Green credit for solar power systems in Vietnam: what should be noted?

Green credit” is becoming more common through credit packages for energy-saving, renewable-energy and clean-technology projects with the purpose of economic growth associated with environmental protection. Many banks refer to these support packages as “green credit”.

In this article, BLawyers Vietnam would like to explain what green credit is, and how it is used for solar power systems in Vietnam.

Green credit for RSSP

1. What is green credit?

According to the 2020 Law on Environmental Protection, green credit is credit granted to the following investment projects: (i) Efficient use of natural resources; (ii) Adaptation to climate change; (iii) Waste management; (iv) Pollution remediation and environmental quality improvement; (v) Natural ecosystem restoration; (vi) Nature and biodiversity conservation; and (vii) Creation of other environmental benefits.

Thus, green credit can be understood as credit provided by banks for production and commercial projects without risks, or for the purpose of environmental protection, contributing to general ecological protection.

For solar power projects, banks will offer loan packages to customers who wish to install a rooftop solar power system and have signed a contract with a contractor to carry out consultancy, survey, design, construction and installation of such system.

2. Features of green credit

Green credit is a credit-granting operation of commercial banks with the following features:

  1. Green credit is given to production and commercial projects that do not endanger the environment. However, not all green projects are eligible for green credit; they must meet certain criteria. Enterprises’ projects must prove efficiency, profitability, experience in the field of green technology, and product output. Individuals’ projects must prove financial capacity, a clean background, and no bad debts at the bank;
  2. Green credit primarily uses capital mobilized from all members of society rather than purely from capital mobilized by banks. Banks can obtain capital through trust contracts with the Central Bank or the State Bank or through green credit support funds, or they can directly issue green bonds in the market. Green bonds are bonds issued by the Government, local governments and enterprises to raise capital for projects on the green list; and
  3. Many authorities are involved in banks’ green credit and the Government encourages green projects through tax policies and commitment to stable output for enterprises to invest in projects towards environmental protection. In addition, banks commit to providing long-term capital with preferential interest rates.
3. Vietnam’s mechanism for encouraging granting of green credit

Currently, the prevailing laws of Vietnam have a mechanism to encourage the granting of green credit, specifically:

  1. Credit institutions and foreign branch banks in Vietnam are encouraged to prioritize the allocation of sources of capital for sponsoring or granting concessional loans to projects on the green list, i.e. projects that are granted green credit or projects that have issued green bonds.
  2. Credit institutions and foreign branch banks in Vietnam granting green credit shall be entitled to the following encouragement mechanisms:
    • Be entitled to priority when applying for concessional loans from the Government, international organizations and development partners; and
    • Be entitled to competent authorities’ assistance in training in the grant of green credit.
4. Roadmap for implementation of green credit in Vietnam

Under Decree No. 08/2022/ND-CP, the roadmap for implementation of green credit is prescribed as follows:

  1. Step 1: The State Bank of Vietnam shall direct and instruct credit institutions and foreign branch banks in Vietnam to provide appropriate capital for granting concessional loans to encourage project investors to execute projects in the green list.
  2. Step 2: The Ministry of Finance, Ministry of Planning and Investment and State Bank of Vietnam shall, within their jurisdiction, assist credit institutions and foreign branch banks in Vietnam to receive foreign aid and concessional loans in order to sponsor projects on the green list in accordance with regulations of the laws on the state budget, public investment and other relevant regulations of the law.
  3. Step 3: In consideration of the available budget and actual credit extension by the banking system to projects on the green list, the Ministry of Planning and Investment shall preside over and cooperate with Ministries and ministerial agencies concerned in formulating and submitting to the Prime Minister for a decision to provide interest rate subsidies to projects on the green list after the end of medium- and long-term loan agreements at credit institutions and foreign bank branches in Vietnam for a new implementation from 01 January 2026.

The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at consult@blawyersvn.com. We would love to hear from you.

Date: 21 April 2023

Writer: Linh Nguyen

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