In order for Vietnam to meet its energy demands it is important to increase the energy capacity. With the slow in investment and the impact of Covid-19 on foreign investments, it is important that a transparent and reasonable FiT scheme will be announced as soon as possible.

31 Oct 2020



Over the past few years, steps have been taken to implement a system primarily run on renewables. While more attractive incentives and regulations are still needed, the rich potential for clean energy is enough to remain hopeful of a gradual transition to a system fueled by abundant renewable energy sources.

Within the renewable energy sources available in Vietnam, this update will focus on wind energy, which has tremendous potential but remains underdeveloped at the moment.

1. Natural Advantages

As discussed in our earlier update Future of wind energy in Vietnam Vietnam’s abundant potential for wind energy is just beginning to be exploited. Vietnam boasts over 3,000 kilometres of coastline, coupled with the monsoonal climate, making the country an ideal candidate for wind energy development. Observations and calculations show that around 28,000 square kilometres of Vietnam have average wind speeds of 7 m/s to 9 m/s at a height of 65 meters.[1] The technical potential of wind power in Vietnam is positively assessed at 27 GW.[2] Wind potential in Vietnam concentrates mostly in the southern central coastal region (Binh Thuan Province) and the southern coastal region (Tra Vinh, Bac Lieu and Soc Trang provinces).

2. Market Conditions

As the economy and infrastructure of Vietnam continue to develop, the demand for energy has increased almost twice as fast as the GDP.[3] To address the rapidly rising demand for electricity, the Vietnamese government has introduced several policies and plans to attract investment to the energy sector. While these policies have addressed the growing industry, a stronger legal and regulatory framework, along with more competitive incentives, are still needed.

3. Current Energy Sources in Vietnam

In 2015, Vietnam had a total installed capacity of 33.45% of the energy suppply in coal energy sources.[4] At the moment, Vietnam is powering the majority of its economic growth on fossil fuels (coal and gas) and the Vietnam’s Power Development Plan (PDP) outlines an increased reliance on fossil fuels. According to the PDP, by 2030 coal is projected to provide over half of the total electricity, making it the primary source for electricity production within the country.[5] With limited domestic coal and gas resources, Vietnam’s fossil import dependency will necessarily increase.

According to the Vietnam Energy Association the proportion of energy that Vietnam will need to import by 2030 will rise from 3% of primary energy demand to as much as 44%, nearly doubling the targeted 24%. This impacts the energy security of the country and therefore it is important to tap into the potential for renewable energy that is presently being largely neglected.

Currently, the Government is developing a new PDP (PDP 8) for the period from 2021 to 2030 with a vision to 2045. As part of the development process, in June 2019, the Ministry of Industry and Trade (MOIT) issued a report on the implementation of the current PDP 7. According to this report, many planned power projects have fallen behind schedule, and Vietnam will experience severe electricity supply shortages as early as 2021. This conclusion highlights the urgent need for deployment of more power sources in the near future and may impact the Government’s policies on energy in general and renewable energy in particular. Consistent with this conclusion, MOIT’s latest recommendation to the Prime Minister is to place greater emphasis on renewable energy in PDP 8, targeting to increase wind energy capacity by 2025 to over 11GW.

4. Offshore Wind Market

So far, Vietnam’s focus is on onshore and nearshore wind energy plants, with a number of projects already in development, construction or operation. Most projects are concentrated in southern Vietnam, with the top five provinces being Binh Thuan, Ninh Thuan, Soc Trang, Ben Tre and Bac Lieu.

Nonetheless, Vietnam is open to offshore wind opportunities with a number of projects reported to be in development stage including the aggregate 800 MW Phu Cuong project led by Mainstream Renewable Power, the aggregate 3,400 MW Thang Long Project led by Enterprize Energy and some other projects.

5. Wind Energy Benefits

In our earlier update we set out that renewable energy is a healthy energy source for the environment, through minimised air pollution and reduced greenhouse gas emissions. Additionally, wind energy provides several benefits that support the transition to clean fuel sources, such as enhanced energy security, creation of domestic jobs, and significant cost benefits.

6. Global Scale

Over the past several years, wind energy has become an important renewable energy source both domestically and worldwide. In 2019, 61.4 gigawatts (GW) of wind power was installed globally. According to a report by the Global Wind Energy Council, the total capacity for wind energy globally is now over 651 GW.[6] Furthermore, the Global Wind Energy Council Market Intelligence anticipates that over 355GW of new capacity will be added between 2020-2024.

7. Current State of Wind Power in Vietnam

The Vietnamese government has acknowledged this large potential in the PDP by targeting wind energy production to reach 800 megawatts (MW) by 2020 and 6,000 MW by 2030.[7] While these numbers are attainable, legal and regulatory barriers need to be broken in order to facilitate such vast development.

The first wind farm in Vietnam, the 24 MW Phu Lac plant, began operations in 2016 in Binh Thuan province. Until the end of June 2020, the total capacity of operating wind power plants is 370 MW with 11 power plants. Recently, the government has agreed to add 91 new wind power projects with a total capacity of 6,976 MW in the PDP. There are about 31 projects having signed a Power Purchase Agreement (PPA) with Vietnam Electricity (EVN) expected to begin operation in 2020-2021 with a total capacity of 1,662 MW. Meanwhile, there are about 250 projects pending to be included in the PDP with a total capacity of around 45,000 MW, in which there are 3 offshore wind projects.

8. Foreign Ownership and Investment Form

There is currently no applicable limitation on foreign ownership in the renewable energy sector. Foreign investors can own up to 100% of equity in power projects in Vietnam. Although some high-profile, foreign-invested, thermal power projects have been implemented in cooperation with the Government under the Build-Operate-Transfer (BOT) umbrella (a form of public private partnership), looking at the ongoing trend, the Government will likely not offer the BOT model for renewable energy projects (except, perhaps, for very prominent projects with high capacity output and investment capital). Therefore, most renewable energy projects will likely be carried out as independent power projects – the main implication being that there will be little room for investors to negotiate special terms or incentives or to obtain government guarantees given to BOT projects.

9. Incentives

In an attempt to grow the number of wind power plants, provincial authorities, approved by the government, have offered incentives to investors.[8] These incentives, subject to satisfaction of certain conditions, include the waiver of land lease fees for 14 years, 18 years or the project’s entire lifetime (subject to project location), corporate income tax (CIT) exemption for the first 4 years, 10% CIT for the next 9 years, and waiver of import tax for goods imported to form fixed assets and imported materials, compenents that cannot be domestically manufactured in renewable projects. Additionally, regional authorities have called on the MOIT to review and shorten the evaluation time for a project’s basic design, along with a request to raise the feed-in tariff ( FiT). The government is also busy upgrading the power transmission grid to be able to withstand the additional capacity from new projects without overloading the grid.

10. Direct PPA Pilot Program

Currently, EVN is the sole purchaser of electricity from generators. As such, renewable energy investors must sign a PPA with EVN to sell electricity.

In January 2020, the MOIT submitted its draft decision on the direct PPA pilot program whereby renewable energy generators can sign PPAs directly with commercial off-takers, such as companies, factories, and industrial parks to the Prime Minister. Under this program, renewable energy generators and consumer off-takers would be able to participate directly in Vietnam’s wholesale electricity market and enter into contracts for difference at agreed long-term prices.

Under the contract for difference scheme, the renewable energy generator receives the wholesale price (i.e. spot price) from a subsidiary of EVN and the difference between such spot price and the agreed price (i.e. the strike price) from the private off-taker. As proposed by the MOIT, the term of such contract must be at least 10 years. The strike price and off-taking output are subject to negotiation of the parties. The MOIT does not plan to issue a model contract for difference but will provide some guidance on the main terms and conditions. For value-added tax purposes, a contract for difference is considered a financial derivative .

11. Position of EVN

EVN’s creditworthiness raised concern from market observers, as EVN is the entity responsible for implementing major investments in electricity infrastructure, but currently is having a hard time to make a profit from the low and highly regulated electricity retail tariffs. To address these concerns, the World Bank has been assisting EVN to improve its financial standing and obtain its own credit rating. In June 2018, EVN was given BB rating with a Stable Outlook by Fitch, similar to Vietnam’s sovereign rating. In June 2019, its power transmission subsidiary, EVNNPT, also attained the same rating. These results have reinforced the creditworthiness of EVN, thereby comforting investors.

International banks and export credit agencies (ECAs) have also used innovative financing solutions, working with local Vietnamese banks, to mitigate the credit risks.

12. Feed-in tariff

The most important recent change made in the industry is the increased FiT. According to Decision No. 39/2018/QD-TTg (Decision 39) issued on 10 September 2018, the FiT for wind energy projects has increased from 7.8 US cents per kWh to 8.5 US cents per kWh for onshore wind power projects and 9.8 US cents per kWh for offshore wind power projects. This increase, effective as of 1 November 2018, is expected to have a positive impact on the wind energy industry as it will provide a more commercially viable FiT for investors and developers in the Vietnamese market. Existing projects will be eligible for the new tariff for the duration of their PPA.

The new FiT, however, will be applicable for a period of 20 years from the commercial operation date (COD) only if the project achieves COD before 1 November 2021. Projects with a large capacity, especially offshore projects, will likely not be able to achieve such timeline to enjoy the FiT under Decision 39.

On 9 April 2020, the MOIT proposed to the Prime Minister to extend the above FiT mechanism for wind power projects until the end of 31 December 2023 and to assign the MOIT to calculate the new FiT for projects achieving COD from 1 November 2021 to 31 December 2023 for the Prime Minister’s consideration before implementing wind auction mechanisms. The Prime Minister has yet to approve this proposal of the MOIT.

13. Power Purchase Agreement

As it stands, the current model PPA, issued under Circular No. 02/2019/TT-BCT of the MOIT (Circular 2), is comparatively shorter than PPAs used in other conventional power projects, and fails to sufficiently address a number of key issues that are important to foreign investors.

14. General Comments on the Circular 2 PPA

14.1 Variations to PPA / Standard Forms

The parties cannot amend the basic contents of the standard PPA under Circular 2, only include additional provisions. This may cause some concerns since the standard form PPA contains certain basic terms that allocate significant costs and risks to investors, as discussed below.

14.2 Lenders and Lender Step-in

The previous model PPA includes lenders in its definition section and provides for the right of lenders to step in, in the event of a breach of contract either by appointing a third party or by replacing the breaching party itself. The current PPA has removed references to lenders and lender step-in. Developers will need to negotiate with EVN to include this in the PPA, which may be unsuccessful, if they want to make the PPA more bankable. Since there is no longer any specific provision on lender step-in, lenders will need EVN’s approval to step in in the event of the developer’s default.

14.3 Government Guarantee or Bankability Enhancement Incentive

Apart from the general assurances provided under the Investment Law such as no nationalisation, assurance of profit repatriation, protection of existing incentives in case of change of law, the model wind PPA does not contain any government guarantee such as foreign currency availability, remittance of funds out of Vietnam, guarantee for EVN’s payment obligation, or other bankability enhancement incentives. This is in line with current laws on government guarantee, which only grants government guarantee to certain major projects. Presumably, in practice, the government may still grant a guarantee on a case-by-case basis, depending on various factors, such as the capacity, investment capital and importance to national power security.

14.4 Possible Difference Between Design Capacity and As-built Capacity

The model PPA does not have clear provisions for resolving the difference (if any) between the as-built capacity and the design capacity of the power plant as recorded in the PPA. As such, it is not clear whether EVN can reject to purchase any power from the plant if the as-built capacity is lower than design capacity, or reject to purchase excess capacity if the as-built capacity is higher than the design capacity.

14.5 Exchange Rate Risks

The previous model PPA applied the VND and USD selling exchange rate of Vietcombank on the payment date, applicable to certain wind farms in Vietnam entering commercial operation prior to the issuance of Circular 2. However, under the current model PPA, the applicable exchange rate is announced by the State Bank of Vietnam (SBV), which is usually lower than the Vietcombank exchange rate, on the invoice date and EVN has up to 25 business days from invoice receipt to settle payment, if there are no disputes. Such terms subject the sellers to higher currency fluctuation risk .

14.6 Late Payment Interest

If EVN is late to pay the FiT to the generator, it must pay interest at the average inter-bank lending rate, which is in most cases lower than bank savings interest rate and commercial loan interest rate. As such, it seems that there is little incentive for EVN to pay on time.

14.7 Sale to Third Party

The seller cannot sell power to any other party without EVN’s approval. This would apply even if EVN cannot take delivery of the power output for any reason. This seems unreasonable and does not serve the overall objective of having sufficient power available in Vietnam.

14.8 Take and Pay Approach

The model PPA adopts a take and pay approach i.e. EVN does not have to receive and pay for power in certain technical cases (e.g. when the local transmission or distribution grids break down, or electrical equipment and facilities directly connected to the local grids break down or the operation regimes violate the regulations on operation of the national electrical power system and the power industry technical regulations and standards) , making the power plant bear transmission and curtailment risk without remedy (e.g. fixed tariff, liquidated damages, late payment interest).

14.9 Forecast

In Schedule B of the standard form PPA, the parties must agree on the forecast of power produced yearly. It is not clear if the plant must provide enough power as forecasted and whether there is any consequence if the plant fails to provide power as forecasted.

14.10 Connection to the Grid

The seller must bear the cost and risk of connecting the plant to the transmission grid and there is no deemed commissioning clause in the PPA to protect the seller when the plant is able to generate power but connection has not been completed. This can affect COD timing and the seller’s ability to secure the favourable FiT. Lastly, a failure to achieve target COD in certain circumstances may entitle the purchaser to terminate the PPA.

14.11 Assignment by EVN

Under the law, EVN’s rights and obligations may be assigned to another entity, however there is no provision stating that seller consent is required for the assignment. This is likely to facilitate potential restructuring of the electricity industry, e.g. for establishment of competitive wholesale electricity market. In the long term, it poses a risk for the seller that the contract may be assigned to a party that they are not familiar with.

14.12 Force Majeure

The PPA term is not extended due to force majeure. The broad definition of force majeure may also capture events originating from government authorities, which is not favorable for the seller considering that EVN is state-controlled. However, the affected party would need to prove that the event satisfies the criteria to be deemed as force majeure.

14.13 Breach of Undertakings

There is no remedy period for breach of undertakings in Article 12 of the model PPA by the seller. The threshold for the same breach of EVN is more lenient (i.e. EVN must have a material breach of undertakings).

14.14 Damage Compensation

Under the previous model PPA, damage compensation paid by EVN was liquidated. The current PPA changed this to actual damage, which is a welcome change to improve bankability. However, in exchange, the burden of proof is higher.

14.15 Governing Law

The PPA is expressly governed by Vietnamese law. As Vietnamese law is still in development and changes frequently, it can lack the breadth, depth and certainty that more advanced legal systems offer for resolution of commercial issues. Moreover, many provisions are general and, in some instances, can have varying interpretations. There is also no protection for sellers against adverse changes in law in the standard PPA. These factors may undermine the predictability of contract enforcement.

14.16 Dispute Resolution

Dispute resolution under the standard PPA is a two-stage process, entirely within the jurisdiction of the power industry regulators in Vietnam. Firstly, parties must negotiate a settlement, which is overseen by the Electricity and Renewable Energy Authority under the MOIT. If the parties fail to reach settlement by negotiation, the dispute will be adjudicated by the MOIT’s Electricity Regulatory Authority of Vietnam (ERAV) following a proceeding set by the MOIT. The dispute is only brought to the court of Vietnam for litigation if either party still disagrees with the ERA’s judgment.

Unless the seller can negotiate an arbitration clause with EVN, international lenders may be uncomfortable that dispute resolution is left to Vietnam’s State authority and court.

15. Master Power Plan

A wind power project can only be developed if it has been included in the master power plan.[9] Until 1 January 2019, this process was governed by the laws on electricity, which generally provide that the MOIT shall approve the addition of new projects having capacity of 50MW or less to the provincial PDP, and the Prime Minister, acting on advice of the MOIT, shall approve the addition of new projects with capacity above 50MW threshold to the national PDP. From 1 January 2019, under a new Law on Planning, there will be a national PDP and, for each province, a provincial master plan with a section on power in line with the national PDP. While both plans need to be approved by the Prime Minister, the national PDP will be developed by the MOIT while the provincial plan will be developed by the province and appraised by the Ministry of Planning and Investment (MPI). While this initially caused some confusion for projects that were undergoing master planning process under the old law, creating massive interruption and delay for projects that could not be approved pursuant to the new law, the Standing Committee of the National Assembly has issued a resolution to provide guidance for the transition and move things forward. Pursuant to this resolution, master plans that were initiated under the old laws may still be finalised, approved and amended along with new master plans. As a result, projects under the existing master plans can continue to be approved and developed.

16. Grid issues

By June 2019 the Government had approved more than 10 GW of solar and wind capacity, around 4 GW of which had been connected to the grid. The surge of added capacity, which was not foreseen, and the concentration of new projects in a few provinces, has created enormous pressure on the power system and threatened grid disruption. As a result, a number of solar and wind projects were reportedly requested to curtail output without compensation from EVN. The Government is accelerating new power transmission investments and considering engaging private investors to assist with building the necessary infrastructure. Pending resolution of this issue, curtailment risk has become a factor that needs to be considered carefully by investors. Curtailment risk is higher in the central regions where most projects have been registered.

17. Power Generation License

The MOIT issued Circular no. 21/2020/TT-BCT dated 9 September 2020 (Circular 21) which will replace the current Circular 36/2018/TT-BCT (Circular 36) from 26 October 2020 in regulating the procedures for issuance of power operation license (including power generation license that most power plant projects require). Circular 21 containes s ome notable points:

- Timeline for project to commence operation: The template license of Circular 21 contains a requirement that the licensed entity must commence operation after 06 months from issuance date of the license.

- Responsible authority and documentation: The power generating license will be isssued by either the MOIT (for large and important power plants approved by the Prime Minister), the ERAV (for projects with installed capacity of 3 MW or larger) or the provincial People’s Committee (for projects with installed capacity from 1 MW to less than 3 MW; the People’s Committee may authorise the issuance to the Department of Industry and Trade). Regarding application documents, Circular 21 has abolished certain documents present in Circular 36, but has also added new documents to the application.

- Cases of exemption: The power generation license is exempted for projects with installed capacity up to 1 MW and projects generating power for self-consumption, not for sale to other entities.

18. Sea Area Allocation

Viable zones for large-scale offshore wind projects are generally located relatively far offshore, although still relatively close to coastal areas that need energy. While an offshore wind project may still need to lease certain land areas for onshore substations, the majority of offshore wind project zones for turbines, offshore substations, foundations, subsea inter-array and export cables will normally require the use of sea, coastal areas and other natural resources offshore.

Due to the need to use sea, coastal areas and other offshore resources, the developer is required to obtain written opinions of the competent authorities on the use of natural resources and sea or coastal areas of the proposed offshore wind power projects in order to be able to propose the inclusion of wind projects in the PDP.

Subsequently, the developer must - as part of feasbility study - have approval from or an agreement with the competent authority on the sea area and natural resources for use for offshore wind projects, as well as a written confirmation or approval of the competent authorities on the location of offshore wind turbines.

Lastly, to obtain the title to use sea areas for offshore wind projects, the developer will need to apply for an approval to use the sea areas in accordance with Government’s Decree No. 51/2014/ND-CP (Decree 51). Note that the Ministry of Natural Resources and Environment is in the process of drafting a new decree to replace Decree 51.

Decree 51 and its guiding regulations are not clear in determining the sea areas and licensing regulations to use sea areas. There is also a lack of regulations required to determine sea use fees. This all results in lengthy process to allocate sea areas to a developer and brings with it additional expenses for developers.

The additional technical requirement, longer development time and higher expenses are the reasons that there are fewer offshore wind projects than onshore projects. The government is expected to roll out policies and incentives to attract attention from investors for offshore wind projects, starting with the replacement of Decree 51.

19. Development process

Without support from authorities, the development time for wind power projects can be very long and create a financial burden on the developer, especially for large-scale offshore wind projects. The major milestones of a typical wind power project carried out as an independent power producer can be summarised as follows: Summary of Major Milestones of Wind Power Project.

20. Conclusion

Vietnam’s increasing demand for energy and large wind energy potential have caused many investors to turn their attention to Vietnam in the past few years. Now with a more bankable FiT and consequential increase in security for banks and investors, it is expected that the industry will thrive and many of these projects may now be realised. However, the slow in investor interest in 2020 followed by the impact of the COVID-19 pandemic has resulted in a situation that requires the announcement of a transparent and reasonable FiT scheme as soon as possible. This is necessary to make an investment case that would overcome bottlenecks in the global wind supply chain with less favourable capital expenditure rates at future sites for new wind projects.

For more information, please contact:

Mark Oakley / Managing Partner

Duc Tran / Associate

Katie O’Connell / Associate

© 2020 ACS Legal Vietnam Company Limited – All rights reserved

This legal update is not an advice and should not be treated as such.

Open in pdf: Decision on FiT Critical for Wind Energy Development in Vietnam


[1] Wind Energy Country Analysis – Vietnam. Energypedia.

[2] ‘Vietnam has great potential for wind power development’ Vietnam News.

[3] ‘General overview of Vietnam’s Energy Situation’,

[4] Decision No. 1028/QĐ-TTG, Decision No. 428/ QĐ-TTG, on the approval of the National Power Development Master Plan for the 2011-2020 Period with the Vision to 2030, and Decision No. 428/ QĐ-TTG on the approval of the Revised National Power Development Master Plan for the 2011-2020 Period with the Vision to 2030.

[5] Revised Power Development Plan VII (PDP 7), released 2017.

[6] Global wind report 2019’, Global Wind Energy Council,

[7] National Power Development Plan VII (revised).

[8] ‘Ninh Thuan aspires to be Vietnam’s heart of green energy’. VIR.

[9] ‘Wind power projects must obey power master plan: MOIT’. VietnamPlus.