In this update, we discuss some key issues under the model PPA used for rooftop solar system (RTS) under Circular 18/2020. This post is written by Le Thanh Nhat and edited by Nguyen Quang Vu.
Limited ability to amend the RTS PPA
1.1. Under the laws of Vietnam, the use of the RTS PPA for sale and purchase of power with EVN is mandatory, and the parties are only allowed to supplement the RTS PPA to clarify the parties’ rights and obligations and may not change the main contents of the RTS PPA. The supplementary content injected by the parties must also be consistent with, and must therefore not contradict, the RTS PPA. Under the RTS PPA, the parties can agree on the following additional information:
1.1.1. technical specifications of the RTS in a Schedule which is under the form issued by the power purchaser (i.e., EVN);
1.1.2. the date that the feed-in tariff starts to apply, which is the power generation operation date of the project;
1.1.3. the date of each month that the power purchaser will confirm the counter reading; and
1.1.4. the late payment interest in case EVN fails to pay the amount due in time.
Capacity
1.2. The RTS PPA includes information about the capacity of the RTS in its pre-amble and Schedule. Nonetheless, the RTS PPA does not have clear provisions dealing with the scenario where the as-built capacity of the RTS is higher or less than the designed capacity of the RTS as recorded in the RTS PPA. It is therefore not clear if the buyer (i.e., EVN):
1.2.1. can reject the RTS if the as-built capacity of the RTS is below the designed capacity; or
1.2.2. can reject to purchase the excess capacity if the as-built capacity of the RTS is higher the designed capacity.
Dispatch and curtailment risks
1.3. Unlike grid-connected solar power plants which are regulated by Decision 13/2020 to be given priority by the dispatch authority to utilize the maximum capacity of the solar power plant, the RTS PPA does not have any applicable provisions with the same effect. Furthermore, EVN is obliged to purchase the entire generated power from the grid-connected solar power plant, while the same provision is not available for RTS. Accordingly, there is no priority given to RTS for selling electricity to EVN, and there is also no guarantee that EVN will purchase the entire power generated from the RTS that is delivered to the grid of EVN.
Payment risk
1.4. The RTS PPA provides that EVN would not need to pay in the following situation:
1.4.1. the power seller does not design, install, nor operate the RTS in accordance with applicable technical standards and legal regulations on electricity quality, electricity safety, construction, environment and firefighting and fire prevention;
1.4.2. the power seller connects other power sources besides the agreed RTS under the RTS PPA to the counter without approval from EVN; and
1.4.3. the power seller fails to fulfil all its tax liabilities under the laws.
1.5. Regarding the scenarios mentioned above in 2.4, it is not clear:
1.5.1. whether EVN has the right to not pay the power seller for all unpaid power delivered to the grid as at the date the breach is known to EVN, or just the unpaid power delivered to the grid from the time of the breach; or
1.5.2. whether EVN would need to pay after the relevant breach has been remedied by the power seller.
Force Majeure
1.6. The RTS PPA does not have any provision in dealing with force majeure. Accordingly, the Vietnamese regulations regarding force majeure will apply. In particular, under the Commercial Law 2005, a defaulting party will be exempt from liability upon occurrence of an event of force majeure. Upon occurrence of an event of force majeure, the parties may agree to extend the time-limit for performance of contractual obligations. Where the parties have no agreement or fail to reach such agreement, the time-limit for performance of contractual obligations shall be extended for an additional period of time equal to the duration of the event of force majeure and a reasonable amount of time for remedying the consequences of such event, but not exceeding the following time-limits:
1.6.1. Five (5) months in respect of goods or services for which the agreed time-limit for delivery or provision is not more than twelve (12) months from the date when the contract was entered into; or
1.6.2. Eight (8) months in respect of goods or services for which the agreed time-limit for delivery or provision is more than twelve (12) months from the date when the contract was entered into.
Upon expiry of the time-limits, the parties have the right to refuse to perform the contract and neither party has the right to demand that the other party pay damages for loss.
Change-in-law risks
1.7. There is no change-in-law protection for the power seller during the term of the RTS PPA. On the other hand, the RTS is required to be designed, installed, and operated in accordance with the technical standards and legal regulations. Accordingly, the power seller will bear all the risks (or benefits) of potential change in law during the contract term.
Dispute resolution
1.8. The RTS PPA’s dispute resolution procedures are complicated. And without an express arbitration clause in the RTS PPA, disputes under the RTS PPA will be resolved by local courts who will likely be in favour of the buyer, as being a government-owned entity. The specific procedure for dispute resolution under the RTS PPA is as follows:
1.8.1. In case of a dispute between the parties to the RTS PPA, the party raising a dispute must notify the other party in writing of the dispute and its demands.
1.8.2. The parties will negotiate to settle the dispute within 30 days from the date of receipt of the notice of the party who raises the dispute;
1.8.3. The dispute resolution process related to the payment of electricity will be conducted within 5 days from the date of receipt of a notice of the claiming party;
1.8.4. If the parties fail to reach an agreement, the parties may send a request to the “competent state authority” for support in the parties' dispute resolution process. It is unclear who is the competent state authority here. Judging that this is a provision under Clause 6.1 – “dispute resolution by negotiation”, it seems that the state authority must act as a conciliator or a similar role. Nonetheless, this step is not compulsory; and
1.8.5. If the parties fail to resolve their dispute by negotiation in accordance with the process above, they can bring the case to the superior electricity unit of the power purchaser or the MOIT to be resolved.
1.8.6. In addition to the above provision of the RTS PPA, the laws also provide that if after 60 days the parties fail to resolve their dispute amongst themselves, they can bring the case to the Electricity Regulatory Authority of Vietnam (ERAV) to be resolved in accordance with the procedure under Circular 40/2010. At the end of the process, if a party is not satisfied with the decision of ERAV, it could still bring the case to court.
1.9. According to the above, it is unclear:
1.9.1. whether the parties to the RTS PPA can agree on arbitration for dispute resolution instead of the superior electricity unit of the power buyer or the MOIT;
1.9.2. whether the dispute under the RTS PPA may only be finally resolved by the superior electricity unit of the power buyer or the MOIT (but not by arbitration or court litigation), and what the procedure would be, as we are not aware of any laws on dispute resolution procedures by the “superior electricity unit of the power buyer” or by the MOIT; and
1.9.3. if the dispute resolution procedure under Circular 40/2010 is also applicable to the RTS PPA, whether the parties could bring the dispute to arbitration instead of competent national courts. Nonetheless, if the parties of the RTS PPA can agree on arbitration, the parties may avoid the dispute resolution at the ERAV under Circular 40/2010 by initiating the arbitration proceedings before the dispute is accepted to be heard by ERAV.
