THE CURRENT PREFERENTIAL POLICIES FOR FOREIGN ENTERPRISES INVESTING IN WIND POWER PROJECTS IN VIETNAM
The article is written by Paralegal Nguyen Vu Lam, Ho Chi Minh legal department - currently pursuing studies in the field of Business Law at University of Economics Ho Chi Minh City.
In the current context, where both economic development and environmental protection are prioritized, promoting the development of renewable energy sources is considered a sustainable and safe solution to meet the country's energy needs. At the same time, this contributes to minimizing the negative impact on the living environment of the community. The current regulations show that Vietnam is encouraging investment in this field through various preferential policies and support for investors, especially foreign investors. The following article from Dai Ha Thanh Law Firm discusses the legal regulations related to investment incentive policies for wind power projects in Vietnam at the present time.
1. Overview of wind power projects
1.1. Definition of wind power projects
Wind power is a form of converting wind energy into electricity to serve human life. Wind power plays an important role in the global energy structure, wind turbines are built very high and large - devices that convert the kinetic energy of wind into electrical energy. Wind power is considered a source of electricity from renewable energy (Point b Clause 1 Section III Decision 500/QĐ-TTg 2023).
To implement wind power in practice, it is necessary to have a wind power structure. Accordingly, wind power structure means the comprehensive complex of wind turbines, electric generators, comprehensive types of equipment and other construction compositions using wind power to generate power, and wind power project includes one or many wind power structures (Clause 3, 4 Article 2 Decision 37/2011/QĐ-TTg).
1.2. Classification of wind power projects
In terms of the purpose of electricity generation, it can be divided into a grid-linked wind power project and a wind power project without linked grid:
- Grid-linked Wind power project means wind power project constructed connection into the national electricity net to supply a part or total of production power (Clause 5 Article 2 Decision 37/2011/QĐ-TTg).
- Wind power project without a linked grid means a wind power project constructed to supply a total of power for the use of householders in that area, not connected to the national power net (Clause 8 Article 2 Decision 37/2011/QĐ-TTg).
Regarding the location of wind power projects, it can be divided into onshore wind power projects and offshore wind power projects:
- Onshore wind power project refers to any grid-connected wind power project with a wind turbine constructed and operated in mainland and coastal areas of which the outer boundary is the lowest mean high water for many years (18.6 years) (Clause 12 Article 2 Decision 37/2011/QĐ-TTg, supplemented by Clause 1 Article 1 Decision 39/2018/QĐ-TTg).
- Offshore wind power project refers to any grid-connected wind power project with a wind turbine constructed and operated offshore - outside the lowest mean high water for many years (18.6 years) (Clause 13 Article 2 Decision 37/2011/QĐ-TTg, supplemented by Clause 1 Article 1 Decision 39/2018/QĐ-TTg).
2. The potential for wind power project development in Vietnam
According to the World Bank's assessment in 2001, Vietnam is considered one of the countries with the greatest potential for wind power development in Southeast Asia. Over 39% of the country's total land area has an average annual wind speed of over 6m/s at a height of 65m, equivalent to a potential capacity of around 512,000MW.
The Vietnamese government has set a target of achieving net-zero emissions by 2050 and has issued a Decision approving the National Power Development Plan, which emphasizes the strong development of renewable energy, especially wind power. According to the plan, by 2030 the onshore wind power capacity is expected to reach 21,880MW and the offshore wind power capacity 6,000MW, accounting for 18.5% of the total power generation capacity. By 2050, the onshore wind power capacity is targeted to reach 60,050-77,050MW, and the offshore wind power capacity 70,000-91,500MW, making up 26.5-29.4% of the total power generation capacity.
The sea areas with the best wind power potential are located from Binh Dinh to Ninh Thuan, from Binh Thuan to Ca Mau, and part of the Gulf of Tonkin, with average annual wind speeds of 8-10m/s and average annual energy densities of 600-700W/m2. However, the development of wind power technology has not kept pace with the potential, with only 84 wind power plants with a total capacity of 3,980MW installed by the end of 2021.
The information provided demonstrates that Vietnam is currently making efforts to build and supplement preferential policies for businesses investing in this field to ensure the feasibility, effectiveness, and coherence of the implementation of the Eighth Power Development Plan.
3. The current status of wind power project investment in Vietnam by foreign enterprises
During the period from 2015 to 2022, Vietnam received up to $106.8 billion in foreign direct investment (FDI) into the renewable energy sector, ranking second among developing economies worldwide. When it comes to major wind power projects in Vietnam, several can be listed that involve foreign investors:
The 3.5GW La Gàn offshore wind project in Binh Thuan, developed and invested in by the Danish conglomerate CIP, with a total investment of $10.5 billion.
The 37.6MW Mui Dinh wind farm in Ninh Thuan, with an investment of around 1,472 billion VND by the German company EAB, which was later acquired by the Thai conglomerate Banpu for 2,065 billion VND.
The 70MW Beta wind farm in Dak Lak, with an investment of over 2,210 billion VND by VNM Investment Company Limited (Singapore).
According to the Prime Minister's Decision No. 500/QD-TTg on the National Power Development Plan, Vietnam has set the target of strongly developing both offshore and onshore wind power to meet domestic demand and enable exports. Vietnam is assessed to have significant offshore wind potential in the Southeast Asia region, so the government wants to maximize this potential.
However, this is a new field in Vietnam, facing many technical, technological, and large investment capital challenges. Therefore, attracting FDI is necessary to help Vietnam achieve its goals of sustainable renewable energy development and alignment with the greening trend.
At the 28th Conference of the Parties to the United Nations Framework Convention on Climate Change, the member countries of the International Partners Group (IPG), including the European Union, the United Kingdom and Northern Ireland, the United States, Japan, Germany, France, Italy, Canada, Denmark and Norway, agreed to deploy a $15.5 billion resource mobilization plan over the next 3-5 years to address urgent needs and drive a just energy transition in Vietnam. The IPG committed to mobilizing this capital with attractive interest rates and support for private enterprises through investments. Reaching this consensus reflects the commitment of Vietnamese Prime Minister Pham Minh Chinh to soon specify policies for renewable energy development, demonstrating Vietnam's efforts to attract FDI to meet the expectations of businesses and conglomerates investing in wind power projects in Vietnam.
4. The legal provisions on preferential policies for foreign enterprises investing in wind power projects in Vietnam
4.1. The mechanism for encouraging electricity purchasing prices
The Government of Vietnam has implemented specific incentive mechanisms to promote the development of renewable energy sources, particularly wind power. Specifically, Decision No. 37/2011/QD-TTg and Decision No. 39/2018/QD-TTg have stipulated the purchase price of wind power, including:
For wind power projects that went into commercial operation before November 1, 2021, the price is 1,928 VND/kWh for onshore wind power and 2,223 VND/kWh for offshore wind power, valid for a period of 20 years.
For wind power projects that do not meet the conditions for applying Decision No. 39/2018/QD-TTg, a transitional electricity generation price framework will be applied, with a ceiling price of 1,587 VND/kWh for onshore wind power and 1,815 VND/kWh for offshore wind power (Decision No. 21/QD-BCT).
These policies aim to create incentives and a favorable environment for investment and development of renewable energy sources, contributing to the goal of diversifying the national energy structure.
4.2. Incentive on capital investment
Capital mobilization can be carried out through organizations, individuals, including both domestic and foreign, based on forms of capital mobilization permitted by law. Based on the VIII Electricity Planning, it is necessary to Diversify funding sources and methods of capital mobilization, effectively attracting both domestic and foreign capital. Request and effectively utilize international assistance (JETP, AZEC, etc.), green credit, climate credit, green bond, etc.
Furthermore, wind power projects are entitled to preference according to the current regulations on state investment credit. Accordingly, wind power projects are listed in the Appendix of the list of projects eligible to borrow investment loans in Decree 78/2023/NĐ-CP. The maximum state investment loan for enterprises as investors in a project is 70% of the total investment capital of such project (excluding liquid capital). (Clause 1 Article 7 Decree 32/2017/NĐ-CP)
4.3. Tax incentives
4.3.1. Import tax
According to Clause 2 Article 12 Decision 37/2011/QĐ-TTg, a wind power project is exempt from import tax for goods imported in order to form fixed assets of the project, import goods are material, semi-finished products have not yet been produced in the country so that import to service for the manufacture of project.
4.3.2. Corporate income tax
According to Clause 3 Article 12 Decision 37/2011/QĐ-TTg, wind power projects are entitled to preference for projects that are special preferential in investment specified in law. Accordingly, the application of tax rate of enterprise income tax, exemption of and reduction of enterprise income tax will be as follows:
- Applying preferential tax rates:
According to Point b Clause 1 Article 13 Law on enterprise income tax (amended and supplemented 2013), incomes of an enterprise from execution of new investment projects in production of renewable energy shall apply a preferential tax rate of 10% for 15 years.
- Tax exemption, reduction:
According to Clause 1 Article 14 Law on enterprise income tax (amended and supplemented 2013), incomes of an enterprise from execution of new investment projects in production of renewable energy shall be eligible for tax exemption for no more than 4 years and 50% reduction of tax payable for no more than 9 subsequent years.
The tax exemption or reduction duration specified is counted from the first year an enterprise has taxable income from investment projects.
4.3.3. Non-agricultural land use tax
According to Article 9 of the Law on Non-agricultural Land Use Tax 2010 and Article 10 of Circular 153/2011/TT-BTC stipulating cases of exemption from non -agricultural land use tax, including: Land of investment projects in the sectors eligible for special investment promotion (special investment incentives).
Because the wind power projects belong to renewable energy production project, being part of list of business lines eligible for special investment incentives (according to the list in Clause 6 Section I Part A Appendix II Decree 31/2021/NĐ-CP), so the land for wind power projects is eligible for land use tax exemption for non-agricultural land.
4.4. Preferential policies on land rent, land use levy
According to Clause 3 Article 19 Decree 46/2014/NĐ-CP dated May 15, 2014 by The Government regulations on collection of land rent and water surface rent, wind power project will be exempted from land rent for 11 years, following an initial 3-year exemption period for the fundamental construction, as renewable energy production falls under the category of specially privileged investment sectors. In case the projects on the List of domains entitled to investment incentives which are invested in the regions facing extreme socio-economic difficulties, a 15-year exemption shall be granted. Simultaneously, line work and transformer stations to connect with the grid of national electricity are exempted, land use levies reduced, and land hire levies reduced according to regulation of current law apply with projects belonging to the field which is special preferential in investment. (Clause 1 Article 13 Decision 37/2011/QĐ-TTg)
Furthermore, based on plans approved by a competent authority, the provincial People’s Committee is responsible for assigning land for investment owners to execute wind power projects. Compensation, supporting for land clearance are executed according to regulation of current law on land. (Clause 2 Article 13 Decision 37/2011/QĐ-TTg)
Above is the entire sharing from Dai Ha Thanh Law Firm about the prominent preferential policies for foreign enterprises investing in wind power projects in Vietnam. If you have any questions or issues that need advice, please contact us to receive professional legal advice services.
