Vietnam FIT Update
2025 Tariff Regime
From fixed FiTs to cost-based IRR caps: how the new PPA mechanism works, what it means for USD equity returns, and why projects still pencil.
Need to Know
No More FiTs
Fixed USD tariffs ended Oct 2021. Post-2025, tariffs are cost-based with a 12% VND project IRR cap, subject to MOIT price ceilings.
Limited Indexation
70–85% of revenue (capex recovery) is fixed in nominal VND with no CPI protection. O&M indexed ~2.5% p.a.; FX adjustment on foreign debt only.
USD IRR Reality
Headline 12% VND IRR → ~5–9% USD equity IRR after inflation, FX erosion, and limited indexation. Optimize via cost control and capital structure.
Executive Summary
Two tariff regimes
Retail tariffs (what consumers pay EVN) adjust based on EVN costs — not your concern. Generation tariffs (what EVN pays your project) are governed by MOIT ceilings + cost-based models with a 12% VND IRR cap.
PPA price pinned between cost model and ceiling
Your negotiated tariff must: (1) be computed from a regulated cost model (capex, O&M, financing), (2) deliver project IRR ≤ 12% in VND, and (3) not exceed the annual MOIT price ceiling for your tech/region.
Fixed capex recovery, limited O&M indexation
Wind PPA price = FC (capex) + FOMC (O&M). FC is ~70–85% of revenue, fixed in nominal VND with no CPI/FX hedge. FOMC gets ~2.5% p.a. indexation; FX adjustment covers foreign debt principal only.
12% VND ≠ 12% USD
After 3–4% VND inflation, 2–3% depreciation, and capped O&M indexation, a headline 12% VND project IRR translates to ~5–9% USD equity IRR depending on macro and execution.
Projects still work via angles
Build below normative costs (real IRR > 12%), leverage local debt, bet on stable macro, treat as platform/M&A exit, or use USD debt with FX pass-through on loan principal.
Two different 'prices' in Vietnam
Retail vs generation: what matters for wind and solar developers
Retail Tariff Mechanism
Adjusts based on EVN actual costs; tariffs can move up or down if costs shift significantly.
Households and factories (end consumers)
- •Cost-reflective mechanism
- •Responds to EVN operational costs
- •Not relevant for wind or solar developers
- •Background context only
Generation / PPA Tariff
What EVN pays renewable generators; governed by MOIT price brackets and new PPA rules.
Wind and solar project developers
- •No fixed FiT post-2025
- •Annual MOIT price ceiling by tech/region
- •Tariff must deliver project IRR ≤ 12% (VND)
- •Cost-based model mandatory
- •Must not exceed MOIT ceiling
EVN PPA tariff for wind: fixed capex + indexed O&M
Price components and their share of total revenue
Fixed Cost (Capex Recovery) (FC)
70–85%Recovers capital expenditure over contract term
- •Fixed in nominal VND once agreed
- •No CPI or FX protection
- •Real value erodes with inflation
- •Largest component of tariff
Fixed O&M (FOMC)
15–30%Fixed operations & maintenance costs
- •Adjusted annually by cost/CPI/wage indices
- •Capped at approximately 2.5%/year
- •Provides limited inflation protection
- •Smaller component of total tariff
FX Adjustment (Debt) (FX_adj)
VariableCompensates for exchange rate changes on foreign loan principal
- •Only applies to foreign currency borrowings
- •Covers loan principal changes, not interest
- •Reduces currency mismatch on debt
- •Equity remains VND-exposed
• FC = capex recovery (fixed cost); largest component, fixed in nominal VND over 20 years.
• FOMC = fixed O&M; indexed annually but capped at ~2.5% p.a.
• FX adjustment applies only to foreign currency debt principal, not full tariff.
• Why this matters: 70–85% of your revenue has zero inflation or FX protection; real value erodes over time unless you build in cushion or optimize execution.
12% project IRR cap — on normative costs, not actuals
The regulatory model calculates a 12% VND project IRR using 'reasonable' capex, O&M, and financing assumptions. If you build and operate cheaper than these normative costs, your real project IRR can exceed 12%. This gap is where value is created under the new regime.
What moves and what doesn't
The revenue stack: most is frozen in nominal VND
What IS indexed
- ✓O&M component (FOMC): Allowed to increase each year by cost / CPI / wage indices, but generally capped at ~2.5% p.a.
- ✓FX on foreign loans: Adjustment compensates for exchange-rate changes on loan principal if you borrow in USD or other foreign currencies.
What is NOT indexed
- ✗Capex recovery (FC): Fixed in nominal VND once agreed; no CPI or FX protection.
- ✗Full tariff indexation: No comprehensive CPI escalator on the entire tariff.
- ✗Ceiling adjustments: If MOIT raises price ceiling in later years, existing PPAs do not automatically adjust upward.
Revenue Split Summary
Capex recovery in nominal VND
O&M (~2.5% cap) + FX on debt
• Capex recovery (FC) = largest share, no indexation → inflation & FX erode real value.
• O&M (FOMC) gets cost/CPI/wage adjustment but capped at ~2.5% p.a. → partial protection.
• FX adjustment on foreign debt principal helps reduce currency mismatch on loan side, but equity cash flows remain VND-exposed.
• If MOIT raises future price ceilings, existing PPAs do not automatically move up.
• Why this matters: over 20 years, VND depreciation and inflation above 2.5% compress your USD-equivalent IRR unless you front-load value or optimize structure.
FiT era vs 2025+ cost-based regime
What changed and what it means for project economics
| Aspect | FiT Era (pre-2021) | Current Regime (2025+) |
|---|---|---|
| Pricing Structure | Fixed US¢/kWh rates set by government | Cost-based model with IRR ≤ 12% cap + MOIT ceiling |
| Tariff Duration | 20 years at fixed rate | 20 years with single fixed or scheduled prices |
| Indexation | None (full USD FiT, no adjustment) | Limited: O&M ~2.5% cap + FX on debt only |
| Revenue Certainty | High (fixed USD tariff) | Moderate (VND exposed, limited indexation) |
| FX Protection | Full (denominated in USD) | Partial (only on foreign debt principal) |
| IRR Framework | Implicit (market set FiT) | Explicit 12% cap on normative costs |
| Price Discovery | Government-set, technology-specific | Negotiated within cost model + ceiling constraints |
12% VND → 5–9% USD: scenario walkthrough
How headline VND IRR translates to USD equity returns
| Scenario | VND IRR | Inflation | FX Depreciation | Implied USD IRR | Commentary |
|---|---|---|---|---|---|
| Base (Regulatory) | 12.0% | 3.0% | 2.0% | 7.0% | Headline 12% VND project IRR; after inflation & FX, USD equity returns ~7%. |
| Optimistic | 12.0% | 2.5% | 1.5% | 8.5% | Lower macro headwinds; USD returns improve to mid–high single digits. |
| Pessimistic | 12.0% | 4.0% | 3.0% | 5.0% | Higher inflation & depreciation; USD equity IRR compresses to low single digits. |
| Cost Optimization | 14.5% | 3.0% | 2.0% | 9.5% | Build below normative costs; real project IRR exceeds 12% cap, lifting USD returns. |
• Base scenario: 3% VND inflation, 2% depreciation, O&M capped at 2.5% p.a. → ~7% USD IRR.
• Optimistic: lower inflation (2.5%), lower FX (1.5%) → ~8.5% USD IRR.
• Pessimistic: higher inflation (4%), higher FX (3%) → ~5% USD IRR.
• Cost optimization: build below normative costs → real project IRR ~14.5% → ~9.5% USD IRR.
• Why this matters: headline 12% VND cap is not your true return; macro assumptions and execution drive actual USD equity IRR.
Why projects still pencil: the angles
How developers make 10–12% VND IRR work in practice
Normative Cost vs Actual Cost
Build and operate below the reasonable or allowed costs in regulator model
Real project IRR can exceed 12% cap, improving USD equity returns
- •Local EPC advantages
- •Supply chain optimization
- •Efficient O&M
Capital Structure & Local Debt
Leverage cheaper local bank debt and lower return expectations
Reduces financing costs, improves project economics
- •Vietnamese sponsors
- •Local bank relationships
- •VND borrowing
Macro Assumptions
Conservative inflation/FX assumptions improve downside protection
Less FX/inflation erosion → better real USD returns
- •Stable macro outlook
- •SBV credibility
- •Moderate inflation
Strategic / Platform Value
Early market entry builds relationships, track record, and pipeline
Platform premium on exit; optionality if policy improves
- •First-mover advantage
- •M&A exit strategy
- •Portfolio building
USD Debt with FX Pass-Through
Use USD project finance from DFIs/foreign banks with PPA FX adjustment
Reduces debt-side currency mismatch; equity still VND-exposed
- •DFI support
- •Foreign lenders
- •Large-scale projects
• Normative vs actual: regulator uses "reasonable" costs; if you build cheaper, real IRR > 12%.
• Local advantages: Vietnamese groups have cheaper debt, lower return expectations, and EPC synergies.
• Platform value: early entry = relationships, track record, M&A premium on exit.
• USD debt with FX pass-through reduces loan-side currency mismatch; equity still VND-exposed.
• Why this matters: headline 12% cap is not a hard ceiling on real returns; execution and structure unlock upside.
DPPA vs EVN PPA: flexibility within bounds
Corporate DPPAs offer more shape flexibility but same ceiling constraint
| Dimension | EVN PPA | DPPA | Notes |
|---|---|---|---|
| Price Structure | Cost-based, IRR ≤ 12%, price ≤ MOIT ceiling | Negotiated, but price still ≤ MOIT ceiling | DPPA offers more flexibility on shape, but ceiling binds both |
| Escalation | Limited: O&M ~2.5% cap + FX on debt | Negotiable within regulatory bounds | DPPA can theoretically allow richer escalation, subject to offtaker credit |
| Counterparty Risk | EVN (state utility); low default risk | Corporate offtaker; credit-dependent | DPPA requires bankable corporate; EVN is safer but less flexible |
| Volume / Curtailment | EVN dispatch; curtailment risk present | Direct delivery or virtual; terms negotiable | DPPA can specify must-take or curtailment penalties |
| Price Discovery | Regulator-driven (cost model + ceiling) | Market-driven within ceiling constraint | DPPA allows for competitive dynamics, but ceiling still caps upside |
• Both DPPA and EVN PPA must not exceed MOIT price ceiling for tech/region.
• DPPA can negotiate escalation terms, but corporate credit and regulatory bounds still constrain economics.
• EVN PPA = safer counterparty (state utility), less flexible terms.
• DPPA = market-driven pricing within ceiling, but requires bankable corporate offtaker.
• Why this matters: DPPAs are not a magic bullet; ceiling still caps upside, and corporate credit matters.
Policy timeline: from FiTs to cost-based IRR caps
Key regulatory milestones shaping the 2025+ tariff regime
Decree 57/2025/NĐ-CP — Full DPPA Framework
- •Enables direct power purchase agreements between generators and large consumers
- •Price must not exceed MOIT ceiling for tech/region
- •Flexibility on escalation terms within regulatory bounds
- •Corporate offtake for creditworthy buyers
Opens corporate DPPA pathway alongside EVN PPAs; price discovery still constrained
Circular 12/2025/TT-BCT — PPA Tariff Mechanism
- •Cost-based tariff calculation mandatory
- •Project IRR capped at 12% (VND) on normative costs
- •O&M indexation capped at ~2.5% p.a.
- •FX adjustment for foreign debt principal only
Replaces fixed FiTs with IRR-capped, cost-based pricing; limits upside but provides structure
Decree 80/2024/NĐ-CP — Transitional DPPA
- •Introduced initial DPPA framework
- •Bridge between FiT expiry and new mechanism
- •Set foundation for Decree 57 refinements
Early DPPA adopters (e.g., LEGO Sep 2025) operated under this framework
Decision on Ceiling Prices — Solar & Wind
- •Solar ground: 5.05 US¢/kWh; floating: 6.43 US¢/kWh
- •Onshore wind: 6.77 US¢/kWh; offshore: 7.75 US¢/kWh
- •Applied to transitional projects pending new PPA rules
Lower than legacy FiTs; compressed revenue expectations for 2023-2024 projects
Tariff regime timeline: FiTs → ceilings → cost-based IRR
How headline rates and mechanisms have changed
| Period | Mechanism | Solar Range | Wind Range | Notes |
|---|---|---|---|---|
| 2017–2021 | Fixed FiTs | 7.09–9.35 US¢/kWh | 7.80–9.80 US¢/kWh | Fixed USD tariffs; high certainty; FiT windows closed Oct 2021 |
| 2023 (Transitional) | Ceiling Prices | 5.05–6.43 US¢/kWh | 6.77–7.75 US¢/kWh | Lower caps for transitional projects; no indexation |
| 2025+ | Cost-based + IRR Cap | Cost model, IRR ≤ 12% VND, ≤ MOIT ceiling | Cost model, IRR ≤ 12% VND, ≤ MOIT ceiling | Limited indexation (O&M ~2.5%, FX on debt); 20-year term |
• FiT era: fixed USD rates, high certainty, windows closed Oct 2021.
• 2023 transitional: ceiling prices lower than legacy FiTs, applied to transitional projects.
• 2025+ regime: cost-based model with 12% VND IRR cap + MOIT ceiling; limited indexation.
• Why this matters: tariff structure has shifted from high-certainty USD FiTs to lower-certainty VND cost-based pricing; project economics require more sophisticated modeling and optimization.
Sources
- Circular 12/2025/TT-BCT — PPA tariff mechanism
- Decree 57/2025/NĐ-CP — DPPA framework
- Decree 80/2024/NĐ-CP — Transitional DPPA
- Decision on ceiling prices (Jan 7, 2023)
- World Bank — Vietnam power sector notes
- IEA — Vietnam country profile
- MOIT annual price ceiling announcements