Exit Budget for a Chinese Investor’s Energy Project

Exiting a factory is complex — exiting an energy project (solar, wind) is more so: value sits in the 20-year power purchase agreement (PPA) with EVN, not just panels and turbine towers; electricity licences don’t transfer automatically; specialised equipment has no resale market. This article builds the full budget framework for an energy divestment.

1. Why energy-exit budgets differ

• Large intangible value: long-term PPAs with EVN, licences, 20–25-year land rights — “paper” value can exceed equipment value;
• Specialised equipment: used panels and wind turbines — thin secondary markets, low liquidation prices;
• Long-tail duties: equipment warranties, environmental restoration, project-finance debt with 10–15 years remaining;
• Policy sensitivity: power prices and power planning directly hit value — policy shifts upend valuations.

2. Budget structure: 8 cost groups

3. Valuing the energy project: DCF on PPA cash flows

• Primary method: discounted cash flow from the PPA over its remaining life (typically 15–20 years);
• Inputs: power price in the PPA, expected output (based on actual irradiation/wind data), O&M costs, discount rate;
• Risk adjustments: curtailment exposure, power-price policy changes, FX swings (foreign-currency debt, VND revenue);
• Independent valuation: both sides should agree on a valuer who understands renewables — generalist valuers misprice;
• Equipment-only value is usually far below operating-project value — don’t let the buyer “price it as scrap”.

4. The PPA: transferable?

• The PPA is between the project company and EVN — selling the company’s equity (not assets) leaves the PPA effective (the contracting party is unchanged);
• But PPAs often carry change-of-control clauses — a controlling transfer may need EVN’s consent;
• Selling project assets (not the company): PPA assignment needed — far more complex, EVN re-vets the buyer;
• PPA power price: the value driver — old FIT-price PPAs differ from newly negotiated-price PPAs;
• Timing: EVN procedures take 3–6 months — build into the schedule.

5. Electricity licences under the 2024 Electricity Law

Under Electricity Law 28/2024/QH15 (effective 01/02/2025):

• Electricity operation licences go to qualifying entities — ownership changes require licence amendment;
• The buyer must meet capacity conditions (financial, technical, personnel) — not everyone qualifies;
• Amendment takes time — never leave the project “unlicensed” during handover;
• Related licences: environmental, fire-safety, land — review consistently.

6. Project-finance debt: the biggest knot

• Energy projects typically borrow 70–80% of total capital — tens of millions in debt;
• Project-finance credit contracts carry tight change-of-control clauses — ownership changes can trigger acceleration;
• Options: (a) buyer assumes the loan (bank consents); (b) repay from sale proceeds; (c) refinance with a new bank;
• Collateral: project assets (equipment, PPA receivables, land rights) are mortgaged — transfers need bank consent;
• Negotiate with the bank before signing the transfer agreement — the deal is only solid when the bank nods.

7. Environmental and restoration duties

• Energy projects post environmental deposits — on transfer, handle the deposit (assign to buyer or refund);
• Restoration plans: at end of project life (25 years), who dismantles, who pays — the duty follows the project; the buyer inherits;
• Expired solar panels: e-waste — disposal costs belong in the valuation;
• Pre-transfer environmental liability sits with the seller — warranties and escrow needed.

8. Tax on the energy deal

• Capital-transfer tax: as in ordinary deals (20% CIT on income) — but large values mean large tax;
• Ongoing tax incentives: renewable projects may enjoy CIT incentives — equity transfers don’t kill the company’s incentives (the entity survives);
• VAT: equity transfers aren’t VAT-able; asset sales (if structured so) are;
• Refunds: remaining creditable VAT — handled at finalisation.

9. Operations personnel: the intangible asset

• Power plants need operations teams who understand the equipment — lose the people, the plant “stops”;
• On exit: retain key personnel (stay bonuses, transitional contracts);
• Operations technology handover: documents, procedures, monitoring software (SCADA) — complete;
• Third-party O&M contracts: assignable? change-of-control clauses.

10. Sample budget framework (indicative ratios)

For a mid-size solar project, exit costs typically split:

• Capital-transfer tax: the largest item — compute precisely from price and cost base;
• Advisory fees (lawyers, auditors, valuers): a few % of deal value;
• Debt-handling costs (prepayment fees, refinancing fees): per the credit contract;
• Procedural costs (IRC, licences, EVN): small but time-consuming;
• Risk provision (escrow): 5–15% of deal value for contingent duties (environment, tax, warranties).

Budget before negotiating price — the sale price must cover exit costs for the deal to make sense.

11. Energy-exit timeline: 9–15 months

Months 1–3: diligence, valuation, audit. Months 3–6: negotiation, conditional signing. Months 4–8: bank (project debt) and EVN (PPA) work in parallel. Months 6–10: IRC and electricity-licence procedures. Months 9–15: payment completion, operations handover, tax finalisation. Energy projects can’t exit fast — compressing the bank/EVN stages only breaks the deal.

12. Insurance during the exit transition

Energy projects carry specialised insurance — property, business interruption, third-party liability — that must be managed through the exit:

• Continuity: never let coverage lapse during handover — a turbine fire in the gap week is uninsured;
• Policy transfer: insurance policies are contracts of the project company — equity sales don’t terminate them, but notify the insurer of the ownership change (non-disclosure can void claims);
• Premium allocation: agree who pays premiums for the transition period — prorate by closing date;
• Claims in flight: pending insurance claims (storm damage, equipment failure) are project assets — assign them explicitly in the transfer agreement, or the seller keeps the proceeds of pre-closing events.

13. Land-lease transfer in industrial parks — and outside them

Energy projects sit on large land areas — often outside industrial parks (solar farms, wind ridges). Land handling on exit:

• Industrial-park projects: sublease contracts usually allow assignment with the park developer’s consent — straightforward;
• Off-park projects: land leased directly from the State or subleased from land-use-right holders — transfers need authority approval and take longer;
• One-off vs annual payment: one-off-payment land rights have transferable value; annual-payment rights transfer with the lease but carry no capitalised value;
• Mortgaged land rights: project-finance banks hold mortgages over land rights — the bank must consent to any transfer;
• Remaining tenor: land with 10 years left is worth less than land with 20 — factor the remaining term into valuation.

Decommissioning cost provisions

Energy projects can’t just be switched off — decommissioning is a regulated, costed process:

• Site restoration: the land lease usually requires returning the site to an agreed condition — price the earthworks;
• Equipment disposal: turbines, panels, and transformers need certified dismantling — some components are hazardous waste;
• Grid disconnection: coordinate the disconnection procedure with the power purchaser and grid operator;
• Provision booking: recognise the decommissioning provision in the accounts — buyers check this line;
• Regulatory sign-off: closure needs environmental acceptance — start the paperwork early.

Budget contingency planning

Exit budgets overrun. Build contingencies the board will actually approve:

• Rate it: apply 10–15% contingency to soft costs (advisers, filings) and 5–10% to contracted works — as a planning illustration, not a market quote;
• FX buffer: add a currency margin — the budget is in VND, the investor thinks in RMB;
• Delay cost: quantify the monthly burn rate if approvals slip — it focuses minds;
• Release gates: tie contingency drawdowns to milestones, not to requests;
• Report rhythm: monthly budget reviews against the exit plan keep surprises small.

Contact us

FLAT Law Firm advises Chinese investors throughout the Vietnam investment cycle — from deal structuring and licensing to operations and compliance. Contact us for advice tailored to your project.

This article has been quality-reviewed by the FLAW AI Legal Council