By: Naveen Balanchadran, Special Advisor South East Asia, GWEC

23 May , 2019

Focus On: Project Financing in Vietnam


In September 2018, the government of Vietnam increased its Feed-in-Tariff (FiT) of onshore projects from 7.8 US cents/kWh to 8.5 US cents/kWh, and also introduced the offshore tariff of 9.5 US cents/kWh. Other support mechanisms in the form of tax exemptions, such as import, corporate and land tax exemption, as well as exemption from Environment Protection Fees were also put in place.  Altogether, these measures have piqued the interest of the international developer community as eyes have gone to Vietnam to be the next big wind market in South East Asia.

The majority of the current projects have been largely installed by local companies and financed either by Official Development Assistance (ODA) or local banks. The 99MW Cong Ly near shore project was financed by US-EXIM, the Export–Import Bank of the United States, and the 24 MW Phu Lac project owned by EVN TBW was financed by KfW, the German development bank. Local banks, such as BIDV and Vietnam Development Bank, have also been financing local developers. 40MW by Trungnam Group which was recently inaugurated was financed by Vietnam Development Bank and they are likely to finance their second phase as well. The 30MW Huong Linh 2 developed by Tan Hoan Cau Joint Stock Corporation (THC) was completely financed by BIDV bank.

Yet, lack of project financing remains one of the key obstacles facing wind power development growth in Vietnam. One of the main reasons for the international developers abstaining from doing business in this market is that PPA’s are simply not bankable in Vietnam, which lead to the major challenges of lack of non-recourse financing in Vietnam. Furthermore, local banks do not have sufficient liquidity to finance wind power projects on a non-recourse basis. If the challenges of financing wind projects can be addressed, wind power development can grow exponentially in Vietnam.

Various unaddressed risk factors are preventing international developers from getting non-recourse financing for wind projects in Vietnam due to the PPA bankability. Below is a list of these risks perceived by the international banks:   

  1. Government Guarantee: Currently, the PPA doesn’t have a government guarantee, which means if EVN defaults the government will not step in. This is due to the fact that the value of Vietnam’s sovereign guarantee is constrained by its sovereign debt ceiling and they would want to be within those limits as they would not want financial assistance from World Bank or IMF.
  2. PPA termination: The standard PPA termination clause was quite onerous, basically stating that if EVN terminates the PPA, they will compensate the developer based on the revenue that was generated in the previous year and will not cover any future revenue losses. However, Circular 2, which was released earlier this year, made modifications to the clause to now allow the developer to claim future losses as well, but it does not give a clear guideline on how the losses will be calculated if the PPA is terminated.
  3. The Governing Law: Unlike standard practice of English Law in other countries in the region such as Indonesia, Thailand and the Philippines, the prevailing law in Vietnam is Vietnam Law. This means the legal system may not allow the same level of protection if an international developer wanted to take a legal course of action against a local company
  4. Arbitration: Arbitration will be done by the Renewable Energy Department, which is one of the government entities, instead of a neutral country’s arbitration agency such as Singapore International Arbitration Center.
  5. Curtailment: In the current rules and regulations PPA’s in Vietnam, there is no clause about compensation for curtailment. Thus, if EVN curtails a wind project, there is no take or pay mechanism to compensate the wind developer.

In South East Asia, very few markets have a FiT level as attractive as it is now offered in Vietnam – thus, the current challenges on PPA bankability boils down to risk vs returns.  We are now seeing the balance shifting as returns are beginning to outweigh the risks for some developers. The local banks have financed power projects, especially small hydro, where EVN is the offtaker. EVN has never defaulted on their payments, hence the banks have a certain level of comfort when they lend for power projects. Although financing wind energy projects is new for local banks, they are undertaking these projects on the basis of their existing relationship with the local company and their prior experience with EVN .

Innovation is the new buzzword for financing wind projects in Vietnam, with international as well as local developers finding innovative ways to finance their projects. There start to emerge some different risk mitigation strategies in the project fiannce process:

  1. Risk Converging:

The 30MW Huong Ling 1 by THC was an innovative solution that featured structuring a local bank guarantee to the offshore bank, who in turn received a further guarantee from the Export Credit Agency of Denmark (EKF).

  1. Risk Taken by developers:

The first phase of The 40MW Dam Nai project developed by Blue Circle took a completely different approach. They did a full equity financing for their first 6MW and then managed to obtaining financing from a combination of local and international banks for the remaining 34MW. 

  1. Risk Splitting:

Some International banks are also discussing on-lending models where they take the local bank risk and the local bank takes the PPA risks, as the local banks  don’t perceive the EVN default risk as a risk factor. In this case, the international bank will channel the funding through a local bank on the basis of agreed guarantees provided by the local banks.

Currently, the most common form of financing is where a local bank finances the project on a corporate balance sheet basis. With these innovative solutions being discussed more and more in Vietnam’s wind market, we could foresee international banks being involved in at least partial non-recourse basis.

At the end of the day, one has to acknowledge the fact that government has shown a level of commitment to increase the adoption of renewable projects in its energy mix. They have set targets of 800MW by 2020, 2GW by 2025 and 6GW by 2030.There are also various multilateral agencies working with the government to make PPA’s more bankable. With the FiT expiring by the end of October 2021, this will be an exciting period for executing wind power projects as there will be a rush to install projects before the end of the FiT.

On 11 June in Hanoi, GWEC is organizing a Finance Workshop as part of Vietnam Wind Power 2019. During this workshop, we will further untangle the main challenges to project financing and PPA bankability in Vietnam, while looking at new and innovative project finance models to ensure this budding market can reach its full potential. The finance workshop is gathering a number of industry leaders as speakers from wind developers, international and domestic banks, as well as funds and financial advisories. The speakers including BNEF, Mainstream Renewable Power, UPC Renewables, The Blue Circle, IFC, BNP Paribas, Astris,

The workshop also features an exclusive presentation from Carbon Tracker about the economic and financial risks of coal power in Vietnam as well as a USAID Clean Power Asia Training Workshop, this one-day workshop will be an important platform to discuss how we can overcome the project financing challenges in Vietnam. Attended by industry leaders in the region, international and local financial institutions, as well as government stakeholders, if you are at all interested in doing business in Vietnam’s wind market, this is the conference you don’t want to miss.

Learn more about Vietnam Wind Power 2019 here:

Learn more about the Finance Workshop here:

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