Regulations and Practical Issues to Know When Making a New Investment in a Solar Power Plant Project in Vietnam
3. Power Purchase and Sale Prices
4. The Implementation Process for a Solar Power Plant Project (New Investment)
5. Investment Incentives for Solar Power Projects
When considering a new investment in a solar power plant project in Vietnam, a thorough legal review is essential from the outset, given the complex interplay of licensing procedures, land use, power purchase agreements (PPAs), pricing regimes, and foreign investment restrictions. Drawing on the latest regulations as of 2024, this article—written by an experienced Vietnamese attorney—clearly explains the regulatory points foreign investors should watch for, typical problem cases, and the criteria for selecting an investment structure. NEXORA LAW FIRM has been involved in numerous renewable energy projects and has supported Japanese companies in developing projects of many kinds, including utility-scale solar, rooftop installations, and IPP structures, providing comprehensive support covering license acquisition, land procurement, contract review, and joint-venture structuring. This content is ideal for readers researching topics such as solar power investment in Vietnam, PPA contracts in Vietnam, and foreign investment restrictions on renewable energy.
Solar power plant projects fall into two categories: projects connected to the national grid, and rooftop solar projects. This article addresses the former—grid-connected solar power plant projects.
1. Foreign Ownership Restrictions on Investment in Solar Power Plant Projects in Vietnam
(1) Vietnam's solar power business is not subject to foreign ownership restrictions.
Foreign investors and foreign-invested companies are treated on the same footing as domestic companies, and may either establish a wholly foreign-owned entity to carry out a solar power plant project, or acquire one through M&A.
(2) Restrictions on power-related businesses other than power generation
Within the power sector, the following fields other than power generation are subject to restrictions.
Power sector segment | Scope of permitted activity
Power generation | 100% foreign ownership permitted, except for the construction and operation of multi-purpose hydropower plants and nuclear power plants of particular socio-economic importance
Transmission | State monopoly
Coordination of the national power system | State monopoly
Distribution | 100% foreign ownership permitted (requires a power purchase agreement with EVN)
Wholesale and retail of electricity | Partly monopolized by EVN; partly liberalized (see Decree No. 80/2024/ND-CP dated July 3, 2024 regarding the DPPA market)
Specialized consulting services in the power sector | 100% foreign ownership permitted
2. Market-Entry Formats and Structures
The following are the general structures available for a new investment or M&A in a solar power plant project.
No. | Project development format
1 | Self-development (independent power producer / IPP) — 100% foreign-owned or a joint venture
2 | M&A — (a) purchasing shares or capital contributions in the company implementing the solar power plant project, or (b) taking an assignment of the solar power plant project itself
3 | Investment through a Business Cooperation Contract (BCC)
4 | Investment through project finance
5 | Investment through a Public-Private Partnership (PPP)
3. Power Purchase and Sale Prices
(1) Solar power plant projects that commenced commercial operation on or before June 30, 2019
For grid-connected solar power plants that commenced commercial operation on or before June 30, 2019, the power purchase price is VND 2.086/kWh (exclusive of VAT), equivalent to approximately 9.35 US cents/kWh, based on the exchange rate announced by the State Bank of Vietnam on April 10, 2017 (USD 1 = VND 22,316).
The power sale price is adjusted in line with fluctuations in the VND/USD exchange rate.
(2) Grid-connected projects for which the investment policy was decided on or before November 23, 2019, and which commenced commercial operation between July 1, 2019 and December 31, 2020
The power prices are as follows.
Solar power technology | Power price (VND/kWh) | USD cents/kWh equivalent
1. Floating solar power project | 1.783 | 7.69
2. Ground-mounted solar power project | 1.644 | 7.09
3. Rooftop solar power system | 1.943 | 8.38
(3) Special conditions
In Ninh Thuan Province, for grid-connected solar power projects incorporated into the power development plan that commenced commercial operation on or before January 1, 2021, the power purchase price is set at VND 2,086/kWh (approximately 9.35 US cents), provided cumulative capacity does not exceed 2,000 MW.
(4) Points to note
(i) The power purchase price is exclusive of VAT and is adjusted according to fluctuations in the VND/USD exchange rate (in other words, the USD price is fixed while the VND price is variable).
(ii) For projects that do not meet the above conditions, the price is determined through the competitive mechanism (DPPA). Decree No. 80/2024/ND-CP, announced on July 3, 2024, has put in place the basic framework for DPPA, but issues may still arise concerning its actual operation going forward.
(iii) The above prices apply to projects where the solar cell efficiency is 16% or higher, or the module efficiency is 15% or higher.
(iv) The term of the power purchase agreement (PPA) is 20 years from the commercial operation date.
4. The Implementation Process for a Solar Power Plant Project (New Investment)
Key procedural notes
(1) Investment-related procedures
(i) Preparing a Pre-Feasibility Study (Pre-FS) and obtaining approval of the project proposal
To implement a solar power plant project, a Pre-Feasibility Study (Pre-FS) must first be prepared. Based on this, a project proposal is drawn up to apply for approval of the investment policy, and is submitted to the local authorities, the National Assembly, or the Government (the submission destination varies according to the scale of the project).
[Approval of the Project Proposal]
The project proposal process is the process of presenting investment intent to, and obtaining approval of the investment policy from, the local authorities, the National Assembly, or the Government (the competent approving authority varies according to project scale). At this stage, the foreign investor or foreign-invested company (the "developer") must submit a project proposal (including a pre-feasibility report and a proposal for land use), along with documents demonstrating the financial capacity, experience, and technical capability required to carry out the project.
*Depending on the content of the proposal and local rules, the developer may also be required to present the project proposal and explain its capabilities to the local authorities and relevant agencies.
(ii) Incorporation into, or confirmation of consistency with, the power development plan
Power sector planning is divided into (1) the National Power Development Plan (the current plan in effect is the 8th Power Development Plan) and (2) provincial power development plans. Every generation project must be consistent with these plans; where a project is not already incorporated into the plan, it must go through a procedure to be added.
As a general rule, large-scale power sources (plants exceeding 50 MW in capacity) are incorporated into the National Power Development Plan, while small and medium-scale power sources (50 MW or below) are incorporated into the relevant provincial plan.
Before investing in a solar power plant project in Vietnam, developers must check the direction of the power-source mix and the national transmission grid plan set out in the 8th Power Development Plan (covering 2021-2030, with a vision to 2050), and formulate a proposal accordingly.
Incorporation into the National Power Development Plan is handled by the General Directorate of Energy, which reviews the application documents and reports to the Prime Minister for approval through the Minister of Industry and Trade. Incorporation into a provincial plan is handled through the provincial People's Committee.
*Note, however, that either route ultimately requires approval from the Ministry of Industry and Trade, so even where incorporation into a provincial plan is handled at the provincial People's Committee counter, coordination and consultation with the Ministry is still required.
Incorporation into the power development plan requires assessing various factors such as power demand, impact on the transmission grid, and connection methods, and is therefore extremely time-consuming. This procedure typically takes 6 to 8 months at the provincial level, and 10 to 12 months at the national level.
(iii) Investment policy approval procedure
Depending on the scale of the project, the authority responsible for deciding the investment policy is divided among three levels: (1) the National Assembly, (2) the Prime Minister, and (3) the provincial/municipal People's Committee. For solar-power-related projects that require the allocation or lease of land or water surface from the State, approval of the investment policy must be obtained from the provincial/municipal People's Committee.
Where an investment project is located in an industrial park, export processing zone, hi-tech zone, or special economic zone, and is consistent with an already-approved plan, the management board overseeing that zone approves the investment policy.
Obtaining approval of the investment policy is the single most important step in the overall project procedure; it is a precondition for proceeding with all subsequent procedures. The approval process typically takes 5 to 6 months, of which demonstrating financial capacity (confirmation of guarantees from banks or financial institutions) can itself take a substantial 2 to 3 months, depending on the developer's capabilities.
*Note, however, that unlike thermal or gas power projects, solar power projects do not require a government guarantee when raising financing, which makes fundraising comparatively easier.
After obtaining approval of the investment policy, the developer obtains an Investment Registration Certificate (IRC) and establishes the company that will carry out the project. This process takes about one month.
(2) Land-related procedures
(i) To secure the land or water surface needed for the project, a developer may either receive an allocation or lease of land/water surface from the State, or take an assignment from a party that already holds land/water-use rights.
*Where a project is implemented by taking an assignment of land/water-use rights, the procedures for applying for land/water allocation or lease and for compensation/site clearance are not required; instead, the developer must change the purpose of use of the land/water surface (where necessary) and update information on the land-use-right registration certificate or the water-surface use permit.
(ii) Where land or water surface is allocated or leased by the State, the developer must first obtain the People's Committee's approval of the need for land use. After obtaining approval of the investment policy, the developer enters into a deposit agreement for land acquisition with the Department of Planning and Investment under the People's Committee. Under the 2020 Investment Law, the deposit amount is 1% to 3% of the project's investment capital. Under Decree No. 31/2021/ND-CP dated March 26, 2021, the deposit rate is applied as follows:
For the portion of capital up to VND 300 billion, the deposit rate is 3%
For the portion of capital exceeding VND 300 billion up to VND 1 trillion, the deposit rate is 2%
For the portion of capital exceeding VND 1 trillion, the deposit rate is 1%
(iii) Under Decree No. 31/2021/ND-CP dated March 26, 2021, solar power investment projects fall within a specially incentivized investment sector, and the deposit amount is therefore reduced by 50%.
(iv) After completing the deposit procedure, the developer works with the Department of Natural Resources and Environment to obtain decisions on land acquisition, compensation, and site clearance, and carries out the compensation and site-clearance process. Unit compensation and site-clearance prices follow the People's Committee's decision on land acquisition, compensation, and site clearance.
*In addition to these official unit prices, however, developers typically also need to negotiate with the residents whose land is being acquired and put in place individual support measures to maintain land values equivalent to market prices at the time of acquisition.
(3) Construction-related procedures
(i) Construction projects are classified into national-level projects, and Grade A, B, or C projects, depending on the scale, nature of the project, and the type of structure to be built.
For example, a Grade A project must obtain approval of the basic design under the Pre-FS before applying for the investment policy approval decision. The competent authority for this approval is the Department of Construction under the provincial People's Committee.
(ii) Because a solar power project constitutes a construction investment project, it must comply with the Construction Law during implementation. In particular, developers must comply with the specialized procedures for environmental impact assessment. Under the 2020 Law on Environmental Protection, a solar power plant project may be required to prepare a preliminary environmental impact assessment and an environmental impact assessment report, depending on the scale of the project.
Preparing and reviewing the environmental impact assessment report is time-consuming, particularly the collection of observational data at the project site. Approval typically takes about 3 to 5 months after the report is completed.
(4) Power-sale-related procedures
The PPA (power purchase agreement) negotiation process is heavily dependent on EVN's (Vietnam Electricity's) own plans and schedule, making it difficult for a developer to actively drive the negotiation. That said, negotiating and concluding the PPA can proceed in parallel with construction- and land-related procedures. The PPA negotiation and agreement process typically takes about 8 to 12 months.
For details of the PPA negotiation procedure, please refer to [Procedures Relating to the Power Purchase Agreement with Vietnam Electricity (EVN)].
5. Investment Incentives for Solar Power Projects
Renewable energy businesses are designated as an incentivized investment sector under Article 16 of the 2020 Investment Law. Developers identify the applicable incentives themselves and apply for them; these are then recognized in the investment policy decision, the Investment Registration Certificate, or in separate documents issued by the tax, finance, or customs authorities.
Under Decree No. 31/2021/ND-CP dated March 26, 2021, renewable energy production is classified as a specially incentivized investment sector, entitling developers to the following specific incentives.
(1) Deposit incentive
As noted above, the deposit amount is reduced by 50%.
(2) Tax treatment
Import duty is exempted on goods imported to construct the project's fixed assets. Import duty is also exempted, for five years from the commencement of production, on imports of raw materials, supplies, and components not yet produced domestically.
For corporate income tax on new investment projects, a preferential rate of 10% applies for 15 years. In addition, the project is exempt from tax for the first four years, followed by a 50% reduction for the subsequent nine years.
(3) Land/water-surface rental
Land/water-surface rental is exempted during the basic construction period under a project approved by the competent authority, for a maximum of three years from the date of the land/water-surface lease decision.
For projects falling within an incentivized investment sector, land rental is exempted for a further three years after the basic construction period ends.
For projects invested in economically disadvantaged areas, land rental is exempted for seven years.
For projects invested in especially economically disadvantaged areas, or falling within a specially incentivized sector, land rental is exempted for 11 years.
For projects invested in especially economically disadvantaged areas that also fall within a specially incentivized sector, land rental is exempted for 15 years.
(As a general matter, solar power investment projects benefit from a three-year land rental exemption following the basic construction period.)
Note:
Where a solar power project has an investment scale of VND 30 trillion or more, and at least VND 10 trillion is disbursed within three years of the date of the Investment Registration Certificate or the investment policy approval, special investment incentives apply under Decision No. 29/2021/QD-TTg dated October 6, 2021. Specifically:
Tax treatment:
A preferential corporate income tax rate of 9% applies for 30 years, comprising a five-year exemption followed by a 50% reduction for the next ten years.
Land/water-surface rental:
Land/water-surface rental is exempted for 18 years, with a 55% reduction for the remaining period.