VIETNAM Law and Practice Contributed by: Adam Moncrieff and Thuy Huynh, Orrick
assurance of revenue streams to support large-scale investment cost recovery. The state wants and plans for private sector investment and participation, but right now it is not going the extra distance to attract private sector investment in greenfield development by accepting that private capital needs some degree of investment return certainty and fair risk alloca- tions. In many jurisdictions, a market is either heav- ily centralised or substantially liberalised. Vietnam sits in between. The private sector, including foreign investors, can build electricity generation projects and bring in international financing, but they do so within a framework where planning approval, grid access, dispatch and offtake remain strongly influenced by state institutions and where those state institutions are falling short in their commitments in return for the investment. Another distinctive feature is the speed of policy evo- lution. Vietnam moved from generous FIT support for solar and wind to a far more controlled and contested environment in a relatively short period. That transi- tion created significant legal and commercial issues, including tariff uncertainty, project backlog, curtail- ment and disputes over whether projects qualified for legacy FIT pricing. Many private sector develop- ers saw EVN as reneging on its contractual commit- ments and the Vietnam state as being complicit in that. Those issues still influence lender and investor sentiment, including with the sector moving into a new regulatory phase. A third feature is the growing overlap between tra- ditional utility regulation and new-economy demand. Data centres, advanced manufacturing, green sup- ply chains and corporate decarbonisation are now shaping energy policy as much as classic industrial demand. That is one reason the DPPA framework matters so much. It is not only an energy law reform; it is also part of Vietnam’s strategy to attract export- oriented, electricity-intensive investment without rely- ing solely on the old single-SOE utility and monopoly buyer model. The challenge, though, remains for the largest electricity projects requiring significant capital investment, where direct electricity selling may not yet be feasible (eg, because of location or grid con- straints) and with EVN remaining the only electricity
offtaker, but with the PPA terms with EVN being now worse than they were under previous models.
2. Market Structure, Supply and Pricing 2.1 The Wholesale Electricity Market
The Vietnam Wholesale Electricity Market (VWEM) is a regulated order-of-pricing dispatch market rather than a fully liberalised electricity selling market. Genera- tors do not simply sell into an open bilateral platform with free pricing; instead, dispatch, contracting and settlement operate through a controlled framework in which market participation, contract structure and administered pricing elements all remain important. The result is a hybrid model that mixes competitive dispatch with heavy regulatory supervision and lack of alternative buyers. In commercial terms, many plants still rely on stand- ardised power purchase structures that resemble con- tracts for difference. A generator may receive pay- ments linked partly to market outcomes and partly to regulated or agreed components under its power sale arrangements. That means the market price is relevant, but it is not the sole determinant of project revenue. For lenders, one of the main bankability issues is therefore not only whether the market exists; it is how much merchant exposure the electricity gen- erating project is really carrying after all contractual and regulatory adjustments. The short answer is that most generators are forced to participate in the VWEM without a bankable availability-based tariff structure to underpin economically feasible investment return. Vietnam does not yet operate a mature capacity mar- ket in the way some developed power systems do. Certain plants may receive fixed or quasi-fixed pay- ment elements under their contractual arrangements, but these do not amount to a broad, transparent stan- dalone capacity market. Ancillary service and flexibil- ity needs are becoming more important as renewable penetration rises, yet the monetisation framework for those services still needs development. That gap is one reason storage policy is receiving so much atten- tion. More importantly, that gap is also why the private sector has not been able to commit to large-scale
456 CHAMBERS.COM
Powered by FlippingBook