More detail needed on Vietnam offshore wind power plan

After more than two years of repeated revisions and eager anticipation from the market, the Vietnamese government finally approved the eighth power development plan (PDP8) in May 2023.

PDP8 reflects Vietnam’s commitment to achieving net zero carbon emissions by 2050, including the electricity development plan by 2030, and outlook to 2050.

PDP8 identifies offshore wind power as a development priority. However, despite the abundance of offshore wind resources, projects face a series of regulatory obstacles.

Planning and prospects

PDP8 predicts the proportion of renewable energy power generation will reach around 31-39% by 2030, and 67.5-71.5% by 2050. It sets varying installation targets for different power source categories, with wind power being the largest.

The development plan states that potential of offshore wind power should be maximised to reach around 6GW installed by 2030, 15GW by 2035, and 70-91.5GW by 2050 – accounting for 14.3-16% of the country’s total installed generation capacity.

Even prior to PDP8, prospects for offshore wind power were attracting much attention. A non-hydro renewable energy report published in 2020 by Vietnamese energy journal VER proclaimed the potential for offshore wind power as “massive”, with technical development capacity of about 160GW.

In 2021 a World Bank report titled Roadmap to Offshore Wind Power for Vietnam pointed to an increase of 11-25GW of capacity by 2035. However, the roadmap also noted that development pace depended on whether the government could successfully establish and implement relevant policies and rules.

Despite its considerable potential and important role in power planning, the roadmap also acknowledged that development of projects faced many obstacles in rules and policies, and was also bound to pose great challenges to Vietnam’s power grid and electricity system.

Rights to land and sea

Vietnam has no specific regulations for development of offshore wind power projects, but applies Circular No. 02/2019/TT-BCT of the Ministry of Industry and Trade (MOIT), which mainly focuses on onshore wind power development.

The circular fails to cover characteristics of offshore wind power, such as the right to use the seabed and the construction and operation of submarine cables.

Development of offshore wind power is also carried out entirely at the developer’s own expense. First, the developer is required to make a preliminary site selection and obtain an “exclusive site letter” issued by provincial government authorities.

However, this does not mean obtaining the project development rights. To obtain this, the developer must ensure the project is included in the PDP, which requires co-ordination with various government departments and the provision of technical documents.

Ultimately, the project development rights will be locked through the investment principle approval with an investment registration certificate (IRC) issued by the provincial government.

Additionally, the only way to obtain the right to use the seabed is through leasing, and applications for leasing must be preceded by a feasibility study for the project. Seabed leasing is governed by Decree No. 11/2021/ND-CP and requires approval from the Ministry of Natural Resources and Environment (MONRE), or relevant provincial people’s committee, depending on the project location and scale.

The lease is conditional on obtaining a sea use permit, which for foreign investors will be part of the IRC.

Currently, there are no specific rules specifying what study is required to apply for a sea use permit or seabed lease. In practice, developers are required to submit their research to the Prime Minister’s Office through the MOIT and MONRE for approval on a case-by-case basis. But there are no specific standards for approval and, again, relevant authorities approve on a case-by-case basis.

A new planning law was passed in Vietnam in 2017, specifying that only seabed listed in the “planned leasing” area could be leased, but as yet no specific plan has been published.

To sum up, the procedures for developing offshore wind power projects in Vietnam are complex – involving both central and local governments – while the absence of specific regulations has created significant challenges and uncertainty for developers.

The fact that all the costs and risks are also borne by developers also brings great pressure.

Power Purchase Agreement (PPA)

The PPA template under Circular No. 2 is applicable to both onshore and offshore wind power and, in practice, the MOIT generally does not accept any substantive modification.

This latest version of the PPA does not take into account the special development and construction risks of offshore wind power, and compared to PPAs of countries more advanced on development there is also great bias in risk sharing between power purchasers and sellers. This creates yet another huge obstacle to project financing.

Some key issues in the new PPA version are: The financing institution’s right of receivership is not recognised; the risk of rationing power supply is borne by the power plant; the state utility, Vietnam Electricity (EVN), has numerous early termination rights under the PPA; political risk is not explicitly included in force majeure (therefore all governmental acts affecting the project will be deemed to be a developer default unless it can demonstrate that the relevant event satisfies the requirement of force majeure); additional costs are borne entirely by the developer, including those under changes in regulatory rules; and there is no mechanism for dealing with inflation in the PPA.

The PPA is governed by Vietnamese law, and disputes are mediated by all parties with the support of the Electricity and Renewable Energy Administration (EREA). If mediation is not possible, such disputes will be settled by the EREA or another dispute settlement institution agreed on by all parties, according to Circular No. 40/2010, which is not neutral to the developer.

Although there are many problems with the system, Vietnam’s offshore wind power has great prospects for development. The authors of this article have reason to believe that with the implementation of PDP8, offshore wind power policy will continue to become clearer and more in line with international standards.

However, considering that Vietnam has not carried out these kinds of market reforms for a long time, offshore wind power will undoubtedly become a new frontier in the power industry, and policy implementation needs to be continually explored.

Wang Jihong is a senior counsel and Zhao Huiqi is an associate at Zhong Lun Law Firm