dong (“VND”). More information regarding electricity prices payable for such transitional projects are set out in Circular 15/2022/TT-BCT and Decision 21/QD-BCT.
The annulment of USD indexation signals that the electricity price payable for greenfield wind and solar projects going forward would also be denominated in VND. If so, this may adversely affect the bankability of renewable energy (“RE”) projects going forward.
Annulment of 20-year PPA term
Circular 01 also has the effect of annulling the fixed 20-year PPA term for both wind and solar projects. Whether this annulment is beneficial will generally depend on EVN’s policy vis-à-vis the revised term. In practice, certain investors have taken the position that a 20-year term for RE projects (in particular, grid-connected solar projects) is too short a tenure, and the annulment of this term may be viewed as MOIT’s recognition of the same. Given that the operational lifespan of photovoltaic panels can be around 25-35 years and wind turbines can operate for around 20-30 years, a PPA term beyond the current 20-year period (based on the design and specifications of the RE project) could be seen as a welcome change.
Annulment of capacity limits for rooftop solar projects
Circular 01 has the effect of annulling the capacity limitations for rooftop solar projects in Article 5.2(a) of Circular 18. However, it would be premature to state that rooftop solar projects going forwards will not be subject to such capacity limitations (or that sub-division of projects above the limitations will no longer be required). Please see below for more details in this regard.
Annulment of certain wind project development procedures
Circular 01 also annuls certain administrative procedures relating to the development of wind projects (such as the requirement to submit a report where the project does not comply with the operation, scale and capacity of the planning scheme and certain requirements for commencement of construction of a project). These changes simplify the wind development procedures and align such procedures with the current law on construction investment management and environmental protection.
It should also be noted that Circular 01 annuls the procedural steps to be taken to include a wind project into a power development plan after the plan has been approved as set out in Article 4 of Circular 02. It is not clear if a new procedure will be subsequently issued, or if an investor seeking to supplement the power development plan with its new wind project would have to rely on the general framework outlined in Circular No. 43/2013/TT-BCT.
Effect of Circular 01
On current brownfield projects
Circular 01 does not have retrospective effect (it took effect on the date of its issuance, 19 January 2023). It can therefore be supposed that Circular 01 does not require brownfield wind and solar projects (or their PPAs) to be revised to conform with Circular 01. However, even if changes to the brownfield PPAs are not required at this juncture, it remains possible that EVN may seek to use Circular 01 as a basis to request for changes to be made to such PPAs (e.g. to align the provisions with those contained in greenfield PPAs). Similarly, if and to the extent a project investor subsequently requests for amendments to be made to a brownfield PPA, EVN may at such juncture require alignment with the position under Circular 01 as a condition for agreeing to such request.
On previous PM Decisions
At this juncture, the legislative intent behind the annulments is not entirely clear. It could well be that MOIT has the intention of removing the matters annulled (such as the 20-year fixed term and the capacity limitations) for subsequent wind and solar projects. The concern here is that there are Decisions issued by the Prime Minister on the development of wind and solar projects (in particular, PM Decision No. 13/2020/QD-TTg for solar projects and PM Decisions No. 37/2011/QD-TTg and No. 39/2018/QD-TTg for wind projects (collectively, “PM Decisions”)). These PM Decisions also address the issues that are the subject matter of the annulments. By way of example, the PM Decisions contemplate a fixed 20-year PPA term for wind projects and solar projects. In addition, PM Decision No. 13/2020/QD-TTg still defines rooftop solar projects based on their capacity limitations.
The PM Decisions are issued by the Prime Minister and are thus considered superior legislative documents compared to Circular 01 (which is issued by MOIT). This means that, from a strict legal perspective, the PM Decisions would prevail to the extent of any inconsistency between the PM Decisions and Circular 01. With that said, since Circular 01 has been issued relatively recently, the application of any inconsistent content may be subject to further guidance from and the discretion of the authorities.
Further decisions and regulations relating to RE are likely to be issued to clarify Circular 01.
Knowledge Highlights 16 March 2023