Investment in solar power field in Vietnam – Is it still attractive to foreign investors?

Investment in solar power field in Vietnam – Is it still attractive to foreign investors?

In the situation of the Covid-19 epidemic negatively affecting not only Vietnam’s economy but also in the global arena, many foreign investors expressed their concern that this would affect investment plan of their long-term investment projects in Vietnam, including investment projects in the field of solar power.     

Along with the objective factor mentioned above, are foreign investors still facing and will encounter any other barriers and obstacles to their investment decisions? And whether solar energy will continue to attract foreign capital to contribute to energy security and create motivation for sustainable economic development in Vietnam.

From barriers of policies and administrative procedures

It can be seen that investment in a solar power project is a challenge of patience of investors when they have to go through a lot of administrative procedures and are governed by many legal documents in many fields, such as: (i) about investment and enterprise, obtainment of written approval of investment location introduction from the local People’s Committee of the province/city, request for approval, investment registration certificate, establishment of project company; (ii) about planning, obtainment of written approval from the Ministry of Industry and Trade to approve the project’s inclusion in the additional solar power planning, provincial/city master plan; (iii) on electrical connection, agreement on connecting the power from the power plant to the 110 KV power transmission grid to the 110kV/220 kV power system, including approval of the technical design of the substation and connecting system, connecting and approving the data collection system to serve the monitoring, control and operation of the electricity system (SCADA) and metering system, the agreement on approving the purchase of electricity for the project and the power purchase agreement (PPA) with Vietnam Electricity (EVN); (iv) on land, implementation of compensation, site clearance, application for land lease decision and land use right certificate of the project; (v) and a range of other sub-licenses, approvals, depending on each specific project, such as approval/certification of fire prevention and fighting reports, environmental assessment reports, construction permits, certificates on mine and UXO safety, issued by a competent agency under the Ministry of Defense, electricity activity licenses, etc.

To complete the above projects, it takes the investor 1-2 years as the fastest period, even in many cases it takes about 3-5 years for their project to actually connect to the electricity grid of EVN. These administrative procedures that have made many foreign investors hesitate and confused when considering decision to invest in clean energy field of Vietnam.

Looking for suitable land fund

Solar power investment requires large local land fund. Normally, with the current technology and equipment, investors looking for a land fund of a project needs from at least 20ha to 100ha. With the heat of solar power projects registered and awaiting approval, the Government and the Ministry of Industry and Trade have evaluated as the “overload” or “broken planning” situation in the recent time. In order for foreign investors can find a new land area that is both suitable for planning and meeting the needs of land area and has the potential to generate solar power is really a very difficult problem.

Power purchase price is still attractive? 

At the Announcement No. 402/TB-VPCP on November 22th, 2019 of the Government Office announcing the Conclusion of the Prime Minister Nguyen Xuan Phuc at the Government’s Permanent Meeting on the Draft of Solar Power Promotion Mechanism in Vietnam applied from July 1st, 2019, according to which: “The Government continues to pay due attention to the development of renewable energy sources, especially solar power, which has quite large potential in our country. However, it is necessary to calculate the structure of power sources in a scientific and methodical manner; must completely switch to implementing the bidding mechanism, resolutely eliminate the status of asking – giving.” At the same time, the Prime Minister also agreed on a bidding mechanism for solar power development for new projects.

There are still many worries about the new mechanism mentioned above while waiting for specific guidance from the Government and the Ministry of Industry and Trade when there are currently no regulations to ensure the interests of investors when having to invest a large initial investment, long payback period while the output business product is the price of electricity is still unclear and specific in terms of mechanisms and policies.

In addition, EVN and its affiliates are the operators of all power transmission systems in Vietnam, so EVN is also the sole buyer. When negotiating and signing a Power Purchase Agreement (PPA) with EVN, the project investor may face some disadvantages in the event that EVN and the investor cannot agree on the conditions, there will be no other buyers for project products. On the other hand, the law has not provided any protection measures for investors’ investment capital, outstanding debts in case of termination of PPA.

In general, with the above difficulties and barriers, many investors were discouraged when deciding to pour capital into the Vietnamese market. However, the price of electricity is still attractive compared to other countries in the region, technical innovation, new materials development made investment and financial costs, labor costs for solar power projects are becoming more and more competitive. In addition, the Government of Vietnam plans to expand the installed solar power capacity to 12GW by 2030 according to the National Renewable Energy Development Strategy, as mentioned above, the Government and the Ministry of Industry and Trade are also in the process of finalizing and approving the Prime Minister’s Decision on mechanisms to encourage solar power development in Vietnam, with the potential of generating electricity. The development and advantages of Vietnam’s clean energy industry, including solar and wind power, still have room and attract many foreign investors.

If you have any questions or require any additional information, please contact Apolat Legal – An International Law Firm in Viet Nam.

This article is for general information only and is not a substitute for legal advice.