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June 4, 2024

Recent Solar Power Developments in Vietnam

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As Vietnam continues its rapid economic development, the demand for sustainable and reliable energy sources has never been more critical. Solar power has emerged as a key component of Vietnam’s strategy to diversify its energy portfolio and reduce its carbon footprint. Recent developments of the regulatory framework governing solar power projects in Vietnam, as discussed below, highlight the country’s commitment to renewable energy and its efforts to create a conducive environment for solar power investments.

Objectives for the Development of Solar Power Projects

On May 15, 2023, the Prime Minister issued Decision No. 500/QD-TTg, approving the National Power Development Plan for 2021-2030 with a vision to 2050 (“PDP VIII”). Following this, on April 1, 2024, the Prime Minister promulgated the Implementation Plan for PDP VIII (“Implementation Plan”). These documents underscore Vietnam’s commitment to promoting renewable energy, particularly solar. They emphasize self-production and self-consumption of solar power, the development of rooftop solar systems, and the promulgation of the direct power purchase mechanism. The integration of solar power with battery storage is also encouraged, contingent upon economic viability.

PDP VIII sets ambitious capacity targets for solar power. By 2030, the capacity is projected to reach approximately 12,836 MW, accounting for 8.5% of the total power capacity. This includes 10,236 MW from concentrated solar power and 2,600 MW from self-production and self-consumption solar power. By 2050, the capacity is expected to rise to between 168,594 MW and 189,294 MW, representing 33.0-34.4% of the total power capacity. Additionally, PDP VIII and the Implementation Plan list 27 solar power projects, totaling 4,136.25 MW, slated for implementation after 2030. However, these projects may be advanced under self-production and self-consumption arrangements.

Draft Decree on Direct Power Purchase Agreements

On April 15, 2024, the Ministry of Industry and Trade (“MOIT”) released a draft decree on direct power purchase agreements (“DPPA”) for public consultation. The draft decree introduces mechanisms for direct power purchases between renewable energy generators, including wind and solar power, and large electricity users, through either private power lines or the national grid. Two mechanisms are proposed under the draft decree:

Physical DPPA: This mechanism allows for direct electricity transactions between power generators and large electricity users through private power lines. The power purchase agreements between the parties must include mandatory content.

Virtual DPPA: Under this mechanism, the power generator sells electricity to large electricity users via the national grid. In terms of structure arrangements:

  • Power generators sell all produced electricity to Vietnam Electricity (EVN) under a model agreement prescribed in the draft decree;
  • Large electricity users purchase electricity from EVN under a power purchase agreement containing mandatory contents; and
  • Large electricity users and power generators sign contracts for differences to manage related risks (e.g., contract term, price, and production output). Generally, the parties have broad discretion to agree to detailed terms and conditions of the contracts.

Draft Decree Encouraging Rooftop Solar Power

The MOIT is also soliciting public feedback on a draft decree aimed at promoting the development of rooftop solar power for self-production and self-consumption. The draft decree distinguishes between two models of rooftop solar systems:

Grid-Connected Systems: These systems must adhere to the capacity limit set in the Implementation Plan, which is 2,600 MW until 2030. They are permitted to inject excess power into the national grid without payment by EVN.

Off-the-Grid Systems: These systems are not subject to capacity limits but cannot transfer surplus electricity to the national grid.

Outlook

Solar power is expected to play a vital role in providing electricity to household and business operations in the near future. The evolution of Vietnam’s regulatory framework, designed to stimulate the growth of solar power in the country, align with national sustainability goals, and enhance energy security through the diversification of renewable energy sources, is a promising sign for investors looking to do business in this space.

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