Part 2 - FIT Issues - Key Notes on Legal Due Diligence in Renewable Energy Projects in Vietnamost
In recent developments, Vietnam’s renewable energy sector might face significant legal and financial challenges, particularly related to the potential adjustment of preferential power purchase feed-in tariffs (FIT). This issue has raised concerns among investors, both local and foreign, and highlights critical areas that must be carefully reviewed and evaluated during the DD process. As certain documents relating this issues are not publicly available, I write this note based on some articles from reputable newspapers such as: https://lnkd.in/gy9JHByf
LEGAL SHARING
Nguyễn Thị Lan Giang
1/20/20251 min read
1. The FIT Adjustment Proposal
Currently, renewable energy projects, including solar and wind power, enjoy favorable FIT rates: For (i) FIT 1: 9.35 cents/kWh for ground-mounted solar project and 8.5 cents/kwh for wind projects; (ii) FIT 2: 7.09 cents/kWh (for ground-mounted solar projects).
However, under a proposed policy adjustment, projects deemed non-compliant with certain regulatory requirements such as land issue, zoning and planning issues, late notice on construction acceptance approval (CCA Approval) may face significantly reduced tariffs, for example to transitional pricr capped at 1,184.9 VND/kWh for solar ptojects (~4.96 cents/kWh). This represents a 24-47% reduction in electricity sale prices compared to what the Electricity of Vietnam (EVN) currently pays.
2. Extent of Non-Compliance
A MOIT report has identified widespread non-compliance across RE projects in the country not only limited to inspected provinces such as 173 projects (or parts thereof) received commercial operation date (COD) recognition without proper approval of construction completion by authorities, 14 projects in Ninh Thuan province benefitted from preferential mechanisms not aligned with regulations, and 413 rooftop solar projects were developed on agricultural and forestry land under farm models.
3. Potential Impact and Investor Concerns
The MOIT proposes several corrective measures such as:
(i) Revoking preferential FIT for projects with confirmed violations;
(ii)Reassessing and applying new tariffs to these projects;
(iii) Recovering the financial benefits gained from previous FITs through settlement adjustments with EVN.
While these measures aim to rectify irregularities, they pose significant financial risks to developers. Many projects rely heavily on funding from financial institutions and investment funds. A tariff reduction could drastically undermine initial financial projections, jeopardize loan repayment schedules, and erode investor confidence.
4. Recommendations
The Investors should be aware of this issue and keep updated with the official solutions of authorities and have legal and financial plans for the changes (if any).
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