DFDL: Vietnam Legal Update "The long Awaited Solar Power Decision was Finally Issued"

Decision No. 11/2017/QD-TTg on mechanisms for encouraging the development of solar power in Vietnam (“Decision 11”) recently issued by the Prime Minister introduces welcome and long overdue support for investment in the Vietnamese renewable energy sector.

Feed-in-tariff rate (FIT) for solar power

Vietnam Electricity Group (EVN), designated as the only Power Purchaser under Decision 11, will purchase all electricity generated from solar power projects at a FIT rate of VND 2,086/kWh (excluding value added tax, equivalent to 9.35 US cents/kWh at 22,316 VND/USD as per the State Bank of Vietnam exchange rate of 10 April 2017). This FIT rate applies only to grid-connected projects and is subject to fluctuations in the VND/USD exchange rate to be further outlined in the standard power purchase agreement (PPA) for solar power projects. This standard PPA will be issued by the Ministry of Industry and Trade and will provide a 20 year term for solar projects, from the commencement of commercial operations. 

Investment Capital and Tax Incentives

Decision 11 allows capital to be mobilized from both domestic and foreign sources for the purpose of developing solar power projects throughout Vietnam. Investors will benefit from an exemption from import tax on raw materials and supplies imported for project purposes.

Solar power projects will also be eligible for corporate income tax relief as provided to investors under Vietnamese tax laws. A corporate income tax rate of 10% will apply for the first 15 years of the investment from the commencement of commercial operations, a four-year exemption from the first profitable year and a 50% reduction in corporate income tax for the nine subsequent years after the end of the exemption period. 

Land Incentives

Land use incentives will also be provided by Decision 11. Solar power projects connected to the grid will be entitled to exemptions or reductions in land-related fees under the laws governing projects entitled to investment incentives. This includes an exemption from land rental fees within the first three years of commencing commercial operations. 

Future developments

Decision 11 enters into effect on 1 June 2017 and will remain in force until 30 June 2019. According to the Decision, the Ministry of Industry and Trade is expected to draft a national roadmap for solar power, which will be mirrored by provincial plans to be drafted by the People’s Committees of cities and provinces. By establishing clear incentives for solar energy investments, and in particular the FIT rate, Decision 11 sets the benchmark for future growth of the solar energy sector in Vietnam.

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