Lawyer in Vietnam Oliver Massmann - Investing in Solar Energy - How To Do It Right

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AGENDA

POTENTIAL OF SOLAR ENERGY INDUSTRY IN VIETNAM

GOVERNMENTS POLICY ON RENEWABLE (SOLAR) ENERGY

MARKET ACCESS FOR FOREIGN INVESTORS OPPORTUNITIES FOR INTERNATIONAL

DEVELOPERS RECOMMENDATIONS

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Energy Sector Background Electricity consumption grew by an average of 14% annually

during 20042010, compared with 7% economic growth rate per year during that period

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

By end of 2014, The Vietnamese solar power market is still relatively small with only around 4.5 MW installed capacity.

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POTENTIAL OF SOLAR ENERGY INDUSTRY IN VIETNAM

Total number of sunshine hours up to 1400 3000 hours/year

The average total radiation amounts to 230 250 kcal/cm2, and strengthens towards the south.

Solar energy can be used for water boiling, power production and other purposes, as e.g. drying, cooking etc.

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GOVERNMENTS POLICY 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 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 to be adopted in the next 1-2 months

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Clean energy policy reform The dynamic process

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PROVINCIAL GOVTS

BLOCK COAL/ BIG

HYDRO

LOCAL SOURCING/

MANUFACTURING OF

EQUIPMENT

LOCAL POLLUTION

HEALTH/ SOCIAL

IMPACT AND DISHARMON

Y

SOE + GoVN

MARKET

CONTROL

ENERGY

INFLATION

CONCERNS

STATE/EVN

CAPITAL

SCARCIT

Y

ENERGY

SUPPLY

SPEED OF

GROWTH

ClimateChange

Commitments

InternationalTrade

Agreements

PRICE + SUPPLY CAPACITY = SPEED

SPEED + SUPPLY CAPACITY = PRICE

Key to the DynagramArrows

Direction Weakening/Growing Impact on Policy Reform to Clean Energy

Width Extent of Impact Box /Circles

Colour Green Dynamic Force For ChangeRed Barriers to ChangeGrey Circles No Force for Change

Donor Soft Loans / Grants

CAPEX- FUELLE

D CORRUP

TION

POWER CONSUMERS DEMAND

GREEN

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Amended Power Master Plan VII on the development of electricity in Vietnam Revised National power development plan for 2011-2020 period with the vision to 2030

approved by the PM under his Decision No. 428/QD-TTg dated 18 March 2016 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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Vietnams electrical energy mix Vietnam policy emphasises the need to diversify the countrys

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 11.2 US cents/kWh

For on-grid rooftop solar projects, the rate will be 18 UScents/ kWh The rate in VND will be indicated in the final Decision based on the

USD/VND exchange rate at that time and the MOIT will issue an Official Letter every year to adjust the rate in VND according to the fluctuation in the 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 It is unofficially known that the MOIT proposed to the

Government to approve for an FIT increase of up to 11.2 UScents/kwh to make the solar energy projects become more financially feasible.

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Market access and Forms of investment No foreign ownership restriction Investment forms: A wholly-owned foreign enterprise A joint venture company between a foreign investor and domestic investor 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)

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

Governments 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 EVNs 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 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 projects 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 Peoples 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 Peoples 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 and relevant agreements for its and the power plants operation.

Step 6: Construction of solar power plant and operation*

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Opportunities for international developers

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EVFTA Bilateral negotiations

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Launch of negotiations

First round in Hanoi

15 rounds alternately in Vietnam and Brussels

Last round in Hanoi

Agreement in principle

06/2012

10/2012

Hardwork

7/ 2015

8/ 2015

02/12/2015

02/02/2016

Conclusion of negotiation

FTA text released

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TPP and AEC intersection

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Thailand

Malaysia

Brunei

CanadaAustralia

Cambodia

Indonesia Myanmar

Peru

Philippines

Japan

Laos

Mexico New Zealand

Singapore

The United States

Vietnam

Chile

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ASEAN TPP: Market Access Liberalization as Consequence of TPP Indonesia plans to loose restrictions on foreign investment in

nearly 50 sectors, including e-commerce, retail, healthcare, movie and several other industries

Indonesia prepares for the so-called Negative Investment List, which provides a greater openness to foreign investmentand gets itself ready for the TPP

China, Korea, the Philippines, Indonesia and Thailand are also keen to join the TPP to overcome the disadvantages

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Power/ Energy Sector

Level of commitment in Power / Energy sector

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N/A Low High

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Power/ Energy Sector

WTO / AFAS

EVFTA TPP

N/A Commitments are only made in 3 sub-sectors

Vietnam makes commitments in all sub-sectors with listed restrictions (no other restrictions are permitted).

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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 Vietnams

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. Vietnams 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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DUANE MORRIS VIETNAM LLCThank you very much!

HANOI OFFICE HO CHI MINH CITY OFFICE

Pacific Place, Unit V1307/08, 13th Floor, Suite 1503/04, Saigon Tower 83B Ly Thuong Kiet, Hoan Kiem District 29 Le Duan Street, District 1Hanoi, Vietnam Ho Chi Minh City, VietnamTel.: +84 4 39462200 Tel.: +84 8 3824 0240Fax: +84 4 3946 1311 Fax: +84 8 3824 0241

Contact email:

[email protected]

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References (1)

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References (2)

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References (3)

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