On 03 July 2024, the Government of Vietnam issued Decree No. 80/2024/ND-CP on Direct Power Purchase Agreements between Renewable Energy Generation Corporations and Large Power Consumers (“Decree 80”), which would immediately take effect from the date of issue.

In the current context where many leading corporations wishing to expand their business scope in Vietnam have ESG (Environment, Social, and Governance) commitments, this Decree is expected to follow the trend of green energy, attract investment into sustainable development of renewable energy for environmental protection, and prepare for the competitive Vietnam Wholesale Electricity Market.

Download PDF here: [pdf] Vietnam’s Direct Power Purchase Agreement (DPPA) Program at a Glance

Scope of application

Decree 80 governs Direct Power Purchase Agreements (or “DPPA”) between Renewable Energy Generation Corporations (“RE GENCO”) and Large Power Consumers (“Consumer”) with one of two models:

(i) Via private power lines;

(ii) Via national grid.

Consumers shall be organizations or individuals who buy electricity to consume under the regulations of the Ministry of Industry and Trade and in compliance with each development period of the electricity system or who have an electricity consumption rate at the time of receipt of the application for the DPPA program as follows:

• For existing Consumers: Having an average consumption rate of no lower than 200,000 kWh/month (averaged over the most recent 12 months);
• For new Consumers or Consumers consuming electricity for less than 12 months: those with a registered consumption rate of no lower than 200,000 kWh/month.

The involved parties other than RE GENCOs and Consumers in the DPPA program include:

• Electric Power System and Market Operator (“SMO”);
• Electric Power Transmission Entity;
• Vietnam Electricity Corporation (“EVN”);
• EVN Power Corporations under EVN (“EVN PC”)
• Power Retailers within Industrial Parks, Economic Zones, Economic Processing Zones, and similar areas (“IP Power Retailer”), and other types of Power Retailers.

DPPA via private power lines

DPPA via private power lines is also known as “physical DPPA”. Accordingly, based on the DPPA between RE GENCOs and Consumers, the parties exchange electricity directly through private power lines, instead of the National grid.

Contracting Parties

This DPPA Model shall be applied to Consumers and RE GENCOs who are electric power entities owning:

• Power plants utilizing all types of renewable energy sources; or
• Rooftop solar systems.

Direct Power Purchase Agreement

Decree 80 does not provide any standard template of DPPA under this DPPA Model. However, such DPPA shall comply with the related regulations and include the following key terms:

Process of DPPA via private power lines

Step 1: Licensing

RE GENCOs (or Power Generation Project Employers) shall conduct procedures on planning, investment, construction, power operation licenses for projects, works and grids to sell electricity directly to Consumers.

Step 2: Agreements

RE GENCOs and Consumers shall discuss, negotiate, and conclude DPPAs.

Step 3: Reports

Consumers shall prepare a written report including the following contents:

• Notification on the signing of the DPPA;
• Consumer’s information;
• The current status of RE GENCO.

Consumers shall prepare such reports and a copy of the DPPA to report to the local Provincial People’s Committee and notify the EVN PC (operating within the local area) and SMO in writing.

Process of DPPA via private power lines

Other key takeaways

For excess electricity output under the DPPA via private power lines, the parties may also agree that such output shall be sold to EVN by RE GENCO per regulations.

Along with the power transactions with RE GENCO via private power lines, Consumers may also concurrently conduct power transactions with EVN PC (or other Power Retailers) via the National grid per regulations.

DPPA via private power lines

DPPA via the National grid

DPPA via the National grid is also known as “virtual DPPA” or “financial DPPA”. Accordingly, RE GENCO and Consumer conclude a Contract for Difference (“CfD”). In nature, this CfD is a type of derivative of financial agreements.

This DPPA Model shall be applied to cases where the RE GENCO’s facility and the Consumer’s facility are situated apart over long distance without any means of direct physical connection. Accordingly, RE GENCO shall transmit electricity to the Consumer’s facility via the national grid. In other words, EVN and relevant entities shall act as agents buying electricity from RE GENCOs at the spot market price of Vietnam Wholesale Electricity Market (“VWEM”) and then reselling it to Consumers at the retail electricity price.

Contracting Parties

Different from the DPPA Model via private power lines (no limit on types of renewable energy, capacity, output, voltage level of connector), DPPA Model via the National grid shall only be applied to Consumers buying electricity from EVN PC (or other Power Retailers) with the voltage level of connectors being no lower than 22kV, and RE GENCOs meeting the following requirements:

• Only utilizing renewable energy which is wind power or solar power;
• Possessing capacity of no lower than 10MW and connecting to the National grid;
• Directly participating in the VWEM.

Direct Power Purchase Agreement

Basically, the operation of this DPPA Model includes 03 types of agreements as follows:

(1) VWEM Power Purchase Agreement (“PPA”) between RE GENCO and EVN (template in Appendix I to Decree 80);

(2) PPA between Consumer (or IP Power Retailer) and EVN PC (template in Appendix II to Decree 80);

(3) Forward Contract between RE GENCO and Consumer (or IP Power Retailer) (template in Appendix III to Decree 80);

Under PPA (1), RE GENCO shall generate and sell all the electricity output on the spot market of VWEM. Then, under PPA (2), Consumers (or IP Power Retailers authorized to sign PPA and buy electricity) shall purchase electricity from EVN PC per their demands.

The key point of this DPPA Model is the Forward Contract (3). Under this Contract, both parties shall agree on a certain output and strike price of each transaction period in the future. The payment shall be made according to the following principles:

• If the agreed strike price is higher than the spot market price of VWEM, the difference is paid to RE GENCO by the Consumer.
• If the agreed strike price is lower than the spot market price of VWEM, the difference is paid to the Consumer by RE GENCO.

In nature, Forward Contract (3) is a risk management tool for the fluctuation in the spot market price of VWEM.

DPPA via the National grid

Process of DPPA via the National grid

Step 1: Application for registration

Consumer (or authorized IP Power Retailer) shall submit a registration dossier for participation in the DPPA program to SMO. The dossier includes the documents provided in Articles 26.1 and 26.2 of Decree 80.

Step 2: Review and submission of SMO

Within 05 (five) working days of receipt of the dossier, SMO shall review the dossier and submit it to EVN PC (or IP Power Retailer).

Step 3: Confirmation by EVN PC, IP Power Retailer and EVN

Within 05 (five) working days of receipt of the dossier from SMO:

• EVN PC (or IP Power Retailer) shall issue a written response confirming the readiness and expected time to convert the Consumer (or authorized IP Power Retailer)’s existing retail PPA.
• EVN shall issue a written response confirming the readiness and expected time to conclude VWEM PPA with RE GENCO.

Step 4: Response of SMO

Within 05 (five) working days from receipt of the written confirmation from EVN, EVN PC, and IP Power Retailer, and the written agreement of the distribution of the actual generated output of Consumer (or authorized IP Power Retailer), RE GENCO shall issue a written response to Consumer regarding:

• The expected date of signing of VWEM PPA;
• The expected date of converting the existing retail PPA; and
• The expected date of application of the DPPA program.

Step 5: Negotiation of DPPAs

Relevant parties shall negotiate and conclude respective PPAs/Contracts under this DPPA Model.

Step 6: Submission for confirmation

RE GENCO, Consumer (or authorized IP Power Retailer) and related entities shall submit documents to SMO confirming that they meet the requirements for participating in the DPPA program along with the RE GENCO’s registration dossier for participating in the DPPA program and copies of PPAs mentioned in Step 5.

Step 7: Final notification

SMO shall review the documents submitted in Step 6 and notify RE GENCO. Concurrently, SMO shall notify EVN, EVN PC, IP Power Retailer, and Consumer (or authorized IP Power Retailer) about the official operation date of the DPPA between RE GENCO and Consumer (or authorized IP Power Retailer) in writing.

Process of DPPA via the National grid

The operation of the DPPA program may be interrupted

One of many concerns about the DPPA program is the risk of policy misuse or profiteering due to the novelty of this policy in Vietnam. Decree 80 anticipates such risks by providing that the consequences of the act of “policy misuse or profiteering” in Article 27 shall be suspension or termination of the operation of the DPPA program (in case the consequences cannot be remedied) decided by the Minister of Industry and Trade.

Furthermore, the operation of the DPPA program might also be suspended in the following situations: the Ministry of Industry and Trade suspends the electricity market; one of the PPAs is suspended or expires; the electricity consumption rate of the Consumer is below 200.000 kWh per month. The parties may resume the operation of the DPPA program in case the cause of suspension has been remedied or there are decisions by competent authorities.

Expectations for Decree 80

Decree 80 is expected to satisfy the needs of selected Consumers and allow them access to green powers for their business activities to conduct the ESG commitment through Renewable Energy Certificate (REC) and Carbon Credits. This Decree is the preparation stage for a competitive retail electricity market in Vietnam.

Written by:

Senior Associate Tran Pham Hoang Tung Phone: (84) 901 334 192 Email: tung.tran@cnccounsel.com

Legal Assistant – Pham Nguyen Tan Trung Phone: (84) 347 924 900 Email: trung.pham@cnccounsel.com

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