Ministry seeks urgent rules on direct power purchase agreements

Vietnam’s Ministry of Industry and Trade has called for a government decree to cover direct power purchase agreements (DPPAs) to help renewable energy generators sell clean electricity to major offtakers.

This proposal is part of a DPPA scheme that the ministry, or MoIT, has proposed to the government.

Renewable energy trading between generators and offtakers in manufacturing fields would be divided into two cases, namely via privately-invested transmission lines and via the national grid.

In case one, generators and major offtakers would not be subject to rules on capacity, output, voltage levels for connection, electricity usage purposes, and the like. However, generators must develop power projects in line with the country’s power plan. They must also be allowed to operate in the electricity industry, observe the Electricity Law, and follow electricity selling prices set by the MoIT.

The ministry is of the view that case one matches PDP VIII, Vietnam’s newest power development plan approved in mid-May. The plan champions clean energy transition and promotes renewable energy sources as Vietnam is seeking to reach carbon neutrality by 2050.

Meanwhile, the second case is for DPPAs to use the national grid, therefore more stakeholders would be involved, including regional power generation corporations, their retailers, trading firms, and the National Load Dispatch Center.

In case two, generators would have a minimum capacity of 10 megawatts each. Major offtakers would be either organizations or individuals who need electricity for manufacturing, and the minimum voltage level for connection would be 22 kV.

In the second case, as the Law on Prices and related regulations have yet to take effect, retailers would provide electricity to offtakers with retail prices specified in Prime Minister Decision 24/2017/QD-TTg on the mechanism to adjust the average retail price, and in Prime Minister decision No. 28/2014/QD-TTg on the retail tariff structure.

When the Law on Prices and related regulations come into effect, retailers and offtakers must accept market spot prices in the country plus service prices such as transmission, distribution, power system operation, market management, and auxiliary services prices.

The DPPA mechanism is in urgent need, so the MoIT proposed Prime Minister Pham Minh Chinh to issue the decree in a brief and simplified process.

At present, state-run Vietnam Electricity (EVN) has a statutory monopoly over the transmission, distribution, wholesale, and retail of electricity.

Two years ago, the ministry rolled out a draft DPPA pilot scheme for reference. Major international companies including Samsung said they wanted to take part in the scheme.

At the Vietnam Business Forum (VBF) this March, the American Chamber of Commerce (AmCham) said Vietnam should promptly allow DPPAs. AmCham said the proposed scheme is “an important mechanism to attract investors and private investments, not only in the energy sector but also in other sectors where companies have made commitments in the space of renewable energy, carbon reduction, and sustainability.”

According to AmCham, in 2022, private companies in Asia Pacific signed a record 7 gigawatts of DPPAs, an 80% increase from 2021, and this demonstrated their willingness to drive new clean energy investments.

“Approval of the DPPAs could unlock billions of dollars in investment from the private sector. More could be done to finance Vietnam’s move away from fossil fuels,” the chamber noted.