Vietnam Faces Legal Risk Over Retroactive Solar FiT Cuts

Energy Box
7 days ago
3 min read

Between 2017 and 2021, Vietnam implemented generous feed-in tariff (FiT) schemes to stimulate investment in renewable energy, particularly solar and wind. Backed by a 20-year fixed-rate FiT, the country quickly rose to become the leading renewable energy market in Southeast Asia.

According to the Government Inspectorate, around 173 solar and wind projects or subprojects—representing approximately $13 billion in combined investment—commenced commercial operation (COD) before or during 2021 without obtaining a construction completion acceptance at COD. Despite the missing documentation, these projects were allowed to benefit from the preferential FiT, resulting in financial losses to Vietnam Electricity (EVN), the state utility.

In response, the Ministry of Industry and Trade (MoIT) has instructed EVN to re-evaluate these projects, determine whether they qualify for the FiT, and where applicable, adjust tariffs downward or recover past payments. Projects deemed ineligible would be converted to lower purchase rates.

This proposal would apply retroactively, introducing a new regulatory requirement—the construction acceptance certificate—after COD was already granted and FiTs awarded.

If implemented, over 100 projects could lose their fixed tariff, resulting in a 25% reduction in electricity price, to around $0.05/kWh. Additionally, EVN plans to claw back previous overpayments, which could reduce lifetime revenues by up to 50% compared to the original scenario.

This move threatens investor equity and could push many developers toward financial distress or default. In response, both domestic and international investors have filed petitions urging the government to preserve the FiT framework. They warn that retroactive changes would undermine trust, destabilize the investment environment, and lead to prolonged legal disputes.

Legal Grounds Against Retroactivity

Investors cite several legal protections under Vietnamese law:

Non-retroactivity principle:
- Article 152 of the 2015 Law on the Promulgation of Legal Normative Documents and Article 13 of the 2020 Investment Law prohibit the application of new laws that harm existing investments.
- When these projects were granted COD status and signed Power Purchase Agreements (PPAs) with EVN, no regulation required construction-completion certificates for FiT eligibility. That stipulation was introduced only in 2023.
PPA terms and regulatory consistency:
- Most projects signed PPAs using the MoIT’s standard contract, which required COD by a specific deadline, technical commissioning, a power operation license, and meter sealing—but not a construction completion certificate.
- EVN’s attempt to retroactively amend these terms constitutes a breach of contract and legal obligations.

If EVN proceeds, affected developers could sue for contractual breach in domestic courts, with potential rulings mandating repayment, interest, and damages. Moreover, foreign investors may pursue international arbitration via mechanisms like ICSID or PCA, with claims potentially reaching hundreds of millions of dollars.

Global Precedents of Retroactive Policy Failures

Vietnam is not alone in facing such tensions. Several countries that retroactively altered renewable energy policies suffered significant legal and financial consequences:

Spain repealed its fixed FiT in 2012–2013, violating investment treaties and triggering over 40 international arbitration cases under the Energy Charter Treaty (ECT). Awards against Spain totaled billions, including €128 million ($150M) in the Eiser case.
Czech Republic attracted solar investment with high FiTs but later imposed a 26% solar levy and removed pricing guarantees. While some tribunals sided with the government due to falling PV costs, others strongly dissented on fairness grounds.
Italy revised its Conto Energia FiT through the 2014 Spalma-Incentivi decree, which also led to multiple ECT claims. Outcomes varied:
- In Blusun v. Italy, the tribunal ruled for Italy.
- In Greentech v. Italy, investors were awarded €15 million ($17.6 million) for breach of legitimate expectations.

These examples underscore the legal and reputational risks of retroactive changes, even when budgetary savings are achieved in the short term.

Conclusion: Stability vs. Short-term Gain

While scaling back the FiT could save EVN funds temporarily, it would:

Expose the government and EVN to international legal liabilities
Increase financing costs
Weaken investor confidence
Jeopardize future capital inflows for the green energy transition

To mitigate these risks, Vietnam’s safest course would be to:

Honor existing FiT commitments
Or, transition transparently to competitive auctions or voluntary direct PPAs, ensuring adherence to the non-retroactivity principle.