VIET N A M SO L A R COMPE TITIVE B I D D I N G STRATE GY AN D F R A M E WO RK Vietnam Solar Competitive Bidding Strategy and Framework   |  A This report was researched and prepared by the World Bank with the contributions of its consultants PricewaterhouseCoopers (PWC) and Baker McKenzie. The work was funded by the Energy Sector Management Assistance Program (ESMAP), a multi-donor trust funded program administered by the World Bank, and the Global Infrastructure Facility (GIF). Authors: World Bank Group (Sabine Cornieti and Ky Hong Tran with the support of Agnes Chew, Franz Gerner, Rahul Kitchlu, Bhanu Mehrotra , Cam Thi Kim Nguyen and Edwin Hin Lung Yuen) with the contributions from PWC (Raamkumar M Ragu, Rahul Raizada, Glenn Hughes, Kameswara Rao, Nikhil Abraham, Tran Nhat Bach, Abhinav Goyal) and Baker McKenzie (Chi Lieu Dang and Thanh Hai Nguyen). Peer-reviewers: Arnaud Braud, Claire Nicolas and Nadia Taobane (World Bank) Editor: Stephen Spector and Steven Kennedy Design: Debra Naylor, Naylor Design, Inc © 2019 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW | Washington DC 20433 202-473-1000 | www.worldbank.org This work is a product of the staff of the World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundar- ies, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorse- ment or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. 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Washington, DC: World Bank.” VIE TN AM SO L A R CO M P E TITIVE BID D ING S TR ATE GY AN D F RAM E WORK CONTENTS Executive Summary 5 1. Introduction 9 2. Solar Deployment Targets and Timeline 11 3. Legal Framework 13 3.1 Review of Legal Framework Possibilities 13 3.1.1 MOIT to develop further guidance on bidding procedures 13 3.1.2 Investment law 13 3.1.3 Bidding legal framework for selection of contractor to provide goods and services 13 3.1.4 Bidding legal framework for selection of investors for projects using land 14 3.1.5 Public-Private-Partnership (PPP) law 14 3.2 Legal Recommendations 14 4. Deployment Scheme 16 4.1 Substation Based Competitive Bidding 17 4.1.1 Description of the bidding model 17 4.1.2 Key steps for substation-based bidding scheme 17 4.1.3 Technical aspects 18 4.1.4 Permits 18 4.2 Solar Park Competitive Bidding 18 4.2.1 Description of the bidding model 18 4.2.2 Key steps for solar parks 20 4.2.3 Permits 20 5. Roles and Responsibilities 21 5.1 Substation-Based Roles and Responsibilities 21 5.2 Solar Park Competitive Bidding Roles and Responsibilities 21 6. Bidding Framework 22 6.1 Bidding Mechanism 22 6.2 Procurement Framework 23 6.3 Contractual Framework 23 7. Socio-Economic Benefits Strategy 24 8. Conclusion 27 Annex 1. The Vietnam Power Sector Reform Program 31 Annex 2. Results of Geospatial Analysis 34 Annex 3. PV Supply Chain Analysis 38 Vietnam Solar Competitive Bidding Strategy and Framework   |  3 4  |   Vietnam Solar Competitive Bidding Strategy and Framework EXECUTIVE SUMMARY BACKGROUND commercial operation date (COD) by end 2020. Around 4.5 GW of solar generation was deployed under the FIT before Solar power generation is an increasingly attractive option mid-2019, meeting the 2025 PV targets in 2019. for Vietnam thanks to recent cost reductions, fast construc- tion timelines, and the contribution solar power can make The Government of Vietnam is revisiting its solar targets to ensuring energy security and environmental sustainability. under the Power Development Plan 8 for the period 2021– 2030 (PDP 8). The current target under discussion for solar In March 2016, Vietnam’s Prime Minister approved, in Deci- generation is 18 GW by 2030. PDP 8 is expected to be final- sion 428/QD-TTg, proposed revisions by the Ministry of In- ized and published early 2020. dustry and Trade (MOIT) to the National Power Development Plan VII (Revised PDP 7) for the period 2016–2020 with a vi- sion to 2030. Under the plan, the total installed generation SOLAR COMPETITIVE BIDDING PROGRAM FOR capacity was expected to rise to 60 gigawatts (GW) in 2020, VIETNAM to 96 GW in 2025, and 130 GW in 2030. The current installed capacity is around 47 GW. Therefore, the 60 GW by 2020 Aiming to scale up solar generation in a sustainable and target will not be met – mostly due to a lower electricity de- affordable manner, the Government of Vietnam plans to shift mand growth than expected that reduced the need for more from the FIT to a competitive bidding mechanism. With the installed generation. support of the World Bank, the Government of Vietnam is designing the program based on the present strategy devel- The Revised PDP 7 places greater emphasis on renewable oped with input from several ministries, the private sector, energy development and outlines its strategy for expand- and development partners. The strategy presents recom- ing renewable energy generation. The plan sets a target of mendations to the Government of Vietnam aiming to pro- 6.5 percent of installed generation from renewable sources vide a clear path to develop a sustainable solar program. (excluding large-scale hydropower) by 2020 and 10.7 per- cent by 2030. It also sets a target of 850 megawatt (MW) of As part of a carefully designed strategy, decisions must be installed solar photovoltaic (PV) capacity in 2020, 4 GW by made in the following areas: (i) the roles and responsibil- 2025, and 12 GW by 2030. ities of the various public and private parties, (ii) whether changes need to be made to the existing laws and regu- To support the development of solar PV, the Government lations, (iii) the types of deployment schemes that are best of Vietnam, in April 2017, issued Decision 11/2017/QD-TTg, suited to Vietnam’s circumstances, and (iv) what risks the which established a feed-in-tariff (FIT). The FIT policy expired Government of Vietnam will internalize and what mitigation in June 2019. The policy laid out how independent power instruments it might offer IPPs. The clarification of these producers (IPPs) could apply for the FIT. It set a tariff of VND points prior to the selection of an IPP will help speed up the 2,086 per kWh (set at US$ 0.0935 per kWh) for 20-year power IPP selection process, reduce the chances of procurement purchase agreements (PPAs). A second phase of the FIT (FIT failure, and provide a long-term vision for deploying solar 2) is currently under discussion for projects that would reach projects. From the IPPs’ perspective, a clear government Vietnam Solar Competitive Bidding Strategy and Framework   |  5 strategy reduces perceived risks related to a weak or inade- A Prime Minister’s Decision will be needed to provide quate legal framework, unclear selection process, or other guidance on two fronts. First, cooperation among MOIT, development concerns. Electricity Vietnam (EVN), and the local authorities (Provin- cial People’s Committees (PPCs) and Departments of Plan- The main points of the strategy are presented below. ning and Investments (DPIs)) related to the bidding process, particularly the criteria and procedures to be used in the • Solar Deployment Targets and Timeline. To signal to pri- evaluation and selection processes. The roles and respon- vate investors that Vietnam represents a long-term po- sibilities of each entity will need to be described. Second, tential investment in the global solar market, it is critical to on the selected deployment schemes and the high-level have medium-term solar deployment targets with clear bidding framework (i.e., payment mechanism, tariff struc- timelines. As PDP 8 has not yet been finalized, this report ture, the term of PPAs, and potential government support). assumes a revised target of 18 GW solar by 2030. The 18 To ensure that the inclusion of projects into the PDP GW is not an official target and therefore, it is merely be- does not become a bottleneck, the Government of Viet- ing used as an illustration. nam needs to create some flexibility over project allocation The current status of solar deployment built under the in the PDP. It would be optimal to allow unallocated solar FIT 1 policy, which expired in June 2019, is approximate- capacity in the PDP, that is, to not allocate a given quantity ly 4.5 GW. Based on the new projects coming online and of capacity to a specific project and instead mention that the announcement of the FIT 2 specificities, the report as- it is a capacity reserved for the winning IPP/project under sumes another 1.5 GW to be developed by the end of 2020. the competitive selection. This sort of flexibility is quite Together, this represents around 6 GW of solar PV projects common. With the move from publicly owned generation to be built under the FIT policy. Therefore, 12 GW will be to privately owned, the Government of Vietnam setting expected to be built under competitive bidding by 2030. the optimal mix through a process of evidence-based Vietnam could pilot competitive bidding in 2020/2021 planning is becoming more critical. The Government of through three different schemes totaling 1.2 GW: (i) 500 Vietnam should determine the medium-term energy mix MW substation-based competitive bidding; (ii) 200 MW in the PDP 8 and select investors based on the optimal floating solar parks; and (iii) 500 MW ground-mounted so- timing for power plants to come online. lar parks. After the pilot phase, 1–2 GW of capacity should be installed every year using a mix of substation-based • Deployment Schemes. After a thorough review of the bids and solar parks (further indications are provided in various competitive schemes used internationally and Section 2 on the timeline and in Section 4 on deployment the key challenges Vietnam is facing, two deployment schemes). International experiences suggest that tenders schemes are recommended: (i) substation-based com- should be held in a regular manner, such as every 12 or 18 petitive bidding and (ii) solar park competitive bidding months, in accordance with PDP 8’s nominated capacity. (ground-mounted and floating). These schemes seek to address the key constraints faced • Legal Framework. The current regulations in Vietnam in Vietnam, namely grid availability, risk of curtailment, and do not explicitly provide a comprehensive framework for complex land allocation. Both schemes aim to reduce the competitive selection of IPPs in the Vietnamese energy development risks perceived by IPPs, thus reducing the risk market. Therefore, the Government of Vietnam will have premium in the cost of capital. The main outcome expect- to provide additional legal guidance to the existing law. ed is a reduced PPA tariff proposed by developers com- However, as the IPP competitive bidding selection in the pared to a location agnostic competitive bidding. energy market can technically be hosted under different Under substation-based competitive bidding, it is im- regulations, such as the public-private-partnership (PPP) portant to ensure that when selecting the substations, a law, the investment law and the bidding law, or under screening of environmental and social constraints for land MOIT’s framework, a decision must be taken under which around the substation is completed in coordination with law/regulation the competitive selection will be hosted. the provinces. The IPPs select the land themselves, com- Based on a full legal review and extensive discussions plying with national environmental and social regulations. with the Ministry of Planning and Investment (MPI), MOIT, Under the solar park competitive bidding, the govern- and other ministries, the investment law is recommend- ment selects the land and does so in coordination with ed. Hosting competitive bidding under the investment law the provinces to ensure minimal environmental and social will ensure coordination between the national generation impact. master plan and provincial investment plans, linking the selection of IPPs with the granting of the investment li- • Roles and Responsibilities. The key public actors involved cense. Its implementation will require strong coordination in the selection of IPPs through competitive bidding are between national and provincial agencies. MOIT, MPI, EVN, and the PPCs in which the substation/ 6  |   Vietnam Solar Competitive Bidding Strategy and Framework TABLE ES.1. Roles and responsibilities ROLE RESPONSIBILITY STAKEHOLDER(S) Bidding selection The committee (i) develops with the transaction advisors the MOIT and/or EVN leads the process with committee bidding documentation and framework; and (ii) launches, the support of EVN/MOIT and the PPC for implements, and concludes the IPP selection process. the area in which each substation/solar park is located. PPCs must be fully involved, as the selection process leads to the approval of the investment license (directly or indirectly depending under which law the competitive bidding is hosted). PPA signatory The PPA signatory signs the PPA with the IPP and pays for EVN, but this could change after the the electricity provided by the IPP at the price determined electricity market is fully in place; see through competitive bidding. Annex 1. Selection of substations/ Substations and feeders are selected as part of a larger EVN/NPT/Power Corporations (PCs), with feeders and their capacity technical study of the grid so as to ensure minimal VRE the support of PPC and MOIT. integration constraints and that suitable land is available around the substation. Solar park land selection The land selection must be aligned with the Province land PPC with the support of MOIT and EVN master plan and with the goal of minimizing environmental and social impacts. Land clearing for People on the selected land are compensated, and full PPC or EVN solar park ownership is transferred to the stakeholder. Solar park agency Technical development, financing, and construction of the Public entity (PPC or EVN) infrastructure (fence and transmission line) and operation and maintenance (O&M). Power plant owner The plant owner is responsible for (i) financing, building, IPP selected under the competitive bidding and operating the solar power plant; and in the case of substation-based competitive bidding: (ii) identifying land; and (iii) paying resettlement compensation. solar park is located. The main roles and responsibilities in development/construction of projects of similar are set forth in table ES.1. capacity. Financial capabilities shall test the ability of IPPs to obtain long-term financing and equity. • Bidding Framework. The bidding framework provides the – Iterative price discovery mechanism. An iterative framework for procurement of the entire solar program. bidding process typically occurs in real time via the It encompasses (i) procurement issues, and (ii) contrac- internet. It can achieve greater price reductions tual issues. Specifically, it includes details of the bidding than those to be had through a static, paper-based mechanisms, procurement framework, and contractu- process. However, such a system requires market al arrangements that are to form the basis for the con- maturity, preparation, and competition if it is to yield tracts between the government and the winning IPP. Each positive results. Hence, for the initial pilot bidding a of these parameters enables a sustainable and scalable sealed envelope financial bid is recommended. bidding program by balancing risk among stakeholders during the bidding process and over the life of asset. – Winner selection. Because the Government of Viet- The core recommendations under the high-level bid- nam’s current focus for the solar industry is to at- ding framework are: tract the most cost-effective technology and fund- ing, it is recommended that winners be selected a. Bidding mechanisms based on the lowest tariff submitted. – Bidding process. A request for qualification (RFQ)/ b. Procurement framework request for proposal (RFP) two-envelope process is recommended for the pilot competitive bidding in – Payment mechanism. Energy-based payments, i.e. Vietnam. net metered energy exported by the solar project in MWh/kWh, are recommended for the tariff quoted – Qualification criteria. To ensure participation of by the IPP in a solar bid, instead of a MW-based pay- established IPPs in the bidding process, the bid- ment mechanism. ding process shall test the IPPs for both technical capabilities and financial capabilities. Technical ca- – Tariff structure. In the short-term, the tariff struc- pabilities shall include proven experience of IPPs ture can be fully indexed to U.S. dollars and infla- Vietnam Solar Competitive Bidding Strategy and Framework   |  7 tion. The medium-term goal should be only partial equipment. The first category comprises jobs in develop- indexation to U.S. dollars or full payments in Viet- ment, design, construction, and commissioning of solar nam Dong (VND), depending on the state of the PV plants. Job creation in manufacturing is expected to domestic lending market at the time of the com- reach nearly 20,000 full-time equivalents by 2030. Most petitive bidding. of these jobs will be export-driven and depend on Viet- nam maintaining its current share of the global solar PV – Ceiling tariff. For the pilot competitive bidding, the market. That, in turn, will depend on the country retaining FIT can be used as the ceiling tariff to ensure that its attractiveness to international solar PV manufacturers. the competitive bid will be lower than the FIT. As per the results of this supply chain analysis, the new c. Contractual framework solar program can be a catalyst for socio-economic ben- – PPA term. Considering the asset life of solar pow- efits and can be supported in the following ways. er plants and that they are capital-intensive, a PPA a. Provide visibility locally and internationally. To support term of 25 years is recommended for projects un- the development of local industry, the Government of der the bidding scheme. Vietnam can (i) inform the market of the programs’ fea- – Off-take arrangement. Provision for deemed gen- tures, including local and industrial development tar- eration beyond a specified number of hours is rec- gets, and (ii) take local suppliers through the solar value ommended in the PPA. In a competitive bidding chain to allow them to identify relevant opportunities scenario reduction of such curtailment risks in solar so they can position themselves as needed. projects enables reduction in tariff as developers b. Facilitate the assessment of local opportunities. The would have otherwise priced it in their bids. Government of Vietnam could conduct external stud- – Change in law. Considering changing regulatory ies to assess the potential of the local market in the dynamics in Vietnam such as the introduction of solar value chain and share these studies with prequal- the Vietnam wholesale electricity market (VWEM), it ified bidders to facilitate bidders’ investigation of local is recommended that the IPP is protected from any opportunities to partner and subcontract. change in law by a letter of support from the Gov- c. Enhance the position of local players and local jobs on ernment of Vietnam. the value chain. The Government of Vietnam can map – Termination and arbitration. It is recommended local players and their skills, then identify how they that provisions for termination due to seller event might fill gaps on the solar value chain. of default and procurer event of default should be When developing the solar parks, the Government of available in PPA, along with commensurate termi- Vietnam can put an emphasis to ensure the population nation compensation mechanism and international around the park become direct beneficiaries of the in- arbitration. frastructure. This can be provided through a yearly solar • Socio-Economic Benefits Strategy park fee that can be used for development projects or Based on a supply chain analysis conducted in 2018 and have compulsory hiring and training of local staff. Car- described in Annex 3, the 12 GW PV target from the Re- rying out a socio-economic study to assess the needs vised PDP 7 is expected to support as many as 25,000 of local communities would help in the design of tai- full-time jobs in project development, services, and O&M lor-made programs to meet these needs to the extent annually through 2030. Solar PV-related employment possible, in coordination with all the public stakeholders in Vietnam will derive from (i) development and opera- involved. A gender focus can also be promoted in these tion of solar PV power plants, and (ii) manufacturing of programs. 8  |   Vietnam Solar Competitive Bidding Strategy and Framework 1 INTRODUCTION In its revised Power Development Plan 7 (revised PDP 7) a. Lack of centralized controlled planning creates evac- published in 2016, the Government of Vietnam has set a uation constraints and generation curtailment. There goal of about 12 gigawatts (GW) of solar power. It set inter- was no clear link between the revised PDP 7 and the mediary targets of installed solar generation of 850 mega- solar master plan. The latter had a much higher volume watts (MW) in 2020 and 4 GW in 2025. However, Vietnam of solar than what was proposed under the revised PDP had already reached its 2025 target by mid-2019, with over 7. The transmission plan is also not coordinated with 4.5 GW of installed solar capacity. The Government of Viet- the volume presented in the Solar Master Plan leading nam is now considering a higher target for solar generation to further variable renewable energy (VRE) integration in its new Power Development Plan 8 (PDP 8) from 12 to constraints. Moreover, under the FIT, the independent 18 GW. This increase is mostly linked to the fact that, under power producers (IPP) decide where the solar projects specific circumstances, solar photovoltaic (PV) generation are located and prepare a grid integration study to be could be the least-cost source of generation in Vietnam. approved by Electricity Vietnam (EVN). Therefore, as EVN PDP 8 is expected to be published in 2020 and will cover does not know which ones will reach COD, it evaluates the period of 2020 to 2030. projects individually, one project after the other, without being able to assess them together as a whole. This chal- The 4.5 GW of solar projects built in Vietnam were developed lenge led to an unexpected construction of 4.5 GW of under a feed-in-tariff (FIT) policy that expired mid-2019. The solar generation, five times more than what was planned FIT power purchase agreement (PPA) tariff was US$ 0.0935 under revised PDP 7. These projects are now facing im- per kWh for 20 years (FIT 1) as per the Decision 11 Circular portant curtailment and brought shortfall in transmission issued by the Ministry of Industry and Trade (MOIT). A draft capacity planned by EVN. new Decision is under discussion (FIT 2). In November 2019, the Prime Minister requested MOIT to (i) consider applying b. Lack of clear and agreed upon parameters to evaluate a revised FIT price to the projects that meet certain condi- the quality of the projects. There was no cap on solar tions including having signed PPAs and reaching commercial capacity to be developed in each province and there operation date (COD) by end-2020, and (ii) develop a com- were no agreed upon parameters between provinces to petitive, open and transparent bidding mechanism to reduce evaluate the quality of the IPP solar proposals. Therefore, the cost of solar generation. as the proposals received exceeded the target capacity set in the Revised PDP 7, it was a non-harmonized pro- Since 2018, the World Bank has been supporting the Gov- cess between provinces to select the ones that should ernment of Vietnam in its transition from FIT to competitive be added in the Solar Master Plan and get their required bidding. The main constraints identified in a sustainable and investment license. affordable deployment of solar PV in Vietnam are described below. Vietnam Solar Competitive Bidding Strategy and Framework   |  9 c. Land availability and planning challenges. Because Viet- well as the number of IPPs that can develop projects with- nam is a fertile country of tropical lowlands, hills, and out a strong balance sheet or group support. densely forested highlands, with level land covering no more than twenty percent of its geography, there are The present report outlines the framework for a Vietnam- competing demands for land that impact solar PV de- ese Solar Competitive Bidding Program with the intention of ployment. Land usage is presented in the land master scaling up the deployment of solar at competitive electricity plan led by the provinces. Currently, the land master plan purchase tariffs. The proposed recommendations answer is not synchronized with the generation master plan. As the above identified constraints to ensure the sustainability the deployment of solar is land intensive, land availability and successful deployment of the Program. The strategy and land planning are challenging when developing solar presents recommendations to the Government of Vietnam generation. aiming to provide a clear path to develop a sustainable solar program. d. Numerous actors with different responsibilities that are interlinked. There are key national level actors such as In particular, Section 2 presents solar deployment targets and MOIT, the Ministry of Planning and Investment (MPI), the timeline based on international best practices. Section 3 out- Ministry of Natural Resources and Environment (MONRE) lines the changes in the legal framework that are required and EVN; at the province level there are the Department to ensure a smooth implementation of competitive selection of Planning and Investment (DPI), the Department of In- of IPPs. Section 4 presents the two deployment schemes dustry and Trade (DOIT), the Department of Natural Re- recommended in Vietnam when assessing its grid and land sources and Environment (DONRE), and the Provincial’s constraints. Section 5 further presents the roles and respon- Party Committee (PPCs). For a smooth planning process, sibilities of the key actors based on the legal framework pro- it is key for the stakeholders to have clear responsibilities posed and the recommended deployment schemes. Section and roles while working together. 6 outlines the bidding mechanisms, procurement frame- work and contractual framework recommended, and Sec- e. Lack of available non-recourse project financing in Viet- tion 7 presents recommendations with regards to increasing nam Dong. The current PPA terms reduces the possibility socio-economic benefits. of IPPs to access USD project financing. Local banks are comfortable with the PPA and EVN’s risks and are willing The Solar Competitive Bidding Program endorsed by the to finance the solar PV projects. However, currently no Government of Vietnam will need to integrate all these local bank can finance solar PV projects under a non- aspects to ensure that solar deployment becomes a catalyst recourse project-financing scheme and provide longer for socio-economic development while keeping electricity tenors, which in turn limits the interest among IPPs, as prices low to not impede economic development. 10  |   Vietnam Solar Competitive Bidding Strategy and Framework 2 SOLAR DEPLOYMENT TARGETS AND TIMELINE To signal to private investors that Vietnam is a reliable long- Based on international experiences, launching bids in a term potential investment in the solar market, it is critical to regular manner such as every 12 or 18 months is recom- have medium-term deployment targets with clear timelines mended, following the targets approved in the generation (every 12, 18, or 24 months) that can be communicated to plan. This process may need to be adapted to the new elec- the private sector. tricity market under which EVN may not be the sole buyer (see Annex 1). However, it is important to note that as solar As the new PDP 8 is not finalized, based on discussions with projects are capital expenditure (CAPEX) intensive it requires MOIT, this report assumes an 18 GW solar target by 2030. long-term PPAs, for IPPs to be able to access long-term The 18 GW is not an official target and therefore, it is merely debt under project financing and reduce their PPA price. being used as an illustration. By mid-2019, the status of solar deployment built under the FIT 1 policy was around 4.5 GW. As described further in Section 4, the Government of Viet- Another 1.5 GW is expected to be developed under FIT 2 by nam can pilot competitive bidding in 2020/2021 through end 2020. Therefore, in total around 6 GW are assumed in three different schemes: (i) substation-based competitive the present report to be built under the FIT policy. As per bidding, (ii) floating solar park and (iii) ground-mounted solar the Government of Vietnam’s decision to move from FIT to parks. These will enable the Government of Vietnam to pilot competitive bidding, the 12 GW left will be built under com- two different deployment schemes, substation-based com- petitive bidding by 2030. FIGURE 2.1. Solar deployment (GW) per year of COD 5.0 FIT 1: 4.5 GW 4.5 4.0 3.5 3.0 Bidding Bidding Bidding with with 2.5 with storage: storage: Bidding Bidding storage: 2 GW 2 GW with with 2.0 1.8 GW FIT 2: storage: storage: 1.5 GW Bidding with 1.5 GW 1.5 GW 1.5 Bidding: storage: Pilot 1 Pilot2 1 GW 1 GW 1.0 (substation): Pilot 2 (solar park): 0.5 GW (floating): 0.5 GW 0.5 0.2 GW 0.0 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Vietnam Solar Competitive Bidding Strategy and Framework   |  11 petitive biding and solar parks that have different advantages solar generation in the grid from a least-cost perspective. and limitations and are quite commonly developed in paral- Figure 2.1 is an illustration of what could be proposed under lel in large solar generating countries such as India. The two the solar program. However, it is important to link these tar- schemes are presented in Section 4. This pilot plan will also gets to a comprehensive least-cost generation plan that is to enable the Government of Vietnam to try two different types be approved under PDP 8. of technology, namely floating PV and ground-mounted PV. These also have different advantages and limitations. Floating This process will require an estimated six months, from the PV can be collocated with hydro generation which decreases launch of the competitive bid with the request for qualifica- its potential impact on the grid and reduces the impact on tion (RFQ), to the request for proposals (RFP) and PPA sig- land but is limited since it needs a large enough body of water nature. Under substation-based competitive bidding, the IPP to host the plant. Ground-mounted is more flexible in where will need to also acquire the land and finalize the environ- it can be located and be timely developed at scale but requires mental and social studies prior to financial close. Therefore, a large amount of free land. under substation-based competitive bidding after IPP selec- tion, around 12–18 months are assumed before commer- After the pilot phase, the Government of Vietnam may want to cial operation date (COD). Under the solar park scheme, the launch around 1–2 GW a year with a mix of substation-based Government of Vietnam will need to identify the land and bids and solar parks. After 2025, when battery storage prices acquire selected permits prior to the selection of the win- are expected to have dropped by another 20-30 percent ning IPP. However, this time is regained after PPA signature as from today’s levels, it is recommended to launch tenders of the IPP does not need to do those steps and usually COD is solar PV with battery storage to improve the integration of reached within 12 months after IPP selection under the solar park scheme. 12  |   Vietnam Solar Competitive Bidding Strategy and Framework 3 LEGAL FRAMEWORK The current regulations in Vietnam do not specifically pro- To provide legal basis for issuance of the MOIT’s circular, the vide the framework for competitive selection of IPP in the Prime Minister needs to issue a Decision to assign MOIT to energy market. Therefore, the Government of Vietnam needs issue the circular presenting guidance on implementing the to provide additional legal guidance to the existing law. The competitive bidding procedures for solar power projects. competitive selection of IPPs could be hosted under differ- ent regulations, namely the investment law, the bidding law 3.1.2  Investment law and the PPP law. Alternatively, the Prime Minister could issue The investment law provides procedures for the assessment a Decision to host the competitive selection under the cur- and approval of investor-proposed projects. However, a rent MOIT framework and provide further guidance to MOIT bidding procedure (i.e., bidding among several projects on competitive bidding. proposed by several investors) is not yet available under the investment law. To host the solar competitive bidding under Based on a full legal review and the type of deployment the investment law will require the Government of Vietnam schemes recommended for Vietnam, and extensive discus- to issue a legal document to guide/detail the investment sions with MPI, MOIT and other ministries, the investment law concerning competitive bidding process. law may be the most appropriate. It ensures coordination between the generation master plan and the province invest- Under this option, the competitive bidding procedures for ment plan, linking the selection of the IPP with the granting of PPA signature are incorporated with the investment license the license. However, its implementation will require strong approval procedures. This means that, as a result of the coordination between the national and provincial agencies competitive bidding process, selected projects are granted and a good alternative is the MOIT guidance. the investment license under the Investment Policy Deci- sion and will sign the PPA. 3.1  REVIEW OF LEGAL FRAMEWORK POSSIBILITIES This option is more suitable for competitive bidding among newly proposed projects that have not been issued with The following options for can be considered from a legal approval for inclusion in the PDP and were granted an perspective to deploy competitive bidding: investment license. 3.1.1 MOIT to develop further guidance on bidding 3.1.3 Bidding legal framework for selection of contractor procedures to provide goods and services Under this option, MOIT issues a circular on competitive bid- The bidding regulation provides for specific bidding pro- ding procedures for solar projects under the current regu- cedures (i.e., selection criteria, RFP templates) for goods lation. In that case, the competitive bidding procedures are procurement or services bidding packages. However, with conducted separately from the PDP inclusion procedures the current bidding regulation, selection of electricity sup- and investment license approval procedures. After being pliers may not be considered under procurement of goods, selected from competitive bidding process, IPPs are respon- services, or any other activities that are subject to the bid- sible for obtaining approval for the investment license. ding regulations. To host the competitive selection under Vietnam Solar Competitive Bidding Strategy and Framework   |  13 the bidding regulation 63/2014 will require the Govern- 3.2  LEGAL RECOMMENDATIONS ment of Vietnam to amend the bidding regulations (bidding law, Decree No. 63/2014/ND-CP, and guiding circulars) to Both the PPP law and the bidding law present limitations accommodate the solar competitive bidding program. to either one of the selected competitive bidding schemes, namely substation-based competitive bidding and solar It is proposed that under this option, the bidding process is parks. The simpler option is the MOIT guidance, but the most separated from the development right, since after the com- comprehensive option that may lead to lower PPA price is petitive bidding process, selected IPPs are responsible for the investment law. obtaining the remaining licenses and approvals for their proj- ects. Therefore, this option would be preferred for solar proj- Under the investment law option, the Prime Minister must ects that have already been issued with relevant investment issue a Decision outlining the following: and development permits and licenses. a. Hosting of the competitive bidding under the investment law. By doing so, the Government of Vietnam guides the Bidding legal framework for selection of investors 3.1.4  streamlining of the issuance of investment licenses for for projects using land solar projects when an IPP signs a PPA under a competi- This legal framework was designed for projects using land tive selection. After FIT 2 expires, provinces should be re- with high-commercial value, whereas solar power projects quested to relinquish any remaining investment licenses are normally developed in unpopulated areas. This causes for solar projects to ensure fair competition between IPPs several gaps when applying the existing bidding mecha- under competitive bidding. nism to this option. To host the competitive selection under the bidding regulation 30/2015 and 16/2016 will require b. Guidance on mechanisms for cooperation between the Government of Vietnam to amend existing regulations the different agencies. The Government of Vietnam will (bidding law, Decree No. 30/2015/ND-CP, and Circular No. need to provide guidance on mechanisms for coopera- 16/2016/TT-BKHDT) to accommodate the gaps. tion between MOIT, EVN and the local authorities (PPCs and DPIs) for the bidding process. It will be critical to have 3.1.5  Public-Private-Partnership (PPP) law strong cooperation in particular in evaluating and select- In May 2018, the Government of Vietnam issued Decree No. ing projects as the end result of the competitive bidding 63/2018/ND-CP, which at the moment serves as the main will lead to the issuance of the investment license as well legal basis for investment activities in the form of PPP. Article as the signature of the PPA which are led by the provinces 4.1 of Decree 63 encourages the implementation of invest- and EVN/MOIT, respectively. Indeed, at the RFP stage after ment project under the PPP form, especially for the following the IPPs are qualified, the IPPs would submit a technical sectors: transport; power plants, transmission lines, public proposal and a financial proposal that would enable them lighting system, infrastructure works for commerce, urban if selected to sign the PPA at their proposed price and be areas, economic zones, industrial parks, industrial com- granted the investment license from the province. There- plexes, agriculture and rural development, etc. fore, MOIT with PPCs (as the investment approval author- ity) need to jointly receive the IPPs’ bidding dossiers and Theoretically speaking, it would be possible to apply the PPP conduct joint selections. regulations to solar projects, especially for large-scale proj- c. Guidance on roles and responsibilities of each stake- ects. However, as a matter of practice, PPPs are not a com- holder. The role and responsibilities of each agency un- mon investment form for solar or other renewable power der the two proposed competitive bidding schemes will projects in Vietnam (compared to the IPP / private invest- need to be outlined clearly. The main stakeholders are ment form). PPP regulations only work for projects that have MOIT, EVN, NPT, and PCC. They each have very strong been identified. Regardless of whether projects are proposed roles to play in the success of the competitive bidding. by government authorities or investors, Decree 63 ultimately Section 5 details the stakeholders’ roles. aims at finding an investor to develop a particular invest- ment project, which would be done via a bidding process. d. Provide flexibility over inclusion in PDP 8. To ensure that This would not be possible for substation-based competi- the inclusion of projects into the PDP does not become tive bidding. However, it would be possible to develop the a bottleneck, Government of Vietnam needs to create solar parks under the PPP legal framework for power projects some flexibility over project allocation in the PDP. It would (including Circular No. 38/2015/TT-BCT of the MOIT guiding be optimal to allow unallocated solar capacity in the PDP, on PPP investment for power projects). that is, to not allocate a given quantity of capacity to a specific project and instead mention that it is a capacity reserved for the winning IPP/project under the competi- tive selection. 14  |   Vietnam Solar Competitive Bidding Strategy and Framework e. Guidance on deployment scheme selected for the Pro- rency, but with a medium-term vision to have partial in- gram. Government of Vietnam needs to provide clear dexation to U.S. dollars or full payments in Vietnam Dong instruction to MOIT/EVN on the types of deployment (VND); (iv) the PPA term should be 25 years; (v) a letter scheme to be promoted in Vietnam. Substation-based of support from the Government of Vietnam in case of competitive bidding and solar park (ground-mount- change in law to be attached to the PPA; and (vi) provide ed and floating) are recommended based on Vietnam’s international arbitration. constraints. It is important that the schemes are nominat- ed to be able to reflect the schemes’ specific roles and The Prime Minister’s Decision is only expected to provide responsibilities in the Decision. It would ensure smooth a high-level indication on the medium-term Program. The deployment of the Program. Moreover, it would provide precise bidding, contractual and procurement framework legal ground for the development of solar parks and im- per phase is developed with the support of the transaction prove the coordination between the generation and land advisor and approved by the bidding selection committee, master plans. Deployment schemes are further presented which encompasses MOIT, EVN and the provinces. in Section 4. As an alternative, if the Government of Vietnam chooses f. Guidance on high-level bidding framework. The main ar- the MOIT option, the Prime Minister could issue a Deci- eas that need to be clarified by the Government prior to sion providing only the necessary instructions to MOIT to the launch of the competitive bidding are the qualifica- provide guidance on selection of IPPs. As mentioned, this tion criteria, payment mechanism, the tariff structure, the option is less optimal than hosting the competitive bid- PPA term and the government support. The investment ding under the investment law as it may lead to higher PPA law provides procedures for the assessment and approval prices. Indeed, it would provide less comfort to IPPs: even of investor-proposed projects. However, a bidding pro- if the IPP is selected under the competitive selection, it is cedure (i.e., bidding among several projects proposed by not sure to be granted the investment license. A fast track several investors) is not yet available under the investment process could be implemented under the substation- law. A recommended high-level bidding framework is based competitive bidding so selected IPPs could acquire the presented in Section 6. It’s core recommendations are (i) investment license in a timely manner. selection of bidders after technical qualification is solely based on the criteria of price, with the project awarded to Under the Solar Park scheme, the investment license should the bidder with the lowest price; (ii) the payment structure be in any case automatically granted to the IPP as the proj- is in MWh or kWh not in MW; (iii) the tariff structure is to be ect site would have been selected with the province and the indexed to inflation and in the short-term to foreign cur- government would have cleared the land for the solar park. Vietnam Solar Competitive Bidding Strategy and Framework   |  15 4 DEPLOYMENT SCHEME Based on the main identified risks in Vietnam, namely curtailment and complexity over land titling and potential discrep- ancies between the land master plan and the generation master plan, two deployment schemes are recommended: (i) substation-based competitive bidding and (ii) solar parks (floating and ground-mounted). TABLE 4.1. Development risks: land and grid Land ownership risk Secured land rights are critical for long-term investment and financing. The main asset considered a security for the lender is the solar plant. Its ownership relies on legal rights over the land, enabling the project company—the special purpose vehicle (SPV) —to hold the plant during the project agreements (PPA and finance agreements). Depending on the land’s legal structure, access to land can be through formal, informal, or customary systems. IPPs will assess the country’s land tenure system to evaluate the land security the system provides to its project. If land cannot be secured in a bankable manner, IPPs will usually not invest in the country or will have expectations of very high equity returns. Solar parks are a good way to ensure ownership of the land to IPPs and reduce risks over land availability. Grid condition Limited knowledge of grid availability/conditions leads to (i) the IPP spending excessive time trying to get informa- knowledge and tion from the government/utility to conduct a grid integration study for the specific project; and (ii) an incomplete curtailment risk grid integration study that may not represent the reality of the grid. If the project is based on this incomplete grid study, there is a potential risk of curtailment as the project would not have been based on sound technical and commercial constraints. It is a risk that will arise during operation but is linked to the development phase of the project, as it depends on where the project connects into the grid. Source: World Bank. 2019. A Sure Path to Sustainable Solar. 16  |   Vietnam Solar Competitive Bidding Strategy and Framework TABLE 4.2. Substation-based competitive bidding - Land usage and availability (typically within 20 km) SUBSTATION-BASED COMPETITIVE BIDDING around the substation—with a particular focus on en- The government identifies substations with available MW vironmental and social criteria; capacity, and a certain MW capacity at each substation is - Cost of land in the nearby districts of the substation; opened for bidding. and It helps optimize the use of existing transmission - Solar irradiation around the substation. + capacity in the deployment of solar projects, reducing the potential cost to integrate them. It can proactively drive grid investments needed for new VRE generation. c. MOIT/EVN to announce launch of competitive bidding with substation list. Once the bidding framework is final- If the number of selected substations is too small, there may be major competition for land around the substation ized (bidding process, contractual risk allocation, tem- that would drive the PPA price up. plate dossiers of invitation for qualification, template RFPs, Mexico developed such a scheme that has been very successful etc.), MOIT/EVN launches the competitive bidding round in supporting a more controlled deployment of solar PV in the by announcing the available substation and their associ- country. Germany’s premium and penalty scheme is a variation ated MW capacity and setting out the eligibility/qualifica- of this scheme. tion criteria for bidders to qualify for the RFP stage. These Source: World Bank. 2019. A Sure Path to Sustainable Solar. eligibility/qualification criteria would be linked to the fi- nancial capacity of the IPP, its technical experience, and a given level of development for the site proposed by the 4.1  SUBSTATION BASED COMPETITIVE BIDDING IPP around the substation. d. IPP to identify land around selected substation. The land 4.1.1  Description of the bidding model is identified by the IPP around one of the identified sub- The Government of Vietnam through EVN/NPT would iden- stations. To be pre-selected as part of the competitive tify substations across provinces with available intercon- bidding scheme, the IPP needs to have identified pieces nection capacity limits for solar generation and open for of land. bidding a certain MW capacity at each substation. The substa- tion-linked model is recommended in the context of Vietnam e. IPPs to submit their qualification package. The IPP pres- as it helps optimize the use of existing transmission capac- ents (i) its financial strength and capacity to raise debt, (ii) ity in the deployment of solar projects and reduces both the experience in solar PV construction and operation, (iii) potential cost to integrate VRE and the risk of curtailment. identified land details combined with a short pre-feasi- bility study of the project. The precise qualification doc- 4.1.2 Key steps for substation-based bidding scheme umentation and eligibility/qualifications to meet are to The substation-based bidding key steps are: be finalized by the Government of Vietnam’s transaction advisor. a. EVN and NPT to identify potential substations. EVN and NPT identify a set of substations/feeders with available ca- f. MOIT along with PPCs and EVN to select shortlisted IPPs pacity (or substation/feeders at which minimal upgrades and share the RFP package to the qualified IPPs. Based would be needed to integrate between 50 and 150 MW on the pre-qualification parameters, IPPs are shortlisted of solar). They are expected to consider multiple relevant and the finalized RFP package is shared with them. The factors in deciding which substations could be integrating RFP package should include: (i) instructions to bidders VRE, such as plans for other generation projects, trans- and forms; (ii) a complete set of contractual agree- mission expansion, new demand centers, or system con- ments, consisting of the implementation agreement, siderations (such as locating generation at the tail-end, PPA, connection agreement and investment license; (iii) etc.). A static and dynamic load flow analysis needs to be all technical specifications for the construction and op- conducted to inform the selection. eration of the plant and the grid code. Additionally, the government can add the following documents to the b. EVN and MOIT with the support of the provinces to select RFP: (i) a list of permits needed by all IPPs before and the substations to be proposed for bidding. The final se- during operation, (ii) a term sheet of guarantees and sta- lection of the substations is done in a multi-criteria man- ble financing proposed by development finance institu- ner looking at: tions in coordination with the Government of Vietnam - Technical grid availability at the given substation (as and (iii) a list of assumptions including tax treatment evaluated in step a.); with a financial model that will be used to compare the - Capacity limits for integration of VRE in that part of the financial proposals. grid; Vietnam Solar Competitive Bidding Strategy and Framework   |  17 g. IPPs to submit their technical and financial proposals. To ensure economies of scale and a better integration in the In the financial proposal, IPPs need to announce their system, the substation-linked bidding leads to lower prices if lowest PPA purchase price. As part of their technical pro- the substations selected are transmission level voltages. posal, IPPs will outline (i) their proposed project location, current status of land use, explanation on satisfaction 4.1.4 Permits of conditions for land lease, allocation, conversion of At RFQ stage. The IPP will have to obtain preliminary accep- land use purpose, estimated timeline to obtain land ap- tance letter of provincial PPC for project site study and pre- provals, and (if available) the general land clearance and pare the short pre-feasibility study for the project. compensation plan, (ii) a technical feasibility study, (iii) technical qualifications, (iv) financial qualification, and (v) At RFP stage. The IPP prepares a technical feasibility study bank term sheets. A bid bond will be required with the and has some land agreements. IPP proposal submission. Just after IPP selection. In relation to electricity sale and h. IPP selection. The technical proposal is open and all the purchase: IPPs obtain EVN’s in-principle acceptance to pur- IPP meeting the technical requirements pass. The finan- chase power and sign the auxiliary technical agreements cial proposal is only open for the IPP that met the tech- (including the Grid Connection Agreement) and the PPA with nical requirements. The IPPs with the lowest proposed EVN. In relation to the project’s land, PPC approves inclusion PPA price win. If the government has more IPPs selected of the project’s land into the relevant local land use plan. PPC on the financial criteria for one substation than the avail- issues decision on permitting the selected project to lease/ able capacity at that given substation, the lowest priced allocate with land or conversion of land use purpose. The IPP project for that substation will win and the others will be conducts land clearance and compensation procedures. The discarded. selected project will then be issued with the land use right i. Bidding winner announced, contract signature and certificate (LURC). In relation to construction and design, permits granted. Winning IPPs sign the PPA with EVN PPC/DOIT issues right of way approvals for the project’s and are granted the investment license (directly if the interconnection facilities. PPC or DOC issues construction competitive selection is hosted under the investment permit(s) to the project. With respect to other licenses and law and indirectly if not). Under a fast track program, approvals, PPC or DONRE issues EIA approval; local police PPC approves inclusion of the selected project into the department issues fire prevention and firefighting design local land use plan, issues decisions to lease/allocate approvals to the selected project. land and allocate or convert land use purpose, and con- ducts land clearance/compensation procedures. IPPs After selection and prior to COD of the project. IPPs apply for will sign auxiliary technical agreements (including the the Electricity Operation License, with facilitation by MOIT/ Grid Connection Agreement) and obtain other permits EVN. and licenses (e.g., approval of environmental impact as- sessment (EIA), construction permit) for the project. As mentioned above, in the event where the Government 4.2  SOLAR PARK COMPETITIVE BIDDING of Vietnam decides to not host the competitive bidding under the investment law, the provinces could propose 4.2.1  Description of the bidding model a fast track process for substation-based competitive The Government of Vietnam (in particular, PPC and EVN) bidding, with selected IPPs to be granted the invest- will identify the site(s), conduct land clearance and invest ment license. in key infrastructure if agreed upon (fencing, water access etc.). EVN/NPT and/or the provinces undertake investments 4.1.3 Technical aspects for the solar park infrastructure. Once the project reaches EVN/NPT would set the capacity range or limits for a given “ready for competitive bidding status,” with all required voltage level. The typical capacity range and voltage level, consent and approvals obtained, a competitive bidding considering multi-circuit lines/bays, are as follows. procedure begins and the winning IPPs will be responsible for arranging the financing, construction, and operation of TABLE 4.3. Voltage and capacity range for solar capacity the solar project. VOLTAGE LEVEL CAPACITY RANGE 110 kV 50 MW–100 MW 220 kV Up to 250 MW 18  |   Vietnam Solar Competitive Bidding Strategy and Framework TABLE 4.4. Solar park competitive bidding SOLAR PARK COMPETITIVE BIDDING The government identifies the site(s), conducts land clearance, and constructs infrastructure for the solar park that can range from the evacuation line to basic elements (such as the fence, roads, street lighting, etc.). Once the project is ready for competitive bidding, the bidding procedure begins and the winning IPP is responsible for the financing, construction, and operation of the solar project. + The solar park significantly lowers development risks (particularly those associated with acquiring land and consents) and short- ens the development timeline for the private sector, which results in cost savings and lower PPA tariffs. T he implementing agency will need time and an upfront budget to develop the solar park facility before conducting a tender. There is a risk that the infrastructure expected from the government is not built in the agreed timeline with the winning IPP, lead- ing to an extra cost for the government. It is important to integrate such potential delays in the assessment of what the govern- ment will build and what it will leave to the IPP (e.g., the interconnection line). India and Morocco championed the public solar park scheme, leading to competitive PPA prices. The World Bank Group developed the scaling solar concept that has reduced upfront development risks. It was successful in Zambia and Senegal. Source: World Bank. 2019. A Sure Path to Sustainable Solar. TABLE 4.5. Solar park infrastructure optimum allocation between private and public parties ELEMENTS OPTIMUM PARTY IN CHARGE Solar park land, including identification Public party procuring the solar project—usually the state utility. of rights of way and ownership Fencing Best if done by the public party to ensure that new settlements are not built after purchase and during procurement. Land technical preparation If the site is complex and if there is more than one IPP in the same park, it is best if the public party prepares the land, especially with regard to the earthworks. Connection line from plant to If there is more than one IPP in the same park, this would be best done by the public party. substation Otherwise, a secured right of way would be enough. Water supply and drains To be done by the public party if water supply and flooding pose risks and if several IPPs share the park. Weather station May be handled by the public party to optimize costs. Fire station May be handled by the public party to optimize costs. Main road May be handled by the public party to optimize costs. Street lighting May be handled by the public party to optimize costs. Internal access roads May be handled by the public party to optimize costs. Source: Adapted from Bridge to India (2017). This scheme can attract larger and more risk adverse compa- lish contractual rights and duties between both parties for nies. Global investors, who are generally wary of the local reg- the term of the PPA. ulatory and development risks, are more likely to participate with this scheme. The solar park significantly lowers develop- The Government of Vietnam can recover the cost of devel- ment risks, in particular with land acquisition and consents; opment, investment, and maintenance of common infra- it also shortens development timeline for the private sector, structure and land through (i) a yearly solar park fee paid which results in costs savings and lower PPA tariffs. by the IPP for the term of the PPA or (ii) receiving a mone- tary sum by means of leasing the right to use the solar park The main constraint in implementing this scheme is limited infrastructure through a lease agreement. EVN recovers the institutional capacity of governments to manage the process investment in transmission infrastructure through appropri- and lack of budget provisions for undertaking such infrastruc- ate regulated transmission charges. The solar park fees and ture work. If budget constraints arise, the investment in the transmission charges have to be determined and fixed prior park infrastructure can be limited to land clearing and fencing.1 to the bidding process and will be clearly stated as part of the bid documents. Contractual arrangement between the Government of Viet- nam (as the solar park agency) and the IPP (typically in the The solar park fee can be used to promote local develop- form of a Solar Park Agreement) would be required to estab- ment in the province where the solar park is located. 1. A third party could be hired to develop the solar park infrastructure, but it is considered sub-optimal and a government led solar park is more cost-effective. Vietnam Solar Competitive Bidding Strategy and Framework   |  19 4.2.2 Key steps for solar parks f. MOIT with PPC and EVN to select shortlisted IPPs and is- The key steps for the solar park scheme are described below. sue the RFP package. Based on the pre-qualification pa- rameters, IPPs are shortlisted and the finalized RFP pack- a. EVN and NPT to identify potential substations. EVN and age is shared with them. The RFP package encompasses NPT identify a set of substations with available capacity the solar park feasibility study with a grid integration anal- of a quantity suitable for bidding based on similar criteria ysis, the ESIA and its environmental and social plan, a ge- than for the substation-based bidding. otechnical analysis, land ownership details, and the solar b. PPC with the support of MOIT and EVN to identify land park implementation agreement and the permits granted. around selected substation. The PPC, with the support of This is in addition to what was mentioned in the substa- EVN and MOIT, identifies land suitable for development of tion-based RFP package. the solar project (typically a minimum contiguous size of g. IPPs to submit their technical and financial proposals. In c. 200 ha which is needed for 150 MW) and its right of way the financial proposal, IPPs need to announce their lowest to the substation. PPA purchase price. As part of their technical proposal, c. Solar park preparation prior to launching the bid. Once IPPs will provide their (i) technical qualifications, (ii) finan- the land, along with its right of way, is selected, EVN with cial qualification, (iii) bank term sheets. A bid bond will be the support of PPC obtains necessary approvals to devel- required with the IPP proposal submission. op the solar park infrastructures (fencing, water access (if h. IPP selection. The technical proposal is open and all the any), road and connection line to the substation). PPC ap- IPP meeting the technical requirements pass. The finan- proves inclusion of the selected project into the local land cial proposal is only open for the IPP that met the techni- use plan and issues decision to lease/allocate with land cal requirements. The IPPs with the lowest PPA proposed or conversion of land use purpose. A feasibility study, an price win. environmental and social impact assessment (ESIA), and a geotechnical study are conducted. Based on the results i. Bidding winner announced, and contract signature. Win- of the resettlement plan, EVN conducts land clearance/ ning IPPs sign the PPA and the solar park agreement with compensation procedures and builds a fence. EVN with EVN and are granted the investment license. PPC obtains the EIA approval, and the construction permit j. EVN to build the transmission line to the substation. After for the project. the IPP is officially selected, EVN can start the transmis- d. MOIT/EVN to announce launch of competitive bidding sion line construction and has around 12 months to finish with solar park. Once the bidding framework is finalized its construction. (bidding process, contractual risk allocation, template dossiers of invitation for qualification, template RFP etc.), 4.2.3 Permits MOIT with PPC launches the solar park competitive bid- Prior to the bidding process, MOIT issues approval for inclu- ding by announcing the location of the solar park and its sion of the Solar Park (together with its substation/ intercon- key parameters, and by issuing the dossiers of invitation nection plan) into the PDP if the flexibility on unallocated for qualification, setting out the criteria to be met to be plant has not yet been approved. EVN obtains the land allo- eligible for RFP stage. These qualification criteria would be cation, the construction permit, and the EIA permit linked to the financial capacity of the IPP and its technical experience. Just after IPPs selection, IPPs obtain the Investment Reg- istration Certificate, enter into an agreement with EVN for e. IPPs to submit their qualification package. The IPP pres- solar park infrastructure payment, sign the PPA, receive final ents (i) its financial strength and capacity to raise debt, and approval from PPC or DOC through the construction permit (ii) experience in solar PV construction and operation. The specific to the solar power plant, and obtain the local police precise qualification documentation and eligibility/qual- department fire prevention and firefighting design approvals ifications to meet will be finalized by the government’s to the selected project. transaction advisor. After selection and prior to COD, IPPs apply for the electricity operation license, with facilitation by MOIT/ EVN. 20  |   Vietnam Solar Competitive Bidding Strategy and Framework 5 ROLES AND RESPONSIBILITIES SUBSTATION-BASED ROLES AND RESPONSIBILITIES 5.1  The roles of the principal entities in substation-based competitive bidding are defined in table 5.1. TABLE 5.1. Roles and responsibilities under substation-based competitive bidding ROLE RESPONSIBILITY STAKEHOLDER(S) Bidding selection The committee (i) develops with the transaction MOIT and/or EVN leads the process with the committee advisors the bidding documentation and framework; and (ii) support of EVN/MOIT and the PPC for the area in launches, implements, and concludes the which each substation/solar park is located. PPCs IPP selection process. must be fully involved, as the selection process leads to the approval of the investment license. PPA signatory The PPA signatory signs the PPA with the IPP and EVN, but this could change after the electricity pays for the electricity provided by the IPP at the price market is fully in place; see Annex 1. determined through competitive bidding. Selection of Substations and feeders are selected as part of a larger EVN/NPT/Power Corporations (PCs), with the substations/ technical study of the grid so as to ensure minimal support of PPC and MOIT feeders and their VRE integration constraints are met and that suitable land is capacity available around the substation. Power plant The plant owner is responsible for (i) financing, building, IPP owner and operating the solar power plant; and in the case of substation-based competitive bidding: (ii) identifying land; and (iii) paying resettlement compensation. SOLAR PARK COMPETITIVE BIDDING ROLES AND RESPONSIBILITIES 5.2  The roles and responsibilities in solar park competitive bidding (table 5.2) are similar to those for substation-based competitive bidding with one key difference relating to the role of the IPP in land selection. TABLE 5.2. Roles and responsibilities under solar park competitive bidding ROLE RESPONSIBILITY STAKEHOLDER(S) Solar park land The land selection must be aligned with the land PPC with the support of MOIT and EVN selection master plan and with the goal of minimizing environmental and social impacts. Land clearing for People on the selected land are compensated, and PPC or EVN solar park full ownership is transferred to the stakeholder. Solar park agency Technical development, financing, and construction of the public entity (PPC or EVN) infrastructure (fence and transmission line) and operation and maintenance (O&M). Vietnam Solar Competitive Bidding Strategy and Framework   |  21 6 BIDDING FRAMEWORK The bidding framework provides the framework for pro- proposal (envelope one) evidencing the required qualifi- curement of the entire solar program. It encompasses (i) cations/eligibility and a financial/tariff proposal (envelope procurement issues, and (ii) contractual issues. Specifically, two) for the eligible project. it includes details of the bidding mechanisms, procurement b. Qualification criteria. To ensure participation of proven framework, and contractual arrangements that are to form IPPs in the bidding process, the bidding process must the basis for the contracts. Each of these parameters enables test IPPs for both technical capabilities and financial ca- a sustainable and scalable bidding program by balancing risk pabilities: among stakeholders during the bidding process and over the life of asset. - Technical capabilities shall include the experience of IPPs in the development and construction of projects The parameters are integrated into national regulations, of similar capacity. The bidding agency may choose to usually under a ministerial decree. A high-level plan for the consider experience gained on infrastructure projects allocation of procurement and contractual risks needs to be other than solar projects. developed by the government in partnership with the private - Financial capabilities shall test the ability of IPPs to sector. The bidding framework should be further detailed secure long-term financing (loans and equity). Expe- and refined for a specific phase of the program when the rience in financial closure of similar projects in similar related procurement begins. geographies may be considered. Financial indicators such as net worth may be used to establish the equity capabilities of an IPP. 6.1  BIDDING MECHANISM c. Iterative price discovery mechanism. An iterative bid- Based on market inputs and the level of competition, the ding process typically occurs in real time via the internet. bidding agency determines the bidding mechanism, which It can achieve greater price reductions than those to be includes the procedures to be followed in bidding, qual- had through a static, paper-based process. However, ification criteria for the selection of IPPs, and the criteria such a system requires market maturity, preparation, and for winner selection, including provisions for iterative price competition if it is to yield positive results. Hence, for the discovery. initial pilot bidding a sealed envelope financial bid is rec- ommended. The iterative price discovery process may be Recommendations on each of these aspects follow. introduced later, after gauging bidders’ interest and the maturity of the market. a. Bidding process. An RFQ/RFP two-envelope process for running the pilot solar competitive bid is recommended d. Winner selection. Because Government of Vietnam’s for use in Vietnam. In this type of bidding process, the current focus for the solar industry is to attract the most auctioneer issues an RFQ for qualification of IPPs. Qual- cost-effective international technology and funding, it ified IPPs then receive the RFP. IPPs submit a technical is recommended that winners be selected based on the lowest tariff submitted. 22  |   Vietnam Solar Competitive Bidding Strategy and Framework 6.2  PROCUREMENT FRAMEWORK The contractual framework defines the risk-sharing mecha- nism between the parties to the contract. The discussion here The high-level procurement framework reflects decisions on is focused on provisions to improve the bankability of the PPA the following criteria: (i) the payment mechanism, (ii) tariff by attracting lower-cost financing, encouraging international indexation; and (iii) the ceiling tariff. investment, and stimulating greater competition. Recommendations on each criterion follow. Recommendations on each of these subjects follow. a. Payment mechanism. Energy-based payments, i.e., net metered energy exported by the solar project in MWh/ a. PPA term. In view of the lifetime of solar power plants and kWh, are recommended for the tariff quoted by IPP in a because solar projects are CAPEX intensive, a PPA term of solar bid instead of a MW-based payment mechanism. 25 years is recommended for projects contracted under the bidding scheme. b. Tariff indexation. The tariff structure should be indexed to inflation and, in the short-term, fully indexed to foreign b. Off-take arrangement. The PPA should include a provi- currency. The medium-term vision should be for partial sion for deemed generation beyond a specified number indexation to U.S. dollars or full VND payments (depend- of hours. In a competitive bidding scenario, reduction of ing on conditions in the domestic lending market). such curtailment risks in solar projects enables a tariff re- duction, since developers would otherwise have priced c. Ceiling tariff. Some countries share this information to them into their bids. ensure that the PPA price of the project is affordable for the country, but it may be interpreted as a price signal c. Change in law. Considering changing regulatory dynam- to the market, inducing bidders to offer tariff proposals ics in Vietnam (such as the introduction of VWEM), it is in the ceiling range that are not as competitive as they recommended that the IPP is protected from any change might have been. On the other hand, if the ceiling tariff is in law by a letter of support from the Government of Viet- too low, the tender may be undersubscribed. For the pilot nam. Investors should be compensated for the impact of competitive bidding, the FIT can be used as the ceiling legislative changes either through a compensatory tariff tariff to ensure that the competitive bid will be lower than mechanism or through other related mechanism deemed the FIT. appropriate by the regulatory authority. d. Termination and arbitration. It is recommended that pro- visions for termination due to seller’s or buyer’s default 6.3  CONTRACTUAL FRAMEWORK should be included in the PPA, along with a corresponding compensation mechanism and a provision for international The contractual framework comprises provisions on sev- arbitration. eral subjects to be included in the PPAs entered into with qualified IPPs: (i) the PPA term; (ii) off-take arrangements and curtailment; (iii) response to legislative changes; and (iv) ter- mination and arbitration. Vietnam Solar Competitive Bidding Strategy and Framework   |  23 7 SOCIO-ECONOMIC BENEFITS STRATEGY Based on a supply chain analysis conducted in 20182 and and to disappear once the plant is commissioned and gener- described in Annex 3, the 12 GW PV target from the revised ating power. The implementation phase is followed by O&M, PDP 7 is expected to support as many as 25,000 full-time which extends for the duration of the plant’s life cycle. jobs in project development, services, and O&M annually through 2030. Solar PV–related employment in Vietnam will Job creation in manufacturing is expected to reach nearly derive from (i) development and operation of solar PV power 20,000 full-time equivalents by 2030. Most of these jobs will plants, and (ii) manufacturing of equipment. The first cate- be export-driven and depend on Vietnam maintaining its gory comprises jobs in development, design, construction, current share of the global solar PV market. That, in turn, will and commissioning of solar PV plants. Jobs created in con- depend on the country retaining its attractiveness to interna- nection with project implementation tend to be temporary tional solar PV manufacturers. FIGURE 7.1. Job creation in project development, services, and O&M expected from Vietnam’s 12 GW solar PV target, 2017–30 (thousands of full-time equivalent positions) 30 25 20 15 10 5 0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Construction unskilled O&M unskilled O&M skilled Construction skilled Design unskilled Source: World Bank. 2018. Assessment of Vietnam’s Solar PV Supply Chain World Bank. 2018. Assessment of Vietnam’s Solar PV Supply Chain. http://pubdocs.worldbank.org/en/301671539903264866/Vietnam-Solar-PV-Supply- 2.  Chain-Assessment-10May2018 24  |   Vietnam Solar Competitive Bidding Strategy and Framework FIGURE 7.2. Manufacturing jobs expected to be created by achievement of Vietnam’s 12 GW solar PV target, 2017–30 (thousands of full-time equivalent positions) 25 20 15 10 5 0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Modules unskilled Cells/Modules unskilled Ingots-wafers/Cells unskilled Modules skilled Cells/Modules skilled Ingots-wafers/Cells skilled Source: World Bank. 2018. Assessment of Vietnam’s Solar PV Supply Chain Sound planning with medium-term targets will allow coun- tractors for engineering, procurement, construction, op- tries to maximize the socio-economic benefits from solar eration, and maintenance). projects implemented in accordance with a sustainable and c. Enhance the position of local players and local jobs in integrated roadmap. Benefits can be maximized in various the value chain. The government might map local players ways, as described below. and their skills, then identify how they might fill gaps in a. Provide visibility locally and internationally. To support the solar value chain. Any theoretical assessment could the development of local industry, the Government of be improved by benchmarking local players against pre- Vietnam may wish to consider (i) informing the market of selected subcontractors by asking, for example, prequal- the programs’ features, including local and industrial de- ified bidders to explain whether they intend to preselect velopment targets, and (ii) taking local suppliers through local subcontractors and, if not, why not. This informa- the solar value chain to help them identify relevant oppor- tion would help public stakeholders design a tailor-made tunities and position themselves as needed. The creation program to enhance the position of local players along of a business cluster could also help local players benefit the value chain. According to an IRENA study on jobs in from the solar program as it is deployed, disseminate ad- renewables, operation and maintenance jobs require spe- equate knowledge on the solar value chain, provide rel- cific attention, as they constitute more than half of the evant training in coordination with professional training jobs associated with a solar PV plant. institutions, help local companies gain visibility, and link When developing solar parks, the Government of Viet- them to any international players involved in the bidding nam should consider measures to ensure that people living processes. around the parks become direct beneficiaries of the new b. Facilitate the assessment of local opportunities. The Gov- infrastructure. One way to do this would be a yearly park fee ernment of Vietnam may wish to conduct external studies that could be applied to fund development projects or the in accordance with best practices to assess the potential hiring of local staff. Carrying out a socio-economic study of the local market in the solar value chain and to share to assess the needs of local communities would help in the the results with prequalified bidders to facilitate bidders’ design of tailor-made programs to meet local needs in coor- exploration of local opportunities as partners or sub- dination with the public stakeholders involved. One useful contractors. Meetings could be organized between local focus of these programs could be gender. players and prequalified bidders (and their main subcon- Vietnam Solar Competitive Bidding Strategy and Framework   |  25 While the Government of Vietnam understands community for socio-economic development to benefit local com- needs and how to meet them, it often lacks the means to munities. This is the case with the Redstone 100 MW CSP finance the necessary measures. The bidding process could project, which commits to a 2.5 percent community trust. include provisions requiring the IPP to allocate a small per- Set up as a not-for-profit organization, the trust will benefit centage of the capital expenditure (e.g., 1 percent) for use by local communities living around the project site, particularly governments on local development. For example, in South women, who are involved as trustees. Distributions received Africa, projects mandated under the Renewable Energy by the trust must be applied to specific community devel- Independent Power Producer Procurement Programme are opment programs, including health care, education, training, required to set aside a percentage of total project revenues and development. 26  |   Vietnam Solar Competitive Bidding Strategy and Framework 8 CONCLUSION To replace the FIT, the Government of Vietnam is preparing ground-mounted solar parks with a combined capacity the country’s first solar competitive bidding program with of 500 MW. After the pilot phase, it is recommended to the intention of scaling up the deployment of solar power at launch bids for 1–2 GW of capacity each year, compris- competitive electricity tariffs. With the support of the World ing a mix of substation-based bids and solar parks, as de- Bank, the government is designing the program based on the scribed in Section 2 and 4. present strategy developed through consultations with vari- • Legal framework. Current regulations in Vietnam do not ous ministries and the private sector. specifically provide a framework for competitive selection of IPPs. Therefore, the Government of Vietnam should Key aspects of the strategy requiring government’s decision provide additional guidance related to the existing law are: (i) the roles and responsibilities of the various public and decide under which law the competitive selection and private parties, (ii) whether changes need to be made to in the energy market will be hosted. Based on extensive existing law, (iii) the types of deployment schemes that are discussions with MPI, MOIT, and other ministries, and on best suited to Vietnam’s circumstances, and (iv) what risks a full legal review, the investment law is recommended. A the Government of Vietnam will internalize and what mitiga- Prime Minister’s Decision will be needed to provide guid- tion instruments it might offer to IPPs. Clarification of these ance on two fronts: first, cooperation among MOIT, EVN, points before IPPs are selected will speed the selection pro- and the local authorities (PPCs and DPIs) related to the cess, reduce the chances of procurement failure, and pro- bidding process, particularly the criteria and procedures vide a long-term vision for deploying solar projects. From the to be used in the evaluation and selection processes, and IPPs’ perspective, a clear government strategy lessens the the roles and responsibilities of each entity; and, sec- concerns of potential investors about the legal framework, ond, on deployment schemes and the high-level bidding the selection process, and other development matters. framework (i.e., payment mechanism, tariff structure, the term of PPAs, and potential government support). The following points deal with these aspects of the strategy. To ensure that the inclusion of projects into the PDP is • Solar deployment targets and timeline. To signal to pri- not becoming a bottleneck, the Government of Vietnam vate investors that Vietnam represents a long-term po- needs to create some flexibility over project allocation in tential investment in the solar market, the country must the PDP. It would be optimal for the PDP to permit un- establish medium-term solar deployment targets with allocated solar capacity—that is, to nominate a quantity clear timelines. International experience suggests that of capacity in the PDP and reserve it for the winning IPP/ bids should be launched in a regular manner, such as ev- project under the competitive selection. ery 12 or 18 months, as specified in the official national • Deployment schemes. After a thorough review of var- generation plan. Vietnam could pilot competitive bidding ious competitive schemes used internationally and in 2020/2021 through three different schemes totaling 1.2 the key challenges Vietnam is facing, two deployment GW: (i) substation-based competitive bidding for a capac- schemes are recommended. These are (i) substation- ity of 500 MW, (ii) a 200 MW floating solar park, and (iii) linked competitive bidding, and (ii) solar park com- Vietnam Solar Competitive Bidding Strategy and Framework   |  27 petitive bidding (ground-mounted and floating). These foreign currency. The medium-term goal should be schemes seek to address the key constraints faced in partial indexation to U.S. dollars or full payments in Vietnam, namely grid availability, risk of curtailment, and VND, depending on the state of the domestic lending complex land allocation. Both schemes aim to reduce market at the time of the tender. the development risks perceived by IPPs, thus lowering d. PPA term. The PPA term should be 25 years. the risk premium in the cost of capital. The main out- e. Change in law. A letter of support from the Govern- come expected is a lower tariff. ment in the event of a change in law should be includ- • Roles and responsibilities. The key public actors involved ed in the PPA. in the competitive bidding IPP selection are MOIT, MPI, f. Arbitration. A provision specifying international arbitra- EVN, and PPC. tion of disputes is recommended. • Bidding framework. The core recommendations for the • Socio-Economic benefits strategy. Key steps to maxi- high-level bidding framework are: mize the socio-economic benefits of solar development a. Bidder qualification. After technical qualification, win- are as follows: ners are selected based solely on price, with the proj- a. Provide visibility, locally and internationally. ect being awarded to the bidder offering the lowest price. b. Facilitate the assessment of local opportunities. b. Payment structure. The payment structure is in MWh c. Maximize benefits for local communities. or kWh, not in MW; d. Manage expectations to ensure better results. c. Tariff structure. The tariff structure is to be indexed to e. Enhance the position of local actors and local employ- inflation and, in the short-term, to be fully indexed to ment in the value chain. 28  |   Vietnam Solar Competitive Bidding Strategy and Framework ANNEXES ANNEX 1 THE VIETNAM POWER SECTOR REFORM PROGRAM Decision 63 issued in November 2013 sets out a roadmap OPTIONS TO IMPROVE LONG-TERM GENERATION IN for restructuring the power market and establishing a com- VIETNAM petitive market-driven environment. The objectives of the reform include (i) developing a competitive electricity market Intelligent Energy Systems (IES), in collaboration with SW in a phased and sustainable manner; (ii) attracting new inves- Advisory (SWA) and Energy Market Consulting Associates tors to the power sector; (iii) reducing the state’s investment (EMCa), has presented a report on options to improve long- in and subsidies of the power sector; (iv) improving the effi- term generation adequacy in Vietnam as part of their work ciency of the power sector and ensuring a stable and reliable for the Asian Development Bank under their Vietnam Power supply of electricity; and (v) reducing the pressure to increase Sector Reform Program. The focus of the report is longer- electricity tariffs. term arrangements. Different stages of market development envisaged as part of In summary, until the VWEM market matures, the report rec- the reforms are: ommends the following structure as an interim measure, where EPTC (EVN) operates as the IPP trader on behalf of the a. Level 1: Competitive power generation market (Vietnam developer unless the developer elects to operate directly in competitive generation market, VCGM). The key charac- the VWEM as the trader. teristic of VCGM is that power generators can enter and sell electricity to EVN, the single buyer, at competitive According to the report, once the marker mature, the best prices. long-term option for VWEM participation is to require all new b. Level 2: Competitive wholesale power market (Vietnam generation (including solar) to participate in the VWEM. In the wholesale electricity market, VWEM). The key character- longer term, once the market matures, the following struc- istic of VWEM is that all power generators and wholesale ture is recommended. power distributors will enter the market. Therefore, in ad- dition to EVN, there will be other wholesale buyers. Moreover, the report recommends migrating from the pres- ent physical PPA regime to contracting based on financial c. Level 3: Competitive retail power market. At this lev- PPAs, with payments based on a contract for differences. el, distribution company activities are split into network This would apply to all new projects across all technologies, management, network operations, and retailing. End us- including solar. Effectively requiring the project developers to ers are free to choose their suppliers. recover the cash flows from the spot market and EVN (in the Presently, the VCGM hosts two kinds of participants. Direct interim) or the PCs (in the long term) for the differences as trading generators (DTGs) are centrally dispatched and have quoted in the tender prices. SPPAs in place. Indirect trading generators (ITGs) are not dis- patched centrally but instead are scheduled ahead of time. ITGs include: BOT projects, Strategic Multi-purpose Hydro Plants (SMHPs), and various other exceptions. Vietnam Solar Competitive Bidding Strategy and Framework   |  31 FIGURE A1.1. Interim VWEM spot payment VWEM (Spot Market) long-term spot purchases financial contract Project Developer Power EVN EPTC (Direct Trader) Corporation #1 VWEM financial contract(s)* VWEM Power (Forward Market) Corporation #5 Mechanism to “True-up” Source: IES Report, section 11.3.2. FIGURE A1.2. Mature VWEM Structure spot payment VWEM (SMO) Project Developer Power (Direct Trader) Corporation #1 Power long-term financial Corporation #2 contracts spot purchases Power Corporation #5 Source: IES Report, section 11.3.2. 32  |   Vietnam Solar Competitive Bidding Strategy and Framework LONG-TERM RECOMMENDATIONS FOR THE SOLAR “elect to participate” in the VWEM. Those that do will be COMPETITIVE BIDDING PROGRAM subject to the legal and regulatory provisions applicable to power generators participating in the VWEM. Other non-hy- Migrating from the present physical PPA to financial PPAs dropower renewable power projects (i.e., those with installed accompanied by a contract for differences, even as an interim capacity of 30 MW or less) can elect to participate in the measure, requires that the following issues be explored: VWEM indirectly—that is, without directly offering a tariff and without applying the VWEM tariff mechanism.3 a. Depth of the wholesale electricity market. The quantity of energy procured through the market to meet demand, As a next step to supplement the legal framework for and the number of transactions involved, indicate the implementation, the Electricity Regulatory Authority of Viet- market’s maturity. Greater market depth implies visibility nam (ERAV) will have to formulate guidelines on participation of market prices and reduces volatility resulting from sud- that apply specifically to non-hydropower renewable power den variations in supply or demand. projects. b. Counterparty credit risk. The System and Market Oper- ator (SMO)’s creditworthiness plays a critical role in the success of solar competitive bidding. The SMO’s credit RECOMMENDATIONS FROM THE LEGAL PERSPECTIVE rating will be influenced by the creditworthiness of retail PCs trading entities such as EVN, and other market par- Under the current PPA model for solar power projects, power ticipants. Thus, until the market matures, solar projects sellers have the right to elect to participate in the whole- and bidding mechanisms linked to the VWEM spot market sale power market as described in applicable regulations on would require developers to rely on spot market prices competitive power markets. If a power seller elects to partic- backed by the SMO. ipate in the VWEM, it must provide 120 days’ advance writ- ten notice to the power purchaser and to the ERAV. In such c. Attracting international finance. Financiers and investors cases, the parties to the PPA may unilaterally terminate the may not accept PPAs that are based on a contract for dif- existing PPA. This mechanism is provided as an alternative ferences instead of a physical PPA. For the financial mar- for solar power sellers to consider.4 Government of Vietnam ket, including international financiers, to have confidence should consider whether to continue to include this type of in the rules of the VWEM, that market will need to show physical PPA in the solar competitive bidding framework. maturity and market depth, as discussed earlier. Therefore, tenders held during the transition from physical If the Government of Vietnam wishes to encourage solar PPAs to contracts for differences could reveal higher tariffs power developers to participate in the VWEM once it matures, as bidders factor in revenue uncertainty related to the per- it should weigh the question of providing incentives for solar formance of the VWEM. and other non-hydro renewable power projects. In addition to addressing counterparty credit risk related to the SMO, Thus, in line with Decision 63, it is recommended that solar among other things, the government may wish to consider projects should continue to be based on physical PPAs until including clear protections against changes in law in the con- the VWEM market fully matures. tractual framework. Developers of projects with a fixed tariff secured under a solar competitive bidding program (as under the FIT program) will want to know that the Government and LEGAL CONSIDERATIONS other power purchasers (off-takers) will bear the risk of legal changes after the date of the executed PPA. The necessary Looking ahead to the next phase of VWEM, MOIT issued Cir- reassurance can be provided by including in the model PPA cular No. 45/2018/TT-BCT dated 15 November 2018 with an or legal framework a specific provision on changes in law effective date of 1 January 2019 (Circular No. 45), to provide and adjustments to electricity payments during the migration guidelines on the operation of the VWEM. Circular No. 45’s from physical PPAs under the solar competitive bidding pro- guidelines on the operation of VWEM have general implica- gram to financial PPAs under the VWEM. tions for renewable power projects other than hydropower. Under the guidelines, non-hydropower renewable power 3. Articles 4.2 and 4.3(b) and 3.21 of Circular No. 45. projects with installed capacity of more than 30 MW may 4. Circular No. 16/2017/TT-BCT of the MOIT, Annex II, Article 9.3. Vietnam Solar Competitive Bidding Strategy and Framework   |  33 ANNEX 2 RESULTS OF GEOSPATIAL ANALYSIS This annex presents the results of a countrywide geospa- land (barren, range land). The main criteria for available tial analysis conducted to determine where solar genera- land were that its elevation should be no greater than 2,000 tion could and should be developed as a function of levels meters, its slope less than 5 degrees, and its population of solar irradiation, grid development, and land and rooftop density less than 400 persons per km2. Protected areas are availability. at least 1 km from the site, and land cover is categorized based on usage. To discount any potential constraints on The geospatial analysis combines Vietnam’s solar irradia- site, the analysis discounted 75 percent of the identified tion potential with data on land use and land cover. It also land. This analysis will require further work with the prov- considers factors such as elevation, slope, and proximity to inces to properly identify the land best suited for potential urban centers and protected areas. Four categories of land solar projects. were identified as suitable for PV development and used in the analysis: (i) agricultural land (annual crops, perennial The analysis of land availability was then merged with data on crops, and other agricultural land), (ii) forest land (timber solar PV irradiation.5 Not only is high solar irradiation a critical production), (iii) urban and built-up land (cities, plus land determinant of low PPA prices, it tends to occur over arid used for power generation or irrigation), and (iv) unused land that is not ideal for agricultural use. The resulting datasets from the geospatial analysis are provided as an ArcGIS geodatabase and in KMZ format. 5.  34  |   Vietnam Solar Competitive Bidding Strategy and Framework KEY FINDINGS FIGURE A2.1. Zones with the best solar PV irradiation Best solar PV irradiation The best solar PV irradiation (>4.4 kWh/m2/day) is concen- trated in two provinces: Ninh Thuan and Binh Thuan (figure A2.1). Enough land may be available to produce 5 GW of electricity in Ninh Thuan province and 20 GW in Binh Thuan. The predominant categories of available land in those prov- inces are unused land and agricultural land. There are four grid substations sized between 220 kV and 500 kV. Most of the land is situated within a radius of 20 km from a substation. There is load demand from both provincial capitals, Phan Thiet and Phan Rang-Thap Cham, and the 500 kV backbone transmission line enables good dispatch management with the rest of the country. Very good solar PV irradiation Vietnam’s very good solar PV irradiation (4.2–4.4 kWh/m2/ day) is concentrated in 12 provinces (table A2.1 and figure A2.2), with top potentials of 47 GW in Binh Phuoc, 24 GW in Tay Ninh, 14 GW in Gia Lai, and another 14 GW in Binh Thuan. The main land cover use is unused land, agricultural land, and production forests. There are 18 substations sized between 220 and 500 kV in these 12 provinces. Most of the land lies within a radius of 20 km from a substation. FIGURE A2.2. Zones with very good solar PV irradiation There is load demand in the provincial capitals, while the 500 kV backbone transmission line enables better dispatch man- agement with the rest of the country. TABLE A2.1. Provinces and potential installed solar PV capacity (GW): very good potential NAME OF PROVINCE CAPACITY (GW) Binh Phuoc 47.23 Tay Ninh 24.22 Gia Lai 14.65 Binh Thuan 14.19 Dak Lak 12.60 Lam Dong 6.53 Ninh Thuan 5.52 Khanh Hoa 3.04 Kon Tum 2.64 Ba Ria-Vung Tau 2.16 Dong Nai 1.50 Binh Duong 1.27 Source: World Bank. Vietnam Solar Competitive Bidding Strategy and Framework   |  35 TABLE A2.2. Provinces and potential installed solar FIGURE A2.3. Zones with good solar PV irradiation PV capacity (GW): good potential NAME OF PROVINCE CAPACITY (GW) Gia Lai 54.69 Dak Nong 44.60 Dak Lak 40.75 Binh Phuoc 27.80 Dong Nai 25.05 Binh Duong 22.81 Long An 21.06 Lam Dong 20.22 Kon Tum 17.66 Binh Thuan 13.11 Ba Ria-Vung Tau 7.19 Ben Tre 6.91 Tra Vinh 6.34 Khanh Hoa 5.59 Tay Ninh 3.65 Tien Giang 3.17 Soc Trang 3.02 Ho Chi Minh city 2.82 Dong Thap 1.17 Source: World Bank. Good solar PV irradiation Good solar PV irradiation (4–4.2 kWh/m2/day) is found in Although the EPC costs of FSPV are currently estimated to be 19 provinces (table A2.2 and figure A2.3), with the greatest about 10–20 percent higher than ground-mounted plants potential in Gia Lai (55GW), Dak Nong (44GW), and Dak Lak owing to limited competition in equipment production and (40 GW). Most of the available land falls into the categories the need for expensive anchoring structures, these addi- of unused land, agricultural land, and production forests. The tional costs are partially offset by a 10–12 percent increase 19 provinces contain 23 substations sized between 220 and in energy production thanks to the cooling effect and reduc- 500 kV. Most of the land lies within a radius of 20 km from a tion in dust caused by the surrounding water (World Bank substation. Group, ESMAP and SERIS, Where Sun Meets Water: Floating Solar Market Report, 2018). The performance gains are high- Floating solar PV est in hot climates such as Southeast Asia, where the cooling Floating solar PV (FSPV) is being used increasingly to reduce effect is most important.6 the need for land (around 1.5 hectares of land are required for 1 MWp of installed capacity in Vietnam) and to facilitate Floating PV co-located with hydropower generation has many co-location with a hydropower plant and thereby improve advantages, such as maximizing the hydro plant’s infrastruc- dispatch of VRE. The World Bank’s study of Floating PV was published in 2019 under the title Where Sun Meets Water: Floating Solar Market Report. A summary of the report 6.  was published in 2018 (with the same title). 36  |   Vietnam Solar Competitive Bidding Strategy and Framework ture and grid connection, minimizing the effects of seasonal FIGURE A2.4. Floating solar PV potential variations in power production, supporting daytime peak load, and reserving more hydropower for the evening peak. Vietnam has nine hydropower dams of a size greater than 100 MW. Two of them, Tri An Lake and Thac Mo, meet the requirements that solar irradiation (expressed in PVout) should be at least 4 kWh/m2/day and no more than 20 per- cent of the reservoir should be covered. These two dams have combined a potential of 4.5 GW. Vietnam Solar Competitive Bidding Strategy and Framework   |  37 ANNEX 3 SUPPLY CHAIN ANALYSIS Annex 3 presents the key results of the Assessment of Viet- KEY FINDINGS nam’s Solar PV Supply Chain that was commissioned by the World Bank in 2018. Vietnam’s industrial attractiveness. Vietnam’s competitive- ness in solar PV manufacturing has been assessed on four parameters in order to compare it with selected benchmark ANALYSIS countries (China, Malaysia, the Philippines, Thailand, and the United States). The four parameters are (i) production factors Solar PV is a mature, fast-growing sector based on wafer- (availability and cost of materials, labor force, and capital); (ii) based crystalline silicon technology. China, Europe, and demand factors (local market and exports); (iii) risk and sta- the United States are the main markets, but 80 percent of bility factors (country risk, inflation, regulatory framework for modules are manufactured in Asia. In Vietnam, modules are renewable energy); and (iv) business support factors (infra- manufactured in collaboration with Chinese and American structure, place of industrial sector in economy, innovation manufacturers. In 2017, 5 GW of panels were manufactured and competitiveness). in Vietnam, representing 7 percent of the global market. Vietnam’s competitiveness trails that of China, Malaysia, The domestic solar PV market is expected to reach a peak and Thailand in all solar PV industries except for frames and installation rate of around 1.8 GW/year under the targets structures. Vietnam’s key strengths are in production factors, specified in Revised PDP 7. The country’s module-manu- particularly the labor market, the availability of materials for facturing capacity, presently dedicated entirely to exports, solar industries (particularly steel), and a favorable cost of stands at 5.2 GW/year, about three times the maximum energy for industrial consumers. Manufacturing of modules, expected size of the local market. Under these conditions, cells, ingots/wafers, and eventually inverters will be mainly given typical factory sizes, only a limited number of compo- export-driven and will develop independently of local solar nent manufacturers would be able to depend on the local PV construction. Structures and services (such as project market alone, so the present export orientation will continue development, engineering, design, and O&M) will develop to to be necessary. But, importantly, charting a clear path to the serve the local market. 12 GW will encourage the creation of EPC companies and other local services in Vietnam to build the planned plants Job creation potential. The 12 GW PV target is expected to (figure A3.1). support as many as 25,000 full-time jobs in project devel- opment, services, and O&M annually in the period through Construction, operations, maintenance, and manufacturing 2030. Solar PV–related employment in Vietnam will derive for the local market have the potential to raise Vietnam’s from (i) development and operation of solar PV power plants, GDP by about 0.25 percent by 2030 and to create more and (ii) manufacturing of equipment. The first category com- than 25,000 jobs. prises jobs in development, design, construction, and com- 38  |   Vietnam Solar Competitive Bidding Strategy and Framework FIGURE A3.1. Economic activity associated with pursuit of Vietnam’s 12 GW solar PV target Education, engineering Publishing, trade and industry organizations Specialized consulting, testing, design, O&M, R&D, financing Manufacturing equipment Materials and chemicals for water, cell and module production M Mounting De Design, O Operations Poly- Ingots & Chrystalline Electrical El W Wholesale Pr Project PV cell BIPV BI co components di distribution de development engineering, en and an silicon wafers module tracking tra construction co maintenance m Protective Easy to develop Solar glass cover Intermediate Thin-film Di cult to reach Substrate module Multi- junction Concentrating PV cell module (CPV) Software Source: World Bank. 2018. Assessment of Vietnam’s Solar PV Supply Chain missioning of solar PV plants. Jobs created in connection Job creation in manufacturing is expected to reach nearly with project implementation tend to be temporary and to 20,000 full-time equivalents by 2030. Most of these jobs will disappear once the plant is commissioned and generating be export-driven and depend on Vietnam maintaining its power. The implementation phase is followed by operation current share of the global solar PV market. That, in turn, will and maintenance, which extends for the duration of the depend on the country retaining its attractiveness to interna- plant’s life cycle. tional solar PV manufacturers. Vietnam Solar Competitive Bidding Strategy and Framework   |  39