The Ministry of Industry and Trade’s latest Circular No.05/2019/TT-BCT, which will come into effect on April 25, provides a model for a power purchase agreement specifically for rooftop projects.
Vaibhav Saxena, lawyer at Vietnam International Law Firm, takes a look into the positive impact on investors, and any remaining barriers.
The promulgation of Circular No.05/2019/TT-BCT on March 11, 2019 has provided a model that will be applicable to all grid-connected solar rooftop power ventures.
The rooftop model power purchase agreement (model PPA) is much simpler than those applicable to other types of grid-connected projects. The parties to the model PPA may amend and supplement it to clarify rights and obligations of each party without changing the fundamental contents.
However, Circular 05 and the model PPA have not defined as to what the fundamental contents are for the purpose of any amendments sought by the parties.
Under Circular 05, feed-in tariffs (FiT) for rooftop solar power projects before the start of 2018 was stipulated at the rate of VND2,086 per kilowatt hour (kWh), equivalent to 9.35 US cents per kWh according to the VND/USD central rate published by the State Bank of Vietnam (SBV). After January 1, 2018, the aforementioned FiT is adjusted in accordance with the fluctuation in VND/USD exchange rates as per the central rate published by the SBV on the last day of the previous year.
Rooftop solar power projects may apply the power trading mechanism according to the separate delivering and receiving directions of the two-way electricity meter (meaning example inwards and outwards separate readings to ensure fair billing and invoice) and a clear provision is provided for application of such scheme under the model PPA. The FiT shall be applicable for a term of 20 years from the commercial operation date of the rooftop solar power project.
In the circumstances where the seller is a corporate entity, the payment shall be made in accordance with the power meter readings and monthly generated electricity amount sold to the buyer’s grid from the rooftop project by the seller.
The invoice provided shall indicate the payable amount based on the electricity amount as mutually agreed by the buyer (be that Electricity of Vietnam or a subsidiary), and the seller, or investor.
In the case where the seller is an individual or household, the buyer and the seller could agree upon the payment method in two ways. The first option is a monthly basis, where the buyer shall make the payment based on the power meter readings and electricity amount generated.
The second is an annual basis where the buyer shall prepare and send to the seller a confirmation of delivered electricity amount and payment amount within 15 days from the last day of the relevant year, or on the expiry date of the executed power purchase agreement, whichever comes first.
The payment must be made within seven working days after the agreement of the power meter readings and electricity amount and submission of the above-mentioned payment documents.
Otherwise, the buyer shall be responsible for paying interest on the late payment. The interest shall be calculated at the interbank average interest rate for a one-month period as announced by the SBV at the time of the payment.
Fulfilment of tax obligation
In regards to revenue from the rooftop solar power project, it is subjected to mandatory tax obligation. The buyer is responsible for making final payment of the electricity amount purchased from the rooftop solar project in the current year and the value-added tax amount for the seller, depending upon the revenue from the project at the end of the current calendar year’s last recording period of power meter readings.
Terms of the contract
The model PPA provides for a term of 20 years from commercial operation date which can be extended, or a new contract can be signed between the parties to renew the first contract in accordance with then effective law.
Amendments and/or termination
In cases where either party wishes to amend or terminate an agreement, the party shall notify the other party within 15 days in advance for mutual settlement between those involved.
The model still lacks provisions to thoroughly cover all necessary perspectives of the transaction. Examples include clear termination, force majeure events, international dispute settlements, and governing laws. Furthermore, since it is applied in a compulsory manner without changing the fundamental contents, it would be an arduous task for investors to negotiate on the supplementation of the additional terms in the power purchase agreement to resolve pending issues of the model.