Energy

4 0 International financiers have to date played a limited role in the provision of financing, given the well-publicized bankability concerns over Vietnam's model power purchase agreement (PPA), the challenges imposed by the feed-in- tariff (FiT) regime, and concerns about the Vietnamese grid's ability to handle the high intermittency associated with renewable power generation. Vietnam requires investors to accept a short-form standardized PPA which is set by statute, with no real room for negotiation. The Vietnamese model PPA includes a number of significant departures from the type of PPA used in developing markets with a single offtaker model, such as there being no support for EVN's payment obligations, no compensation for EVN curtailing project output, and no termination payments for termination of the PPA due to EVN default. Despite this, Vietnam has seen a record surge in solar and wind installations in the last two years. The attractive FiTs and other incentives to foreign investors (such as tax incentives, 100% ownership and levies and customs duty relief) have been effective in jump-starting growth in renewable energy. Local and regional renewable energy developers have been particularly active in the development of these new installations. Given the bankability concerns over the PPA as well as the FiT structure under which projects are only entitled to the FiT if they achieve commercial operations within the required timeframe, making greenfield project financing more challenging, these projects have typically been financed on a corporate balance sheet basis from domestic and international lenders. However, more recently, multilaterals such as the Asian Development Bank (ADB) as well as other international lenders have been willing to extend financing on a limited recourse basis to Vietnamese renewables projects, showing that the model PPA, despite its unaddressed risk factors, can be an attractive revenue contract and the basis for project financing at commercial rates if the right mitigations are in place. Does this then pave the way for the international limited recourse financing of Vietnamese renewable projects? A key concern for investors has been the fact that projects are exposed to curtailment risk. This has proven to be a real risk as shown by the National Load Dispatch Centre's announcement that it intends to cut up to 1.74 billion kilowatt- hours of renewable energy in the second half of this year in certain areas, affecting a number of renewable energy producers. Will the solutions used to manage this risk to date continue to be viable for future projects in light of these developments? Also, the second phase of the solar FiT expired at the end of 2020, and the current wind FiT scheme is due to expire on November 1, 2021. It is not clear what the landscape post-2021 will be. For wind, the Ministry of Industry and 07 Future Challenges to Vietnam's Remarkably Rapid Renewable Ramp-up INSIGHTS

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