Updates on Vietnam’s Direct Power Purpose Mechanism under Decree 80/2024/ND-CP

Since 2017, the Vietnamese government has been strongly promoting the development of renewable energy with the promulgation of the Prime Minister’s Decision No. 11/2017/QD-TTg. After that, the mechanism for direct power purchase between generators and corporate consumers has been a hot topic for discussion among the regulators and the developers for several years. In an attempt to strive for a suitable model for Vietnam, the Vietnamese government has recently issued Decree No. 80/2024/ND-CP guiding the direct power purchase mechanism for renewable energy generators and large consumers effective as from 3 July 2024 (“Decree 80”). This article highlights the main contents of and some initial thoughts on the new decree.

A wide range of players

Decree 80 addresses the power purchase arrangement between the following entities:

• Renewable Energy Generators (“REG”), including both independent power plants (wind, solar, hydropower, biomass, geothermal, tides, ocean wave and currents) and rooftop solar power systems. The REG must have an electricity generation license or otherwise satisfy conditions for exemption.
• “Large Consumer”, comprised of electricity corporate end-users that use at least 200,000 kWh/month. The Large Consumers are further classified into service-providing Large Consumers or manufacturing Large Consumers.
• Authorized Electricity Retainers (“AER”), that operate in special zones (industrial parks, economic zones and similar areas), purchase at least 200,000 kWh/month, have connection voltage of at least 22 kV and are “authorized” by manufacturing Large Consumers. It is not clear under Decree 80 if the AER would enter PPA with Vietnam Electricity (EVN) in its own capacity or as an agent of the manufacturing Large Consumers. It is more likely than not that the last requirement for an AER should not be interpreted purely as a legal norm, but more as an indication that an AER must have already had a portfolio of clients making up at least 200,000 kWh consumption per month before applying for a direct power purchase business and not the other way around.

Grid and non-grid connected power purchase agreement (PPA) models

Decree 80 essentially provides for two types of power purchase based on the involvement of the national transmission and distribution infrastructures, i.e. grid connected or non-grid connected.

For the private wire model, there is no statutory PPA template under Decree 80. The parties are free to negotiate their PPA based on mandatory components provided for by the Law on Electricity Power of Vietnam. The Large Consumers in this case must notify local authority and EVN of the PPA after signing and report to them annually on the performance of the PPA.

For the grid connected model, a blended mechanism of sleeved and synthetic (virtual) PPA is applied. Under the first model, grid connected PPA is heavily regulated and subject to prior registration with EVN. For this to work, Decree 80 sets forth three statutory PPA templates:

• A PPA between REG and EVN so that REG can generate electricity to EVN’s grid and receive spot price determined by Vietnam Wholesale Electricity Market (VWEM).
• A PPA between EVN and the Large Consumers or AER under which the later pay spot price plus auxiliary costs to EVN for the amount of electricity up to the amount generated by REG and pay EVN’s normal retail price for any exceeding amount.
• A virtual PPA between REG and the Large Consumers or AER that provides for a forward price and a committed amount of power and a mechanism for settling the difference between such forward price and the spot price from the VWEM.

The two first PPAs are quite detailed and have been in place for a long time. Hence, they leave not so much room for further modifications, especially when it involves EVN. However, the last one only sets out principles and the parties should pay more attention to negotiation. For instance, Decree 80 makes it clear that Large Consumers and AER must pay EVN’s normal retail price for any amount of power exceeding REG’s generation but not clear how to reconcile the situation where the committed amount under the virtual PPA is different from the actual amount generated by REG or consumed by Large Consumers/AER.

Extensive scope of authority of the government over the performance of direct PPA

Among many situations where REG, Large Consumers and AER can be suspended or terminated from participating into direct PPA regime, the Ministry of Industry and Trade can suspend or terminate any party if there is an “act of taking advantage of the mechanism, policy for making profit”. The determination process involves EVN’s recommendation and relevant agencies (if any). However, it is quite uncertain about the nature of such an act that can lead to dire consequences like suspension and termination. This is probably a precaution of the Vietnamese government against doubtful impacts of the direct PPA on the retail market.

By Tran Anh Hung – Managing Partner

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Note: The contents in this article are for informational purposes only and not for the purpose of providing legal advice. Please contact the author at hung@bross.vn to obtain further advice in respect to any particular issue.