Vietnam solar draft PPA deemed 'non-bankable'

A consortium of international commerce chambers said the mooted framework would make it impossible to get foreign bank financing for the development of solar projects in the country.

Vietnam Business Forum, an umbrella group for international chambers of commerce, has told the Vietnamese government that the recently released draft solar PPA template is “non-bankable” in a response letter to the country’s Ministry of Industry and Trade. 

“The draft of solar PPA template that the MOIT has released on its website has been assessed non-bankable and as such, it cannot attract financing for solar power projects in Vietnam, especially for medium and large-scale projects,” said VBF.

The group stressed that the number of solar projects developed and the amount of investment going towards them may be “more limited” than planned as a result, unless PPA terms are reviewed. It suggested the government revise the draft by adopting a PPA template bankable under international standards and localised under Vietnamese law. 

The 63-page response also comprises a number of comments and recommended amendments to the draft, which was released this April to deliver a long-awaited feed-in tariff scheme for grid-connected solar projects. 

“There is a huge interest in Vietnam’s solar market from investors, given that the market remains underdeveloped and has great renewables resources,” Gavin Smith, director of clean energy at Dragon Capital, told Infrastructure Investor. However, the draft does not address the three key risks that concern investors the most – termination arrangements, the absence of neutral ground for arbitration and access to the grid, he said. 

In addition to Smith’s comments, VBF found there is a lack of protection against retroactive changes in policy that could affect existing projects, as well as a lack of clauses on project insurance, anti-corruption measures and a waiver of sovereign immunity. 

Given EVN, the country’s state-owned monopoly utility, is entitled to be the sole off-taker for all solar projects, VBF said its payment obligations should be supported by a government guarantee or other forms of assurance to support the creditworthiness of EVN and resolve the risk related to payment obligations. 

“Without a bankable PPA, it will be impossible or very difficult for developers and investors to be able to get or convince financing from international or foreign lenders on a project finance basis,” the business group concluded.