Vietnam to encourage direct power purchase agreements: prime minister

Vietnam is piloting a direct power purchase scheme and is planning to encourage its application, said Prime Minister Pham Minh Chinh.

Chinh was speaking at the Vietnam Business Forum (VBF) on Sunday, the most high-profile dialogue between the Government and the foreign business community.

The direct power purchase agreement (DPPA) scheme will enable renewable energy generators to sell clean electricity to private offtakers via a contract for difference (CfD)/virtual power purchase agreement arrangement.

The proposed DPPA is an important mechanism to attract investors and private investments in the energy sector where companies have made commitments in the space of renewable energy, carbon reduction, and sustainability.

"This DPPA has been under design and review for around six years, and the mechanism has been used in many countries and we hope it can come into force this year," Gregory Testerman, chairman of AmCham Vietnam in Ho Chi Minh City, told the forum.

In 2022, private companies in Asia Pacific signed a record 7GW of DPPA, an 80% increase from 2021, demonstrating their willingness to drive new clean energy investments, according to AmCham.

Approval of the DPPA could unlock billions of dollars in investment from the private sector, Testerman said.

Crucial to attracting domestic and international investment are bankable purchase agreements for sustainable power.

"Green financing offers favorable rates to private investors to reduce CO2, but the legal framework should be updated to clarify criteria for approving green finance," the AmCham chairman added.

In June last year, in an interview with The Investor, Alain Cany, then chairman of EuroCham, said Vietnam should also develop clean energy production in its factories.

"Off-site use of this energy, however, requires direct power purchase agreements. Along with lowering government regulations for clean energy behind-the-meter plants, DPPAs would make clean energy more accessible to consumers and reduce strain on Vietnam's grid," he said.

During his speech at the VBF, Chinh also noted that many solar and wind power projects are being implemented efficiently, but there are signs of overheating development.

"There are projects that are not in line with planning and current regulations, and their prices are not suitable. Therefore, all sides must sit down together, negotiating for harmonisation of benefits and sharing of risks to ensure the selling price of electricity is suitable to national economic conditions and people's incomes," he said.

A letter signed by 36 companies developing wind and solar projects in Vietnam was recently sent to Prime Minister Chinh to ask for changes in power price policies.

According to the petition, the Covid-19 pandemic slowed plans to start 84 wind and solar projects in the country, resulting in them missing the deadlines to obtain the country’s favorable pricing policy, better known as feed-in-tariffs (FITs).

The FiTs were for solar power projects that came into commercial operation by December 31, 2020, and it was November 1, 2021 for wind power projects.

The developers of the 84 projects are disappointed with the Ministry of Industry and Trade’s (MoIT) new pricing policy under Decision 21 dated January 7, 2023, which they consider might lead to their bankruptcy.

They argued the decision was made in a rush and was not appraised thoroughly and failed to seek enough opinions or independent consultancy. Vietnam Electricity's (EVN) method of calculation was not suitable and does not ensure objectivity, the petitioners claimed.

According to EuroCham, Decision 21 ceiling tariff levels represent a 20%-25% reduction from the previous FiT levels (for wind, based on current FX rates) and almost a 40% reduction for groundmounted solar.

Gabor Fluit, newly-elected chairman of EuroCham Vietnam, said in his presentation at the VBF: "Transition projects that are already built may have no choice but to accept these tariffs or face bankruptcy (the only alternative for them is zero revenue)."

Transition wind projects not already built will not be able to raise finances at these tariff rates, as they are now facing world market turbine pricing more than 30% higher than at the time of previous the FiT expiry, as well as higher loan interest and insurance rates, he said.

Fluit added that price appraisal for future projects should take into account existing macroeconomic conditions (higher capex, higher interestrates, supply chain bottlenecks) which many of the transition projects that are already built did not fully face.

"MoIT should consult with independent experts to verify the assumptions and methodologies taken, before finalizing the price brackets."

The draft Power Development Plan VIII of December 2022 estimates an investment cost of $142 billion for the period 2021-2030, of which $126 billion will be for power generation/sources and $16 billion for power transmission.

At the event, PM Chinh also called for partners to support Vietnam in energy transition in the spirit of fairness, with longer-term loans and reduced interest rates.