LEGAL OVERVIEW OF RENEWABLE ENERGY IN VIETNAM

ABSTRACT:

Vietnam is an emerging market economy with nearly 100 million people. Over the past 3 decades,Vietnam has experienced sustained economic growth (average economic growth rate of 6.2% per year from 2002 to 2022, GDP per capita increased 3.6 times, reaching approximately 3,700 USD along with increasing demand for energy consumption (World Bank, 2024). As the economy continues to grow, this creates an increase in demand for energy, as economic growth largely depends on access to diverse energy sources. The growth rate of energy demand is about 9.5% per year (Phung Thanh Binh, 2011). In 2016-2017, Vietnam’s energy consumption was recorded at more than 184 billion kWh per year. However, the national electricity system can currently only generate about 170 billion kWh per year according to a report by Vietnam Electricity (EVN, 2018). Regarding the Vietnam’s Seventh National Power Development Plan (the “PDP VII”), amended in March 2016 for period 2021-2030 (the “amended PDP VII”), by 2025, the whole country will need an electricity output of about 400 billion kWh per year and by 2030 the electricity output will reach more than 570 billion kWh per year (the Prime Minister, 2016).

According to a report of the Ministry of Industry and Trade of Vietnam (“MOIT”) published on June 30, 2019, Vietnam’s electricity output will reach about 60,000MW in 2020 with the main contribution of hydropower and thermal power (MOIT, 2019). In total, these two power sources accounted for about 87.7 percent of the total electricity capacity in Vietnam in 2020 while other types of small hydropower and renewable energy plants accounted for the remaining 9.9 percent and the remaining 2.4 percent were imported. In the PDP VIII and the amended PDP VII for period 2011-2020, vision 2030, Vietnam aims to double electricity power capacity to 129.500MW by 2030. Power rates are adjusted to reduce dependence on traditional power sources (e.g. hydropower and coal) and increase the available capacity of renewable energy and gas-fired energy projects. However, the market-share of traditional energy still accounts for the majority of the market. According to the MOIT, in 2023 Vietnam may lack electricity by 12 billion kWh. The MOIT proposed that the promotion of renewable energy should continue to be a priority in the coming years to address the country’s energy shortage (ibid). Most recently on June 9, 2020, the Prime Minister issued Official Letter No.693/TTg-CN to the MOIT approving the addition of (i) wind power capacity of 6,830MW; and (ii) 90 new wind power projects in PDPVII (the Prime Minister, 2020). The list of these projects is stated in Official Letter No. 1931/BCT-DL dated March 19, 2020 of the MOIT to the Prime Minister (MOIT, 2020). Below is the detailed proportion of energy related to projections in PDP VII as of 2030:

Table 1: Detailed allocation of energy sources (ibid)

From the ratio in the allocation table of energy sources of Vietnam 2030, it can be seen that the important role of renewable energy includes gas energy, solar energy and wind energy. With 57 percent of Viet Nam’s topography, there is concentrated sunshine all year round. The average recorded intensity of natural solar energy is about 5kWh per square meter, the solar potential in Vietnam is 60-100 GWh per year. Vietnam also has great potential to develop wind energy, having a coastline of 3,400 km with an average wind speed of 6 meters per second (MOIT, 2015). The total power generation potential from wind energy is esti mated at about 500 to 1000kWh/m2/year. In addition, it is estimated that Vietnam can also produce 73 million tons of total biomass energy potential per year, which includes 60 million tons from agriculture, forestry and fisheries and 13 million tons of waste, estimated at 5,000MW (MOIT, 2018).

OVERVIEW OF POLICY FRAMEWORK

Despite good natural conditions and huge renewable energy development potential, Vietnam’s renewable energy capacity is still limited to 5 percent of total power generation capacity (US Department of Commerce, 2022). The MOIT pointed out that regulatory barriers are one of the reasons for low renewable energy application. In particular, Vietnam has not completed the national master plan on renewable energy development, has not had a clear and stable legal policy framework and current incentives are not attractive enough for investors. While policy is the main motivation for growth in the use of renewable energy. In order to start developing and promoting the development of renewable energy, Vietnam must have a specific renewable energy framework policy, which sets out a number of key objectives, basic legal framework and support programs for the development of such energy sources. Regarding the history of establishing the policy and legal framework, since 2007, the Prime Minister has issued Decision No. 1855/QD-TTg (2007), Vietnam for the first time adopted the national energy development strategy with a vision to 2050 including the following main objectives:

• • Ensuring national energy security;
  • Provide sufficient high-quality energy for socio-economic development;
  • Efficient exploitation and management of domestic primary energy sources;
  • Diversify business models and energy investments;
  • Establishment and development of competitive energy markets;
  • Promote new and renewable energy sources; and
  • Develop energy sources in an efficient and sustainable manner taking into account environmental protection.

Based on which the plans were specifically issued: In 2011, the Government adopted a 10-year development plan from 2011 to 2020 in the original PDP VII (referred to as PDP VII “initially”), which for the first time defined the proportion role of renewable energy sources. In 2016, the Government amended PDP VII to continue increasing these targets, raising the proportion of renewable energy to 7 percent and 10 percent according to Decision No. 428/QD-TTg on the National Power Development Plan for the period 2011-2020, vision 2030.

In 2014, in order to strengthen the legal framework for the development of energy resources, the National Assembly amended the Law on Electricity No. 28/2004/QH11 (2004), amended by Law No. 24/2012/QH13 in Article 29, laying the basis for the development of renewable energy projects and promulgated the Law on Environmental Protection No. 55/201/QH13 in 2014. It clearly defined the scope of application of renewable energy and emphasized the Government’s incentives for the exploitation and use of green and renewable energy.

To advance the target set in PDP VII, in 2015, the Government announced a national renewable energy development strategy for the first time, aiming for renewable energy to account for about 32% of total primary supply and electricity generation by 2030. The solar development plan (first announced in 2017 and amended in 2020), along with the revised feed-in tariff (FIT) aims to generate up to 18.9 GW (EVN, 2021).

Following 2016, the Government amended PDP VII to continue increasing these targets, raising the proportion of renewable energy to 7% and 10% according to Decision No. 428/QD-TTg on the national electricity development planning for the period 2011-2020, vision 2030. In 2017, the Prime Minister issued Decision No. 11/2017/QD-TTg and the MOIT issued adopt new regulations on encouraging the development of solar power and standard PPAs.

And most recently, Decision No. 500/QD-TTg dated May 15, 2023 of the Prime Minister approving the National Power Development Plan for the period of 2021 – 2030, vision to 2050 (PDMP VIII) continues to adjust policy frameworks on renewable energy.

It can be seen that, although there has been a strategic framework since 2007 and many times adjusted policies by decisions of the Prime Minister from 2014, 2015, 2016 until the latest 2023, in terms of policy framework, legislation for renewable energy power projects is not clearly stated by a specific legislation but scattered in many different legal documents. For example, to meet the basic conditions of a project, developers of renewable energy projects must comply with some basic conditions:

• • Meeting electricity development plannings;
  • Meet the complex process of executing the buyer and the Power Purchase Agreement (PPA): including agreements on grid connection, monitoring control systems and data collection as well as metering; approving environmental impact assessments; approving fire prevention and fighting plans; power operation licenses and power generation licenses.
  • In addition to the above responses, renewable energy projects must also comply with laws on investment, electricity, construction, environment, tax, etc., not to mention the policies and mechanisms of each local Authorities.

LESSONS

China’s experience: Currently, China is one of the leading countries in renewable energy production. In 2021, renewable energy production accounted for 43.5% of the total capacity, of which, the capacity of hydropower, wind power, solar power and biomass power plants was 385 thousand MW, 299 thousand MW, 282 thousand MW and 35.34 thousand MW, respectively, ranking first in the world (Power China, 2023).

In terms of organization and management: The Law on Renewable Energy enacted in 2006 kicked off the clean energy revolution, allowing the legal departments of the State Council to approve the purchase price of renewable energy (wholesale price). Since 2010, the National Energy Commission (NEC) has been established as the top-level body to coordinate overall energy policies; The National Development and Reform Commission (NDRC) is responsible for approving renewable energy projects and prices; The National Energy Administration (NEA) regulates the energy industry, drafts energy plans and policies, deals internationally and approves foreign energy investment.

In terms of specific policies: FIT subsidy policy for solar and wind energy projects; grid-tied support with legislation requiring transmission companies to purchase all electricity from renewable energy; green credit guidance; refund and reduction of value-added tax (VAT); income tax incentives for renewable energy production and trading enterprises; building a Renewable Energy Fund; local authorities also have policies to support investors in renewable energy projects such as preferential loans, loan guarantees; support site clearance, land rent exemption, facilitation of access to land in areas that meet the criteria for installation of solar power projects; 50 percent VAT reduction for wind farms.

Korea’s experience: South Korea, the 10th largest economy in the world with a population of more than 51 million people, the Korean Government strives to 2030 renewable energy output accounts for 20 percent of total electricity consumption, estimated at 173GW, of which onshore wind energy is 15GW, 44GW offshore wind, 114GW solar (IRENA, 2023).

In terms of organization and management: The Government establishes a specialized apparatus for energy development, including renewable energy. The Korean Electricity Commission (KOREC) and the Korea Energy Agency (KEA) were established to manage and formulate renewable energy development policies. At the same time, the Korean Government also established an independent organization to operate the power system and competitive electricity market (KPX).

In terms of policy: The Korean Government has issued many policies to harmonize the interest relationship in renewable energy development such as: (i) Applying the FIT subsidy mechanism to wind and solar power projects with a period of 15 years from the start of the project, this policy has a great impact on production costs and attracts investors in the renewable energy sector; (ii) Replace the FIT subsidy mechanism with the Renewable Portfolio Standard (RPS) mechanism. This policy forces power generation units with a capacity of more than 500MW to apply, according to which these units must produce 4 percent renewable energy by 2017 and 10 percent by 2023. When applying this mechanism, power generation units will be issued a Renewable energy certificate (REC) corresponding to the project scale. Each REC received will correspond to a multiplier to calculate the selling price mechanism when trading REC in the market. This mechanism has had positive effects on the economic interests of investors in the renewable energy sector, helping to accelerate the capacity growth of renewable energy and promoting price competition among renewable energy producers; (iii) Policies to attract private investment, expand public-private partnerships (PPPs) in renewable energy projects to build markets and attract private investment, reduce the cost of Government financing for renewable energy projects; (iv) Invest in the development of energy storage systems (ESS) integrated with renewable energy projects to ensure grid operability. The Government provides financial support of 20-30 percent for investors of small and medium-sized projects when equipping ESS.

CONCLUSION

In the future, it is believed that with Vietnam’s potential renewable energy will be an essential part of the diverse energy mix of low-carbon emission-generating technologies existing in Vietnam. However, the system of policy mechanisms related to renewable energy (including solar energy, onshore and offshore wind and biomass energy) has a lot to expect from investors’ perspective. Key issues to address are the FIT pricing mechanism and important PPA’s clauses intended to facilitate the development and financing of long-term utility-scale renewable energy sources. With lessons from other countries, the cooperation of international experts, will find out the best way to form a legal framework to promote the encouragement of the development of renewable energy projects in Vietnam, while contributing to the development of a new era of the economy one step closer to the widespread application of renewable energy.

Author: Lawyer Nguyen Chi Dzung – Vietthink Law Firm, Vietnam

Footnotes

Reference list:

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