Vietnam to Set Annual Solar and Wind Prices Under New Rules

Vietnam’s Ministry of Industry and Trade (MOIT) has issued new rules for determining feed-in tariffs (FiTs) for new wind and solar projects.

Decree No. 19/2023/TT-BCT, dated November 1, 2023 (the “Decree”), stipulates a new mechanism for establishing annual electricity pricing frameworks, or FiTs, for different types of solar and wind projects.

The FiTs calculated under the new mechanism will apply to ground-mounted solar power plants, floating solar power plants, onshore wind power plants, offshore wind power plants, and offshore wind farms. However, solar projects that started operating before January 1, 2021, and wind projects that started operating before November 1, 2021, will not be subject to the new pricing mechanism.

The FiT tariffs will range from the minimum value (VND 0/kWh) to a maximum value that will be set annually.

Under the Decree, which comes into force on December 19, 2023, Vietnam’s largest state-owned power company Vietnam Electricity (EVN) will be responsible for calculating the annual FiTs based on the participation of solar and wind projects. The final tariffs will be approved and published by the Electricity Regulatory Authority of Vietnam (ERAV) every year.

The Decree is an important piece of legislation for investors and companies that are planning to launch wind or solar power projects in Vietnam, as they will determine the pricing for electricity generation for the foreseeable future.

Vietnam pricing mechanisms for generation of solar and wind power

The Decree outlines the mechanism for determining the prices for solar and wind power generation, the average fixed prices, and the fixed prices for operating and maintenance of standard solar and wind power plants.

The pricing framework for wind and solar projects is similar. However, FiTs for ground-mounted solar power plants and floating solar power plants will be established based on the average annual solar radiation intensity in northern Vietnam, central Vietnam, and southern Vietnam. This means that FiTs for solar projects will now vary between these three regions, whereas previously they remained constant across the country.

The Decree also stipulates further mechanisms for calculating the annual adjusted investment capital for the construction of the standard solar or wind power plant, the total fixed O&M costs. the average multi-year delivered electricity, as well as other formulas required to calculate the electricity generation price.

Parameters for calculating FiTs

The Decree sets out a range of parameters for the solar and wind power projects that will be studied when determining FiTs to generate a fair price that is representative of the industry.

These parameters include the maximum economic life of the plant (20 years), the foreign-to-domestic currency debt ratio (80/20), the debt-to-equity ratio (70/30), and the average debt repayment period (10 years), among others.

The Decree notes that these parameters may be adjusted when deemed necessary for certain cases.

Procedures for establishing and issuing FiTs

Under the Decree, EVN is responsible for much of the work required to determine the FiTs for solar and wind projects.

Before November 1 of each year, EVN must:

1. Propose a selection of standard solar and wind power plants for calculating FiTs;
2. Calculating or hiring consultants to select parameters and calculate the FiTs; and
3. Compile documentation for calculating FiTs for ground-mounted solar power plants, floating solar power plants, onshore wind power plants, offshore wind power plants, and offshore wind farms for the following year, and submit it to the Electricity Regulatory Authority of Vietnam (ERAV) for appraisal.

After receiving the submission from EVN, the ERAV will review the documentation, issue an appraisal of the pricing, arrange for additional consultations if necessary, and submit the final tariffs to the MOIT for approval and publication on the ERAV’s website.

If the tariffs for the following year are not been published in time, then the most recent tariffs that have been in place will continue to be temporarily applied.

Changes to Vietnam’s FiT mechanism: Points to note for foreign investors, operators

The Decree makes several major changes to how Vietnam will set FiTs in the future, with significant implications for investors and operators.

The main change in the new system is that prices will now be set annually, rather than on a 20-year basis, as was previously the case. This means that prices could go up or down in the future, which could make forecasting profits more difficult for operators.

In addition, as already mentioned above, the inclusion of solar radiation intensity in determining FiTs will mean that prices will now differ in different regions in Vietnam, which could impact where investors will choose to locate solar power plants. According to analysts at the law firm Lexcomm Vietnam LLC, this change is designed to encourage the development of solar energy in northern Vietnam, as lower levels of solar radiation would make prices higher and therefore more attractive for investors.

Finally, the Decree does not provide any mechanism for adjusting prices for exchange rate fluctuations. Wind and solar power projects have previously been offered FiTs that would be adjusted for foreign currency changes. This means projects with foreign currency loans may be exposed to risks associated with foreign exchange fluctuations.

Previous FiTs in Vietnam

Vietnam introduced feed-in tariffs to incentivize investment in renewable energy as far back as 2011.

In 2017, the government set energy rates for new solar power projects at VND 2,086/kWh, or US$0.0935/kWh, excluding VAT and adjusted for exchange rate fluctuations.

In 2018, the government increased FiTs for wind energy projects from US$0.078/kWh to VND 1,928/ kWh (US$0.085/kWh) for onshore wind power projects and VND 2,223/kWh (US$0.098/kWh) for offshore wind power projects.

The above FiTs for the wind and solar projects are valid for 20 years, however, only projects that were operational before a certain deadline were eligible (before December 31, 2020, for solar projects and before November 1, 2021, for wind projects).

In January 2023, the government provided new FiTs for projects that had missed these deadlines. The new tariffs introduced are summarized in the table below.

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