Vietnam’s draft solar PPA template leaves key issues ‘unresolved’

Baker McKenzie partners Fred Burke and Chi Lieu Dang noted that MOIT has proposed this Draft PPA as a ‘non-negotiable’ template for all grid-connected solar PPAs, despite leaving certain key issues “unresolved”.

As previously announced, the FiT for utility-scale solar PV of VND2.086/kWh (US$0.0935) would be subject to fluctuations in the VND/USD exchange rate.

The partners said: “Though the price is converted in USD based on a current exchange rate, the Draft PPA does not include any indexation of the FiT by way of escalation in accordance with the Consumer Price Index (CPI) or the exchange rate, or any other provision to address inflation risks.”

They noted that under the draft PPA, the monopoly utility Vietnam Electricity Corporation (EVN), which will be the sole off-taker of solar generation, will have the right to curtail solar power in a range of circumstances beyond the reasonable control of the seller, without any compensation or payments to the project developer. Moreover, if the developer has the whole plant or a section of the plant ready for injecting power to the grid, EVN still has no obligation to make payments if th utility has not built the grid connections on time.

The Baker McKenzie partners also cited limited protection of the project developer’s outstanding debts if the PPA was terminated as a result of EVN defaulting.

Meanwhile, in terms of dispute resolution, the partners noted that the draft PPA fails to provide for offshore (international) arbitration, which they claimed is an essential part any of large-scale PPA. Instead the draft only lists a range of domestic actions on disputes, with the possibility of bringing them to Vietnamese courts for litigation.

They also listed the absence of various support policies that most investors would expect to be included, such as: no government guarantee or support to enhance the creditworthiness of EVN; no provision addressing the risk of changes in law or tax after the PPA signing; nor provision for payment protection in the case of unexpected events such as war or natural disasters.

The Draft PPA even puts liabilities on the developer for grid connection costs and associated risks, without accounting for the balance of cheaper land costs, versus higher costs of transmission in more remote areas.

The partners concluded: “Obviously a more pragmatic and flexible approach will be needed for the Draft PPA to accomplish its objective of mobilizing investment into clean solar power.”

The MOIT release also contains guidelines listing various requirements for solar projects.

EVN plans 350MW of PV plants