New Direct Power Purchase Decree issued in Vietnam

The long-awaited regulation relating to the direct power purchase mechanism has been officially issued in Vietnam.

The key highlights include:

• 2 models (grid-connected and off-grid) power sales are envisaged;
• more flexibility in agreeing on key terms of the power purchase agreements;
• eligibility thresholds in the final version of the Decree are lower than in some of the interim drafts made available earlier.
• one of the first instances of express mentioning of the regime for Renewable Energy Certificates in the detailed procedural guidance document relating to the direct power sale market.

Direct power purchase can be conducted in 2 forms:

• Through Dedicated Connection Lines: by signing electricity purchase contracts and the transfer of electricity between renewable energy generation units and large electricity users as specified in Chapter II of the decree.
  The purchasers of electricity must meet the threshold of consuming at least 200,000 kWh on average per month.
• Through the National Grid: through signing a series of contracts under which:
  • Renewable energy generation units selling all produced electricity into the spot market of the competitive wholesale electricity market.
  • Large electricity users or authorized retail electricity units signing contracts with the Electricity Corporation (or authorized/subordinate units) to purchase all electricity needed.
  • Long-term contracts between renewable energy generation units and large electricity users or authorized retail electricity units.
  • Entities that can participate in this form include:
    • Renewable energy generation units from wind or solar power with a capacity of 10MW or more, connected to the national power system.
    • Large electricity users purchasing electricity from the Electricity Corporation or other retail electricity units, connected at a voltage level of 22kV or higher.
    • Retail electricity units in industrial zones or clusters authorized by large electricity users to purchase electricity from the Electricity Corporation and sign long-term contracts with renewable energy generation units.

Opportunities unlocked

The DPPA Decree 80 re-ignites the interest of more local and international developers in the Vietnam’s energy sector, in particular the renewables.    After a wave of investments during the earlier period of effectiveness of “feed-in-tariff” (FiT), the new Decree opens a new route to structure energy projects, negotiate bankable PPAs, and address key concerns of lenders and equity investors, including tariff, curtailment and termination risks.

This could allow developers, lenders and equity investors to have broader basis for negotiating project finance and M&A transactions for energy projects in Vietnam, with consequential benefits to transactions other sectors, including industrial parks, manufacturing and logistics infrastructure.

Please contact our team in Vietnam, if you would like to discuss the possibilities opened by Decree 80 for your existing or new project.