Empowering Vietnam’s Renewable Energy Future: Decree 80 and The DPPA Mechanism

On July 3, 2024, the Vietnamese government issued Decree No. 80/2024/ND-CP, a significant policy shift allowing direct power purchase agreements (DPPA) between renewable energy generators and large electricity users. This decree marks a milestone in Vietnam’s renewable energy landscape, signaling a robust commitment to transitioning away from fossil fuels and fostering an environment conducive to sustainable development. The DPPA mechanism is expected to attract private sector investment, facilitate corporate renewable energy integration, and propel Vietnam towards its net-zero emissions goals.

Understanding the DPPA Mechanism

The DPPA mechanism under Decree 80 introduces a market-driven approach to renewable energy procurement, enabling direct transactions between renewable energy producers and large electricity consumers. This framework diverges from the traditional model where Vietnam Electricity (EVN) monopolizes electricity distribution, thereby opening up the market and providing more flexibility and transparency for investors and consumers alike.

Key Stakeholders

The decree outlines specific definitions for the stakeholders involved in the DPPA mechanism:

Renewable Energy Generators (RE Generators): These entities own and operate plants generating electricity from renewable sources such as solar, wind, small hydro, biomass, geothermal, sea waves, tides, ocean currents, and rooftop solar power systems. They must hold an electricity generation license or be exempt from it as per legal stipulations.

Large Consumers: Organizations and individuals purchasing electricity for their own use without reselling. These include entities determined by the Ministry of Industry and Trade (MOIT) or those with an average or registered electricity consumption of at least 200,000

kWh per month.

Electricity Retailers: Licensed units for electricity retailing within industrial parks, economic zones, export processing zones, industrial clusters, high-tech parks, concentrated information technology parks, high-tech agricultural parks, and similar zones. These retailers must have a power purchase output of at least 200,000 kWh per month and be connected to a voltage level of 22 kV or higher.

Implementation Forms of DPPA

Decree 80 delineates two primary forms of the DPPA mechanism: the Private Grid DPPA and the National Grid DPPA.

Private Grid DPPA Mechanism

This mechanism involves agreements between RE Generators and Large Consumers, where the parties negotiate electricity prices and terms based on the Electricity Law. Although there is no mandatory template for these agreements, they must be notified to the Provincial People’s Committee, with copies to the local EVN and the National Load Dispatch Centre.

Key features of this mechanism include:

• Flexibility in Agreements: Parties can tailor the DPPA to their specific needs, fostering a more adaptable and investor-friendly environment.

• Excess Electricity Sales: RE Generators have the option to sell excess electricity to EVN, while Large Consumers can buy additional electricity from EVN, ensuring operational continuity and reliability.
  

National Grid DPPA Mechanism

This mechanism involves wind or solar RE Generators with a capacity of at least 10 MW connected to the national grid, Large Consumers (or Electricity Retailers) connected to a voltage level of 22 kV or more, and EVN.

The National Grid DPPA is executed through three key agreements:

• Spot Market Power Purchase Agreement (Spot PPA): RE Generators sell all electricity output to the spot market on the competitive wholesale market. The spot price is determined by the total market electricity value and market capacity price, in line with MOIT regulations.
  

• Purchasing Power Purchase Agreement (Purchasing PPA): Large Consumers or Electricity Retailers purchase electricity for use from EVN. The price is based on consumption, considering the spot price and various service fees (transmission, distribution, load dispatching, administration, operation, and maintenance).
  

• Contract for Difference (CfD): An agreement between RE Generators and Large Consumers (or Electricity Retailers) detailing the duration, price, and committed electricity output. This contract is mutually agreed upon by the parties and aims to stabilize the electricity price against market fluctuations.

Advantages for Stakeholders

The DPPA mechanism under Decree 80 offers several advantages for stakeholders in Vietnam’s renewable energy market:

• Market Access and Growth: By broadening market access, the DPPA mechanism fosters growth potential for green energy, reducing dependency on EVN and promoting a more competitive and transparent market.

• Flexibility and Customization: The absence of a mandatory DPPA template allows for greater flexibility and customization in agreements, catering to the specific needs of different parties.

• Support for Export Markets: Businesses in industrial zones and export markets can benefit from facilitated carbon credits attached to export products, meeting the environmental requirements of international markets.

• Encouragement of Private Sector Investment: The mechanism’s market-driven approach attracts private sector investment, essential for scaling up renewable energy projects.

Role of International Collaboration

The U.S. Mission to Vietnam, through the U.S. Agency for International Development (USAID), has played a crucial role in the development and finalization of the DPPA mechanism. Since 2017, USAID has provided technical assistance to MOIT, and this partnership will continue during the DPPA’s implementation phase. U.S. Ambassador to Vietnam Marc Knapper highlighted the significance of this collaboration at the DPPA launch event on July 5, 2024, emphasizing the deepening ties and shared commitment to sustainable development between the two nations.

Decree No. 80/2024/ND-CP represents a landmark advancement in Vietnam’s renewable energy sector, introducing a market-driven approach to electricity procurement that promises to accelerate the country’s clean energy transition. By enabling direct power purchase agreements between renewable energy generators and large consumers, Vietnam is creating a more flexible, transparent, and competitive market environment. While challenges related to infrastructure and grid capacity remain, the potential benefits for stakeholders and the overall renewable energy market are substantial. The DPPA mechanism, supported by international collaboration, marks a significant step towards Vietnam’s goal of achieving net-zero emissions and fostering sustainable development.