Power Purchase Agreements for Solar Power

Last week the Ministry of Trade (‘MOIT”) released decision 11/2017/QD-TTg relating to encouraging the development of the solar power sector in Vietnam. I have previously highlighted the opportunities and significant growth potential in this sector[1].

Whilst the decision approves the suggested feed in Tariff of US$ 9.35 per kilowatt hour, industry players and lawyers still see that some key points are missing from the decision[2].  According to the Vietnam Business Forum Energy Working Group, which had made recommendations to the “MOIT”, there were still 5 critical issues that had not been addressed.  These include: interruption in the receipt and purchase of power, conditions of force majeure, settlement of disputes and applicable laws.

Major concerns of the energy working group arise around the failure of the decision to address issues around the concept of deemed energy charges or deemed commissioning if the facility is ready but EVN or its authorized off-taker has failed to complete the construction of a grid connection. Without being able to establish legally whether the PPA is actually a take or pay contract, then it will be very difficult for private investors to project profits for their projects and thus making it extremely difficult to arrange financing without a high level of recourse to the investors themselves.

Also lacking are the rights of lenders to step in in place of the investors and also the rights of the sellers lenders to receive notice of any default by the seller with a suitable period to cure any default.

All these and other conditions are well documented as a basic requirement for project financing and limited recourse financing, and it is a shame that the MOIT and other relevant authorities still believe that they can establish new norms for such financing, when they have been developed in international markets and are and will continue to be basic requirements to facilitate financing and give some “security” to third party lenders.