VIETNAM Trends and Developments Contributed by: Adam Moncrieff and Thuy Huynh, Orrick
well-designed scheme with strong bankability, not just in Government of Vietnam support for the electricity offtake but also through comprehensive and intelligent risk allocation. More recently, Vietnam has not contin- ued power project development under that scheme. For renewables, foreign developers and investors were attracted by the feed-in tariff regimes, without worrying too much about the bankability of what were domestic market PPAs, developing projects on bal- ance sheet or with corporate finance. The Vietnamese government has ambitious plans for electricity project development across a wide range of generation types, but may need to do more to sup- port investment for the large capital sums required. Solar projects, LNG-to-power projects, offshore wind projects, BESS projects and DPPA structures each have different risks, but they all require a bankable approach to revenue certainty, grid access, permit- ting, general risk allocation, dispute resolution and enforceability. Across the various generation types, key issues for power project sponsors and lenders in Vietnam include: • EVN payment risk and the limited availability of sovereign guarantees; • curtailment and deemed dispatch compensation; • minimum contracted quantity, duration and dis- patch certainty; • fuel cost pass-through, especially for LNG-to- power; • foreign exchange adjustment and convertibility; • change in law, political force majeure and termina- tion compensation; • direct or indirect participation in the Vietnam Wholesale Electricity Market; • governing law and confidence-inspiring dispute resolution mechanisms; • land, planning, environmental, construction and fire safety compliance; and • grid connection timing, support commitments from local authorities and the ability to negotiate project documents after bidding or approval.
Vietnam is not alone in facing these issues regarding bankability. But how it responds in addressing them will shape which generation types can be developed according to national plans and how they are devel- oped, by whom, and whether private and foreign debt and equity capital can have a meaningful involvement. Implementation will be key Vietnam remains one of ASEAN’s most important power markets. The scale of demand growth, the Revised PDP8 capacity targets and recent regulatory reforms create real opportunities for developers, lend- ers, equipment suppliers, strategic investors and large electricity users. DPPAs, BESS and offshore wind are likely to be the most important opportunities going forward, while LNG and domestic gas will remain cor- nerstones in developing new baseload capacity. While policy direction has been encouraging, more needs to be done to provide the regulatory basis to underpin successful development. Power project developers will need to look closely at whether new rules can underpin bankable PPAs, feasible tariff struc- tures, predictable dispatch and timely grid connection. They will also need to watch how Vietnam resolves existing renewable payment disputes, because that will influence whether future commitments are made and how they might be priced. Vietnam is moving forward, but the next phase will be judged on whether projects actually commence con- struction, can raise financing and achieve commercial operation. Many of the next steps are in the hands of the Vietnam government.
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