Vietnam solar decision to pave way for development
Decision No. 11/2017/QD-TTg on mechanisms for encouraging the development of solar power in Vietnam (“Decision 11”) introduced by Prime Minister Nguyen Xuan Phuc on 11 April 2017 has been welcomed by investors and developers. The Decision outlines a range of incentives to boost the renewable energy sector in the country.
Feed-in-tariff rate (FIT) for solar power
Vietnam Electricity Group (EVN), designated as the sole Power Purchaser under Decision 11, will purchase all electricity generated from solar power projects with a feed-in tariff (“FIT”) of VND 2,086/kWh (excluding value added tax; equivalent to approximately 9.35 US cents/kWh at current exchange rates). The FIT applies only to grid-connected projects and is subject to fluctuations in the VND/USD exchange rate, as will be outlined in the upcoming standard power purchase agreement (“PPA”) for solar power projects to be issued by the Ministry of Industry and Trade. The standard PPA is expected to provide a 20-year term for solar projects, commencing from commercial operation.
Investment Capital and Tax Incentives
Decision 11 allows capital to be mobilized from both domestic and foreign sources for the purpose of developing solar power projects in Vietnam. Investors will benefit from tax exemptions on raw materials and supplies imported for project purposes.
Solar power projects will also be eligible for corporate income tax relief provided to investors under Vietnam’s tax laws. A 10% preferential corporate income tax rate applies for the first 15 years from commercial operation. In addition, solar investors are eligible for a complete exemption from corporate income tax for four years from the first profitable year, followed by a 50% reduction in corporate income tax payable for the following nine year period.
Incentives related to land use are also provided by Decision 11. Solar power projects connected to the grid are entitled to exemptions or reductions in land-related fees as per the laws applicable to projects entitled to investment incentives, including the exemption from land rental fees within the first three years of commencing commercial operation.
Decision 11 will come into force on 1 June 2017 and will apply until 30 June 2019. According to the Decision, the Ministry of Industry and Trade is expected to draft a national master plan for solar power, which will be mirrored by provincial plans to be drafted by the respective city and provincial people’s committees. By establishing incentives for solar energy investment, in particular the FIT, Decision 11 is expected to set the stage for considerable growth in Vietnam’s solar energy sector over the coming years. It remains to be seen whether such incentives will be sufficient to support Vietnam’s ambition to achieve 5GW of solar power capacity by 2020. Indeed, the FIT on offer might not be as attractive as needed in the context of increasing competition for investment amongst Southeast Asian nations (Indonesia having recently introduced a FIT to promote solar development). Decision 11 also does not appear to consider the vast development potential under the planned Vietnam Wholesale Electricity Market.