Vietnam gov’t requests early completion of direct power purchase mechanism

The Vietnamese government has asked the Ministry of Industry and Trade to complete soon the long-delayed direct power purchase agreement (DPPA) mechanism between renewable energy suppliers and major consumers.

A document recently signed by Deputy Prime Minister Tran Hong Ha asks the ministry to learn from international experiences as well as its own to speed up progress.

Ha emphasizes that the DPPA mechanism plays a key role in efficiently investing in power sources and ensuring the country’s energy security.

The ministry has been asked to report to the Prime Minister on the progress before October 25.

At present, state-run Vietnam Electricity (EVN) has a statutory monopoly over the transmission and distribution (wholesale and retail) of electricity. Major international companies, including Samsung, have expressed interest in the DPPA scheme with which they can sign purchase deals directly with power generators.

Two choices

In its latest report, the industry ministry has proposed two solutions for renewable energy trading between generators and offtakers in manufacturing fields – via the national transmission system or private transmission lines.

The private transmission line proposal, which would give greater autonomy for power suppliers and buyers in technical negotiation, is already legalized and ready for deployment.

Meanwhile, the national transmission system option needs additional legal updates for implementation. These are related to the formula for calculating power distribution prices, prices for operating the transmission system, prices for supporting the transmission system, prices on the power market, DPPA contract templates, and other factors.

However, this option is more restricted technically. For example, sources of wind or solar power must have a capacity of at least 10 MW to connect to the national grid. Major offtakers would be either organizations or individuals who need electricity for manufacturing, and the minimum voltage level for connection would be 22 kV. Besides, both buyers and suppliers are subject to other laws including the Law on Prices and relevant guiding documents.

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.