Critical steps towards shaping a new regulatory framework

In a significant step towards strengthening Vietnam's power security, the Ministry of Industry and Trade (MOIT) has released a draft amendment to the Electricity Law (the Electricity Law Draft). One important development in the Electricity Law Draft is that it has a separate chapter for development of renewable energy and new energy. Notably, it includes for the first time specific (albeit high level) provisions regulating offshore wind power projects. Almost simultaneously, the Prime Minister issued the long-awaited implementation plan for the National Power Development Plan No. 8 (PDP8 IP) with an important focus being capacity allocation for offshore wind power projects (issued via Decision No. 262/QD-TTg dated 01 April 2024).

These developments are critical steps towards shaping a new regulatory framework to enable Vietnam to start harnessing its plentiful, and free, offshore winds. Understanding this new regulatory framework will be crucial for stakeholders considering investment in this burgeoning sector.

In this Insight, we unpack key new provisions affecting offshore wind projects in the Electricity Law Draft and PDP8 IP.

Electricity Law Draft

The Electricity Law Draft highlights three important elements involved in offshore wind power projects:

Definition of offshore wind power plant

The Electricity Law Draft provides a new definition for offshore wind power plants. This definition is different from the existing one in Circular 19 (see our update on Circular 19 and the tariff framework applicable to, among others, wind power projects here). According to this new definition under the Electricity Law Draft, an offshore wind power plant is one that has all its wind turbines constructed both:

• outside a marine territory spanning six nautical miles. While not stated, it is likely that the six nautical miles will start from the seashore baseline (ie lowest average sea level line in many years; previously 18.6 years). We expect the next iteration of the Electricity Law Draft will clarify this further; and
• within areas of significant sea depth. This is a new criterion not mentioned in the definition of offshore wind power facility in Circular 19. The Electricity Law Draft does not specify what sea depth is considered 'significant' for this purpose, but delegates the Government to determine such depth 'based upon actual survey data'. Based on an early draft of PDP8, we know the Government had previously considered 20m as a defining depth for offshore wind power plants, though we need to wait to see if this figure will re-appear.

If a plant doesn't meet both the above criteria, it will likely be treated as a nearshore wind power plant, currently defined in the Electricity Law Draft to be any power plant constructed within Vietnamese territorial waters (which is also different from the definition of nearshore wind power plant in Circular 19, ie—plants having wind turbines constructed within marine territory spanning six nautical miles from the seashore baseline). Such a classification will presumably impact several key project development issues, including tariff determination and regulatory framework (such as restrictions on ownership transfer for offshore plants, mentioned below).

Investment policy approval

The Electricity Law Draft supplements the relevant provisions of the Investment Law on investment policy approval (IPA) of projects to add the specific case of offshore wind projects. Specifically, the Prime Minister will have the authority to issue the IPA for offshore wind projects located within a sea area:

• not yet defined within a specific province's administrative boundary;
• falling under the jurisdiction of the Prime Minister to allocate sea area (see our comments on the last draft of Decree 11 regarding sea area allocation here); or
• spanning multiple provinces' administrative boundaries.

If a project does not meet any of the above criteria (ie the sea area of the offshore wind project falling exclusively within a province's administrative boundary), the relevant provincial People's Committee will have the authority to issue the IPA.

Notably, the Electricity Law Draft details distinct rules for IPA issuance for undersea electricity cable projects, which will fall under the jurisdiction of the Prime Minister (except for certain extreme cases falling under the jurisdiction of the National Assembly to approve).

Without further clarification, this bifurcation could complicate offshore wind projects comprising both generation and transmission components, where the generation component falls under provincial People's Committee's jurisdiction and the transmission component falls under the Prime Minister's. The Electricity Law Draft doesn't appear to expressly contemplate such a case. Ideally, only a single IPA would be required for such projects, but this remains to be determined.

Ownership transfer restriction

The Electricity Law Draft provides that investor(s) of an offshore wind project cannot transfer more than 49% of their total capital investment or capital contribution. It further specifies that any proposed transfer will be subject to approval from the same authority that issued the IPA for the project in question.

There are multiple issues with such restriction:

• It seems to apply to any transfer, whether foreign or local proposed transferee(s).
• It appears that this restriction is intended to apply, at least, to both project transfer and shares/ capital contribution transfer at project company level. Given the vague wording, it is unclear whether such restriction will apply at higher levels in the ownership chain (or indeed how Vietnamese authorities could regulate or control transfers at offshore level).
• It is unclear how the restriction would apply if there were multiple investors involved in a given project.
• It appears to be a blanket restriction for the whole project life. To date, restrictions of this nature in the renewable power sector have typically only purported to apply until commercial operation date.
• It appears to be directed at 'founding' investors. It is unclear whether the restriction will apply to 'subsequent' investor(s).
• It is unclear how such a restriction would impact project lenders taking security over borrowers' equity stakes in projects.

Helpfully, the Electricity Law Draft does not introduce any restriction on overall foreign ownership over offshore wind projects. This is a positive signal from the Vietnamese Government, signifying its willingness to attract foreign investment to unlock offshore wind development. The sector as a whole, however, is still considered a 'conditional' sector for foreign investment purposes pursuant to the Investment Law regime, even though, to date, there are no specific conditions set out at law.

Power Development Plan 8 Implementation Plan

PDP8 IP introduces three main significant updates concerning offshore wind power. Here's a snapshot of what you need to know:

Capacity allocation for offshore wind energy

The Government is determined to achieve its commitment to renewable energy in PDP8 by maintaining an ambitious capacity target for offshore wind capacity by 2030. The total planned capacity of up to 6,000MW by 2030 is distributed across various regions throughout Vietnam. A detailed breakdown per region is as follows:

Birth of two interregional renewable energy centres

Continued critical stakeholder roles for PVN and EVN

Other notable developments

Pilot scheme for offshore wind power development

The Prime Minister recently established a State Steering Committee on Energy, headed by Deputy Prime Minister Ha and primarily assisted by the MOIT. Subsequently, via Decision No. 270/QD-TTg dated 2 April 2024, the Steering Committee was assigned its initial tasks. A significant assignment involves developing a pilot scheme for offshore wind power development. While there is no clear timeline for such pilot scheme, given the pressing need to make concrete moves to start offshore wind development, we expect the State Steering Committee on Energy to move forward quickly and hopefully further details of the proposed pilot will be made public soon. We again expect that PVN and/or EVN will be identified as investors of the first offshore wind projects under the pilot scheme, likely with the involvement of experienced international partners.

Onshore and nearshore legal regime remains unchanged

The Electricity Law Draft does not introduce significant changes in the legal regime for onshore and nearshore power plants. For instance, the land use coefficient of an onshore wind power plant remains within its current limit of 0.35 ha/1 MW. It appears the Government is planning to create a nationwide map for wind power development that will serve as a strategic tool for planning wind power development. Subject to its public availability, such a map would give power investors an insight to the overall strategic wind power planning of the Government.

Investor selection for power projects

The Electricity Law Draft reaffirms the direction set out in the draft decree on investor selection in the power sector—a regulation that hasn't been spotted in public for many months. On that basis, bidding is expected to be the primary method for selecting investors for synchronised generation and transmission, and transmission projects (excluding PPP projects, or urgent/national security projects). The bidding procedures will comply with the Tendering Law, although it should be noted that this law has yet to provide a tendering procedure specifically designed for power projects. Moreover, the Electricity Law Draft clarifies that MOIT will organise the bidding process for synchronised generation and transmission projects requiring IPAs from the National Assembly or Prime Minister, while provincial People's Committees will manage those within their own competence to issue IPAs.

Uncertainty over new Renewable Energy Law

There are growing doubts whether a new Renewable Energy Law will be introduced, as flagged in PDP8. Many elements expected to feature in such a law have been incorporated into the Electricity Law Draft, eg it includes a separate chapter dedicated to renewable energy and new energy forms. In addition, PDP8 IP makes no mention of any forthcoming Renewable Energy Law. While MOIT has been assigned numerous tasks by the Prime Minister in the PDP8 IP, drafting this law is not currently among them.

Capacity allocation for onshore and nearshore wind energy

PDP8 IP also seeks to allocate the significant increase in onshore and nearshore wind power forecast in PDP8 to be developed up to 2030, amounting to a total of 21,880MW. This capacity is allocated province by province, with a detailed list specifying the total capacity and expected COD for each project within the provinces in Table 9, Appendix III of PDP8 IP.

Notably, several provinces have been allocated substantial new capacity (ie more than 500MW), including:

• Northern Region: Lang Son (1,444MW), Bac Giang (500MW);
• North-Central Region: Ha Tinh (700MW), Quang Binh (878MW);
• Central-Central Region: Quang Tri (1,129MW);
• Central Highlands: Gia Lai (1,281MW), Dak Lak (947MW), Dak Nong (680MW);
• South-Central Region: Ninh Thuan (554MW), Binh Thuan (613MW); and
• Southern Region: Ben Tre (1,007MW), Tra Vinh (873MW), Soc Trang (1,502MW), Bac Lieu (741 MW) and Ca Mau (960 MW).

Remarkably, Southern Vietnam and the Central Highlands continue to demonstrate high wind power potential. However, allocations to northern provinces such as Lang Son, Quang Binh or Quang Tri could unlock untapped wind potential in these areas, aligning with the Government's broader focus on ensuring intraregional power balance.

Expected new regulations and laws prepared by MOIT (2023-2025)

The MOIT is anticipated to prepare a series of new laws and regulations within the period 2023-2025, including:

• Tariff framework for electricity importation from Laos;
• Tariff framework for each type of electricity generation;
• Regulations Encouraging Self-Consumption Rooftop Solar;
• Amendments to Electricity Law and Law on Economical and Efficient Use of Energy;
• Carbon Credit Market Development Mechanism; and
• Regulations on direct power purchase agreements (DPPA).

These legislative initiatives reflect Vietnam's wider ambition towards enhancing sustainability in its energy sector, promoting economic efficiency, reducing carbon emissions and adapting to global climate change imperatives.