Making a Model PPA Bankable: Revisions to Vietnam’s PPA for Onshore and Offshore Wind Required

June 21, 2024


  • Vietnam’s Model PPA needs to be modified to align with international financing norms, which is essential for attracting global investors and lenders. Enhancing the bankability of PPAs is key to securing funding for wind energy projects. 
  • It’s crucial to redistribute commercial risks in a way that is equitable for all parties. This balance of risk allocation is fundamental to creating a sustainable and attractive investment environment in the renewable energy sector.
  • Amendments to Vietnam’s legal and policy frameworks are imperative to support the financing of renewable energy projects and create a regulatory environment conducive to investment in renewable energy.


Background: Financing Renewable Energy in Vietnam

Wind power projects were initially encouraged in 2011 by Decision 37/2011/QĐ-TTg as later amended in 2018. However, the model power purchase agreement (“Model PPA”) for wind power was not issued until 2019, under Circular 02/2019/TT-BCT. Given the favorable Feed-in-Tariff (“FiT”) at the time, almost 4,000 MW of onshore wind power capacity was installed by 2021 (when the preferential FiT expired).

On 11 February 2020, the Politburo issued Resolution 55-NQ/TW to address the pollution caused by fossil fuels as one of the aims, setting out the strategy for national development of energy in Vietnam through 2030 with a view to 2045 (“Resolution 55”). Resolution 55 was followed by Resolution 140/NQ-CP of the Government, dated 2 October 2020, issuing the Government’s action plan to implement Resolution 55 (“Resolution 140”).

Renewable energy (“RE”) is now a key factor in Vietnam’s power policy. Power Development Plan No. 8 (“PDP8”) clearly reflects a policy for green energy. According to PDP8, to achieve the objectives of the Just Energy Transition Program (“JETP”), the target for RE capacity by 2030 is quite substantial, ranging from 30.9% to 39.2%, with the aim of reaching as high as 47% of the energy grid. By 2050, PDP8 calls for 67.5% to 71.5% of Vietnam’s energy to be generated from RE sources.

In addition, Vietnam’s commitment to net zero emissions at COP26 is driving this trend. Practically, coal-fired power will have to be phased out, given the pollution problems and limited financing options currently available in the market for coal-fired power. Therefore, RE and LNG-to-power are expected to be the primary replacements for coal-fired power.

The expiration of the FiT regime, in combination with the bankability issues of the Model PPA, led to a pause in wind power development over the last three years. The Vietnamese legal framework must rapidly evolve and adapt to the challenges posed by RE, and secure time-sensitive opportunities for concessional finance from multi-lateral institutions. Additionally, experts estimate that foreign companies and Foreign Direct Investment (“FDI”) pledged to the commitments under the RE100/RE50 (100 or 50 percent renewable-energy) will leave Vietnam (by 2030-2040), and other RE100/RE50 and multinational companies will choose to invest in countries with sufficient renewable energy sources.

To successfully transition to RE, Vietnam will require significant capital investments from public and private sources. During the 2021-2030 period, Vietnam will require investments of USD95.4 billion for power plants, and USD32.9 billion for the power grid.[1] Over the long-term (2031-2045), Vietnam will require investments of up to USD140.2 billion for power plants and USD52.1 billion for power grid improvements.[2]

The current situation requires a change in the policy and legal framework for wind power, especially offshore wind, as well as RE, in general, to be developed and financed in the near term. In the following part, we look at one of the key issues to untie the financing knot – the bankability of Vietnam’s Model PPA.

Bankability Issues of Vietnam’s Model PPA

The Model PPA has been proclaimed as “unbankable” to a broad spectrum of international banks. International experience suggests that PPAs are bankable when the PPA places each commercial risk on the party best able to manage and mitigate that risk. By this standard, as discussed below, we have identified several areas where Vietnam’s Model PPA has potentially placed the risks on the wrong party.

To meet its ambitious goals, the Vietnamese Government should consider the costs and consequences of amending the Model PPA to encourage a broad international syndicate of banks to consider the Vietnamese Model PPA as “bankable”.

We will focus here on the risks, and the risk mitigation measures, which can be first applied on a pilot basis (probably for large-scale projects), in respect of the bankability of the Model PPA for RE projects.

  • Absence of EVN’s offtake obligation

The most important factor that project stakeholders must consider is their relationship with Vietnam Electricity (“EVN”). The current regulations, while providing the terms of the relationship between EVN and the stakeholders, lead to numerous risks that could jeopardize the bankability of the Model PPA for most international lenders.

Circular 01/2023 of the Ministry of Industry and Trade (“MOIT”), dated 19 January 2023 (“Circular 01”), removes EVN’s offtake obligation for power generated by a solar or wind project. More recently, Circular 07/2024 of the MOIT, dated 12 April 2024, regulating methods for calculating electricity generating price and model PPA (“Circular 07”) also applies to those solar and wind power projects participating in the Vietnamese wholesale electricity market. Under Circular 07, how electricity generating price for a solar or wind power project is calculated is quite unclear. However, there is no EVN’s offtake obligation for power generated by a wind/solar project. This creates a material risk that EVN will refuse to take power generated by a plant. The issue is made worse because battery energy storage systems have not yet been developed to mitigate this risk and implementing regulations on power export have not been put in place.

A project is unable to obtain limited recourse financing if it does not have stable cashflows and the lenders face uncertainty when formulating financial models.

The mitigation measures for this issue should be to (i) reinstate EVN’s “take or pay” obligation in the Model PPA, or (ii) put other mechanisms in place as soon as possible, such as DPPA or permitting the relevant projects to sell power to other countries.

  • Direct agreement between EVN and lenders

The Model PPA does not provide for direct agreement between EVN and lenders. EVN formerly provided this type of agreement in project finance of large-scale Build-Operate-Transfer coal-fired power projects, but none has been issued for RE projects. International lenders that finance large-scale projects may not be willing to take this risk. A possible solution is for the Government to consider a capacity threshold, whereby projects with a capacity above the threshold have a direct agreement with lenders.

  • Step-in rights for lenders

The Model PPA is silent on step-in rights for lenders in case of EVN default. Although the Model PPA does contemplate assignment of contractual rights by the project sponsor, it is subject to the written consent of EVN. This risk could be resolved by providing step-in rights for lenders in the PPA, without requiring EVN’s written consent, for the pilot projects, or projects meeting a certain threshold capacity, as mentioned in section (b) above.

If a direct agreement between EVN and lenders, discussed in section (b) above, is permitted in a project, the step-in rights for lenders may be included in the direct agreement, and not necessarily by the PPA (although it would be preferable for the PPA to recognize the lender’s rights and eliminate the requirement for EVN’s written consent).

  • Grid connection risks

A potential long-term financial risk could arise from technical issues affecting the transmission system, which in turn would affect the ability to dispatch energy from a project. The Model PPA clearly imposes transmission risks on the project sponsor up to the connection point. This transmission risk may be caused by various reasons, including acquiring land for transmission lines. For an offshore wind project, this is a mixed issue of sea area allocation and land lease (as the transmission lines go through the sea and land of multiple owners). In case of delay in sea area allocation or land lease, or complications in land compensation and site clearance, the project schedule will suffer.

This risk is best controlled on the Government side, and therefore, it is most efficient and cost-effective to place the risk on the Government. We suggest that in case of certain defined events related to grid connection, the risk can be dealt with by way of an extension of the term of the project, an increase in the tariff for the project, or a combination of these measures which will be backed up by a Government or Ministry of Finance (“MOF”)’s financial guarantee. We understand that the Government may not yet be ready to provide any Government guarantee for any power project. In Official Letter 9323/BCT-DL of the MOIT dated 29 December 2023, when talking about LNG-to-power projects, the MOIT proposed to the Government that there be no Government guarantee for any of EVN’s obligations under the PPA or for foreign currency convertibility.

Again, the Government may consider providing the Government guarantee with respect to grid connection risks to a pilot project initially, or only to large-scale RE projects that satisfy prescribed criteria.

  • No clear compensation mechanism

The Model PPA stipulates several scenarios in which one of the parties is considered in breach of the agreement. A breach results in an obligation to pay compensation for the actual, direct damages or losses that the aggrieved party would have been entitled to if the default had not occurred. The aggrieved party has the burden to prove such damages or losses.

This fault-based system compensation mechanism is uncertain. The same compensation mechanism applies to termination. Under the Model PPA, there are no termination payments in case of termination not caused by a party’s fault, for example, termination due to force majeure. To provide limited recourse financing, lenders would require payments upon termination (regardless of the cause) to at least cover the outstanding principal of all the project loans, the interest due at the time of termination, and hedging break costs (if any).

To provide certainty for international lenders, a possible solution to the issue is to allow something like liquidated damages payable to the power seller when a relevant event occurs (e.g., when the seller is ready to generate power, but the grid is not ready, the seller would be compensated by EVN on an agreed daily rate). The same mechanism should also apply when power delivery is curtailed. The Model PPA should also provide for non-fault-based termination payments, as mentioned above.

  • No change in law protection

One worrying element for investors, especially international investors, is the absence of protection in case of unfavorable changes in the law. Vietnamese law, through the Law on Investment,[3] provides general protection against changes in the law; however, this provision only applies when the change in the law is in respect to investment incentives granted to the investors.

In our view, EVN is better able to manage this risk and should assume it under the PPA. In addition, EVN’s obligation for change in law protection should be backed up by a Government or MOF financial guarantee. To trigger the change in law provision, the Model PPA could include a monetary threshold for damages caused to the project sponsor due to an unfavorable change, or series of changes, in law over a specified period (e.g., 6-months). In the event of damages exceeding the threshold, the Government’s (or the MOF’s) financial guarantee would be activated, and the total damages would be paid to the investors. Alternatively, the financial guarantee could be in the form of an extension of the term of the project, an increase in the tariff for the project, or a combination of these measures. This mechanism would provide a meaningful level of security for international investors and lenders in respect to changes in law.

A Government or MOF financial guarantee would sound unlikely in the current situation but with the current credit rating of EVN, unavailability of a Government or MOF’s financial guarantee would be a major red flag for bankability.

  • Removal of the 20-year term

Circular 01 has eliminated the 20-year term of the Model PPA. Circular 07 also allows the parties to negotiate the term of the PPA. As a result, the term of a PPA is now subject to negotiation with EVN or a power company, which causes uncertainty for lenders and sponsors. Lenders would require certainty for at least the tenure of all project loans. This could be resolved by reinstating a minimum PPA term in the Model PPA, but not necessarily the original 20-year term. A shorter period that can cover the tenure for most commercial/ECA loans, such as a 15-year term, would be sufficient. Of course, sponsors would be free to negotiate a longer term with EVN.

  • Exchange rate risks

Under the FiT regime, FiTs were denominated in USD, and there was a mechanism to convert VND revenue into USD. However, under the current law, the PPA tariffs must be denominated in VND without any link to USD inflation, the US CPI, or the USD in general, irrespective of the fact that project loans are typically obtained from international lenders and denominated in USD.

According to Circular 19/2023/TT-BCT of the MOIT dated 1 November 2023, on the method for formulation of the price framework for solar and wind power plants (“Circular 19”), the MOIT will, on an annual basis, issue a price framework in VND, applicable to solar and wind PPAs executed in that year, and the exchange rate will be considered at the time of formulating the price framework. The problem is that changes in the USD-VND exchange rate over the course of years are not considered if the exchange rate is fixed at the beginning of the PPA term.

Circular 07 allows adjustment of the exchange rate based on the total foreign loan amount borrowed for the project, loan repayment plan, the actual amount of principal that has been re-paid, the exchange rate used in the calculations of the electricity generating price, the exchange rate used in the preceding year. The parties will agree on payment of the difference resulting from the exchange rate on an annual basis as per a formula in Circular 07. There is the same issue about this as discussed above with respect to Circular 19.

The lack of an appropriate exchange rate mechanism in the PPA is a potentially significant issue for international lenders in project financing because they require certainty that the PPA revenue is sufficient to repay the principal and interest of all project loans. The most efficient means to mitigate the exchange rate risk would be for the Government (or the MOF) to cover exchange rate risks in their financial guarantee(s).

Another issue worth noting is that Circular 19 caps the borrowing costs, related to arranging the loans but not to interest rates, for international and local loans at 3% and 3.5% per year respectively.

  • Dispute resolution

Another risk for sponsors and lenders is the absence of a clear arbitration mechanism to resolve disputes arising under a PPA. Although the Model PPA provides for “other dispute resolution mechanisms,” arbitration is not explicitly permitted. International arbitration is the critical dispute resolution forum for foreign investors. An argument can be made for international arbitration under the Law on Investment when the seller is a company with more than 50% foreign ownership. However, the Model PPA should be amended to clearly allow international arbitration in all cases.


Suggesting a Government or MOF financial guarantee may seem like an old idea, which the Government, on the one hand, may not be willing to accommodate. International lenders, on the other hand, may not be willing to finance large-scale RE projects with limited recourse financing if there is no certainty that project loans (including interest) will be repaid in every circumstance. The existing legal framework and policy do not provide international lenders with sufficient incentives and certainty to finance large-scale RE projects in Vietnam. The Government should give due consideration to financial guarantees before key players leave the market and pursue other opportunities in the region and globally. If lenders do not finance RE development in Vietnam, foreign companies and FDIs pledged to the RE50 and RE100 commitments will need to find alternative locations for their manufacturing, production, and labor.



[1] “Vietnam Renewable Energy Report”, BritCham, March 2022 (available at:

[2] Id.

[3] Law No. 61/2020/QH14 (National Assembly, June 17, 2020), on investment.


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