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Highlights of Vietnamese guidance on DPPA mechanism between renewable power generators and large electricity consumers7 August 2024

The Vietnamese Government recently promulgated Decree 80/2024/ND-CP dated 3 July 2024 on the mechanism for direct power purchase agreements (“DPPAs”) between renewable power generators and large electricity consumers (“Decree 80”). Decree 80, which takes effect on 3 July 2024, represents a major development as the first legislation providing detailed instructions on direct power trading between power generators and corporate off-takers.

Direct Power Trading Models

Decree 80 regulates the direct power trading mechanism between renewable power generators and large electricity consumers via two different models:

Direct power trading through by physical private transmission lines constructed and operated by generators and/or consumers (“Physical DPPA”). The DPPA between generators and consumers must contain mandatory contents as provided in Decree 80; and
Synthetic power trading between generators and consumers (“Virtual DPPA”). In this model, the generators sell their electricity to the national grid under a power purchase agreement with EVN (“Generator PPA”) and at the same time, the consumers purchase electricity from the national grid under a separate power purchase agreement with EVN’s subsidiaries or another authorized electricity retailer (“Consumer PPA”). The generators and consumers also sign a contract for difference (“Generator – Consumer CfD”) under which the parties commit to sell and purchase a specific amount of electricity at a specific price. The difference between the committed value under the Generator – Consumer CfD and the amount incurred under the Generator PPA will be settled following the method provided thereunder. The Generator PPA, Consumer PPA, and Generator – Consumer CfD must contain mandatory contents as provided in the appendices of Decree 80.

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Matt Lorimer

Partner Hanoi

"Decree 80 replaces the previously proposed pilot program for DPPA in Vietnam."

Interesting points to highlight

Decree 80 replaces the previously proposed pilot program for DPPA in Vietnam, which was included in the previous draft of the national power development master plan in 2021;
in practice, given planning compliance requirements, it will be challenging to propose and build private transmission lines in Vietnam, therefore Physical DPPAs will most likely be feasible only for rooftop solar or co-located projects;
for rooftop solar projects, there remains uncertainty on how DPPAs will be allocated within the limits on solar power in Power Development Master Plan 8 (“PDP8”). PDP8 allocates 2,600 MW for self-consumption and rooftop solar power, but it is unclear whether a project with a Physical DPPA regime will be within this capacity allocation. PDP8 also allows for unlimited solar sources that are not connected to the grid, however, this only applies where both the generator and the power consumer are not connected to the grid. Further legislation on self-consumption rooftop solar is pending, which will hopefully contain further clarity on the definition of “self-consumption” (including what models of implementation are permitted);
the Virtual DPPA regime provides an additional option for grid-connected projects which are qualified for inclusion in the PDP8. However, these projects are subject to the limit on total capacity for wind & solar power projects under PDP8 and must follow procedures for investor selection in accordance with the Law on Investment and the Virtual DPPA regime does not provide a new route for projects to be approved;
Circular 80 requires mandatory contents for both the Physical DPPA regime and the Generator – Consumer CfD. However, the requirements are limited to headline items that are commonly governed in such contracts, and the authorities are not seeking to impose upon the Generator and Customer’s commercial arrangements;and
Decree 80 is a useful step in creating a legislative framework for DPPAs in Vietnam, however, there are still uncertainty and practical challenge.

"Each DPPA model contains different requirements for participation."

REQUIREMENTS FOR PARTICIPATION

Each DPPA model contains different requirements for participation, particularly:

(i) For the Physical DPPA scheme:

eligible renewable power generators must (a) own power plants utilising solar energy, wind, small hydropower, biomass, geothermal, wave, tidal, ocean currents and other forms of renewable energy as well as rooftop solar power systems; and (b) be granted an electricity operating license or is exempt from obtaining an electricity operating license for power generation activity in accordance with the law;¹
eligible large electricity consumers must (a) purchase electricity for their own consumption and do not resell it to other organisations or individuals; and (b) have an average consumption of 200,000 kWh per month or more (calculated based on their actual consumption over the last 12 months or registered consumption if the period of usage is less than 12 months);² and
power generators and electricity consumers must comply with relevant regulations on planning, investment (regarding power generation and transmission projects, including compliance with national and provincial power development master plan), construction, fire & explosion prevention & extinguishment, environmental protection and electrical safety & operation.³

(ii) For the Virtual DPPA scheme;⁴

renewable power generators in the Virtual DPPA scheme must satisfy similar requirements as those in the Physical DPPA scheme, with additional conditions including (a) having a capacity of 10 MW or above; and (b) completing procedures for connecting to the national grid and directly participating in the competitive merchant market;
large electricity consumers in the Virtual DPPA scheme must satisfy similar requirements as those in the Physical DPPA scheme, with additional conditions including (a) purchasing electricity from EVN’s subsidiaries or authorised retailers for production purposes; and (b) connecting to a voltage level of 22kV or higher;
large electricity consumers in the Virtual DPPA scheme may authorize an electricity retailer in industrial parks and industrial clusters (“Authorised IP Retailer”) to sign a Consumer PPA with EVN’s subsidiaries and the Generator – Consumer CfD. Such electricity retailer must (a) be granted an electricity operating license for electricity retailing activity; (b) have an average purchase amount of 200,000 kWh per month or more; and (c) connect to a voltage of 22kV or higher; and
like the Physical DPPA scheme, power generators and electricity consumers must comply with relevant regulations on planning, investment (in relation to the power generation projects, including compliance with the national and provincial power development master plan), construction, fire & explosion prevention & extinguishment environment protection and electrical safety & operation.⁵

PROCEDURES FOR PARTICIPATION

(i) For the Physical DPPA scheme:⁶

generators and consumers must complete all necessary procedures for the construction and operation of their power generation and transmission facilities;
generators and consumers execute the Physical DPPA; and
consumers must report on the execution of the Physical DPPA to the provincial people’s committee, local EVN subsidiary and power system and market operator (“PMO”). The report must contain mandatory information as required in Decree 80.

(ii) For the Virtual DPPA scheme:⁶

generators and consumers (or Authorised IP Retailer) must agree in principle on the participation in the Virtual DPPA scheme;
consumers (or Authorised IP Retailers) must send a dossier registering for participation in the Virtual DPPA Scheme to the PMO. The dossier must include mandatory contents as required in Decree 80;
the PMO must consult with EVN, local EVN subsidiaries and IP retailers to confirm the accuracy of the dossier, the readiness and expected timeline for converting current power purchase agreements of the generators and consumers to contracts under the Virtual DPPA scheme;
upon completion of the consultation, the relevant parties must execute contracts under the Virtual DPPA scheme;
generators and consumers (or Authorised IP Retailer) must invest in and install necessary facilities for participation in the Virtual DPPA scheme and send relevant documentation to the PMO upon completion for examination and confirmation; and
upon confirmation of completion, the PMO must report to all relevant parties, including EVN, local EVN’s subsidiaries, IP retailers, generators and consumers (or Authorised IP Retailer) on the official period of implementation for the Virtual DPPA scheme.

Legal Trainee Quynh Nguyen also contributed to this article.

FOOTNOTES

[1] Article 3.6 of Decree 80 – in practice any project above 1MW will require an electricity operating license, although there is a potential loophole for multiple co-located projects below 1MW
[2] Article 3.7 of Decree 80
[3] Article 5 of Decree 80
[4] Article 2.2 of Decree 80
[5] Article 5 of Decree 80
[6] Article 25 of Decree 80
[7] Article 26 Decree 80

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