The Ministry of Industry and Trade of Vietnam (MOIT) recently submitted Proposal No. 544 to the Prime Minister along with a new draft Decision on approval of the pilot program on direct power purchase agreement (DPPA) mechanisms between renewable energy developers/power generation companies and private power buyers/consumers (Draft DPPA Decision).1
DPPA mechanisms (also known as corporate PPAs) are surging around the world as a new driver and catalyst for renewable energy projects. Following years of studying these mechanisms, MOIT officially submitted Proposal No. 544 and the Draft DPPA Decision to the Prime Minister to propose synthetic DPPA mechanisms (also known as financial, virtual direct or corporate PPAs) for off-site renewable energy projects in Vietnam with a proposed pilot program at a scale ranging from 400MW to 1,000MW.
The DPPA mechanism refers to a power purchase agreement arrangement in which the power purchasers (off-takers) are private power consumers. This represents a growing global trend whereby instead of buying electricity directly from the State utility off-taker, private businesses purchase electricity directly from independent power developers (generators) under long-term contracts.
During its period of study and observation, MOIT's Electricity and Regulatory Authority of Vietnam (ERAV) originally reviewed several options of (i) "Sleeved DPPA", and (ii) "Synthetic DPPA", each of which presents pros and cons in the context of Vietnam. More recently, Proposal No. 544 and the Draft DPPA Decision officially proposed the "Synthetic DPPA" model only for the purpose of approving the proposed pilot program in connection with the currently-designed Vietnam Wholesale Electricity Market (VWEM).
Proposal No. 544 and the Draft DPPA Decision propose specific mechanisms and principles for the pilot DPPA program, as well as its proposed scope, scale and objectives and a 2020 to 30 June 2022 timeframe for implementing the pilot program.
Importantly, these proposals specifically set out the criteria for participating private sector stakeholders, including renewables developers and private power consumers, and places certain limitations on potential participants.
In addition, Proposal No. 544 and the Draft DPPA Decision set out key transactional arrangements under draft DPPA contracts, including: (i) contract-for-differences (CfD) between GENCOs and power consumers; (ii) "market buyer power supply agreement" between power consumers and EVN/PC; (iii) power purchase agreements between GENCOs (as power sellers) and EVN (as power buyers); and (iv) interconnection agreements between GENCOs and EVN/PC, as well as associated arrangements with Vietnam Wholesale Electricity Market (VWEM) and more details of DPPA charges and components.
Proposed scope and scale of the Pilot Program
Under Proposal No. 544, MOIT proposed that the scope of the Pilot DPPA program be applied nationwide with a limited total size ranging from 400 MW to 1,000 MW.
MOIT provided the following explanations for this proposal:
- Previously, MOIT proposed a scale of 400 MW based on its survey conducted in 2018. However, in 2019, MOIT received recommendations on the further demands of large power consumers.
- In response, the proposed scale was raised to 1,000 MW.
- The proposed scale is to balance the capability of control and management by the Government of the proposed Pilot Program while making it large enough to assess its effects and difficulties during implementation of the proposed Pilot Program, among other factors.
Proposed criteria for participating private power developers/generation companies (GENCOs)
Under the Draft Decision, MOIT proposed that participating GENCOs be limited to solar and wind power generation project companies with solar or wind power plants connected to the national grid, that meet all of the following criteria:
a) Registering for participating in the pilot DPPA Program;
b) Having an installed capacity larger than 30 MW;
c) Having obtained approval for inclusion in the power development plans, with priority being given to those projects in areas with no or few risks of grid congestion; and
d) Having sufficient financial capability, technical resources and experience in developing and operating renewable energy projects.
Proposed criteria for participating private power buyers (power consumers)
Under the Draft Decision, MOIT proposed that participating power consumers be limited to power consumers for industrial manufacturing purposes that meet all of the following criteria:
a) Registering for participating in the pilot DPPA Program;
b) Purchasing electricity at a voltage level of 22 kV or larger;
c) Having sufficient financial capability and technical resources; and
d) Giving priority to customers who make international commitments in implementing targets on the environment, climate change mitigation and sustainable development.
Proposed registration, assessment and selection of participants
The Draft DPPA Decision proposes the following general arrangements:
a) GENCOs and power consumers will register their participation in the pilot DPPA program via an electronic information portal of the pilot DPPA Program.
b) Applications of GENCOs and power consumers will be assessed for selection based on detailed criteria to be issued by MOIT.
c) A list of GENCOs and power customers participating in the pilot DPPA Program will be publicized on the electronic information portal of the pilot DPPA Program.
In addition, MOIT proposed that following the Prime Minister's issuance of the proposed DPPA Decision, MOIT will provide further guidelines for private sector participants to undertake registrations. MOIT has also committed to providing criteria for the selection of power developers and consumers as well as the process of assessment and to announce the power developers/GENCOs and power consumers that have been selected to participate in the Pilot Program.
This commitment was taken in order to address an earlier comment from the Ministry of Planning and Investment and the Ministry of Finance that the process of selecting power developers (GENCOs) and power consumers should be public, transparent and effective.
Proposed tentative plan and schedule for implementation of the Pilot Program
Under the Draft Decision, MOIT proposed that the pilot DPPA program be implemented from 2020 to 2022, with the following specific timelines:
a) Within 15 working days from the date on which this proposed DPPA Decision comes into effect (which is to be determined), MOIT will publicize the details of the pilot DPPA Program.
b) Within 15 working days from the date of publicizing the pilot DPPA Program, MOIT will open the pilot DPPA Program's electronic information portal to applications from GENCOs and power consumers.
c) Within 45 working days from the date of MOIT's opening of the pilot DPPA Program's electronic information portal, GENCOs and power consumers, who wish to participate, will be required to prepare and submit their registration applications to the electronic information portal.
d) Within 45 working days from the date of closing the pilot DPPA Program's electronic information portal, MOIT will organize and administer the process of assessing, selecting and publishing a list of GENCOs and power consumers selected to participate in the pilot DPPA program.
e) Within 180 working days from the date on which the list of GENCOs and power consumers participating in the pilot DPPA program is announced, the participating GENCOs and power consumers will proceed with and finalize negotiations and execution of the necessary DPPA contracts, proceed with implementing and completing their development of selected renewable energy projects and achieve their commercial operation to participate in the competitive electricity market of Vietnam and officially conduct the transactions under the DPPA mechanism.
f) The supervision and assessment of the results of implementing the transactions under the pilot DPPA mechanism as well as the required reports to the competent authorities of Vietnam will be implemented within a period of 1 year from the expiry date of the timeframe during which the GENCOs complete commercial operations of their power plants and participate in the competitive electricity market of Vietnam, but such deadline must be no later than 30 June 2022.
Please note that the Draft DPPA Decision is still in draft form and therefore, subject to further public comments, the Government's further discussion and the Prime Minister's conclusion and signing.
Please do not hesitate to contact us if you would like to understand more about:
- further details and risk allocation analyses of the DPPA contracts, including: (i) contract-for-differences (CfD) between GENCOs and power consumers; (ii) "market buyer power supply agreements" between power consumers and EVN/PC; (iii) power purchase agreements between GENCOs (as power sellers) and EVN (as power buyers); or (iv) interconnection agreements between GENCOs and EVN/PC, and associated arrangements;
- other provisions of the Draft DPPA Decision and Proposal No. 544 of MOIT as well as potential upcoming additional guidelines to be formulated by MOIT, the Ministry of Finance and EVN for implementation of the proposed Decision;
- opportunities for renewables developers and power consumers to participate in the pilot DPPA program as well as necessary steps and best practices to prepare in the context of Vietnam; and
- key legal, project and structuring issues and challenges and legal solutions for participating in the pilot DPPA program as well as other investments in solar, wind energy and infrastructure projects in Vietnam
1 Proposal No. 544/TTr-BCT of the Ministry of Industry and Trade of Vietnam dated 21 January 2020 on issuance of Decision on approval of Pilot Program on direct power purchase agreement (DPPA) mechanism between renewable energy power generation companies and power consumers ("Proposal No. 544").