Burdens still to be tackled to ensure efficient DPPA pilot

Foreign investors have been closely monitoring a proposed pilot on the direct power purchase agreements in Vietnam, especially those with a long-term business strategy in renewable energy. However, the country’s limited mechanisms may mean the long-term goals will be difficult to attain.

The European Chamber of Commerce in Vietnam (EuroCham) last week noted that the objective of 100 per cent clean energy is a challenging target but it is one that has become commonplace for global companies.

“To support these initiatives, we would welcome the immediate implementation of the direct power purchase agreement (DPPA) pilot scheme of 1,000MW capacity – with further expansion after the pilot, or correction of rules if not. There should also be an easing of the regulatory burden on companies wishing to implement clean energy plants,” said Tomaso Andreatta, chairman of EuroCham’s Green Growth Sector Committee.

A DPPA would allow businesses in Vietnam to purchase electricity directly from private firms producing renewable energy, instead of through local power utilities. The measure would help individual companies to achieve their own clean energy supply targets.

It was noted that electricity from liquefied natural gas (LNG) plants will not assist EuroCham members in achieving their clean energy goal, as LNG is not a clean fuel from extraction to consumption. Therefore, the rising use of LNG to produce electricity will not increase the attractiveness of Vietnam as a manufacturing location when judged by the clean energy objective, according to the Green Growth Sector Committee.

The Ministry of Industry and Trade (MoIT) has prepared several draft legislative instruments since 2020 on the DPPA pilot scheme, including a May 2021 draft circular and October 2021 report, together with a May 2022 draft decision. These core documents provide an insight into the DPPA pilot’s likely structure and conditions, but no specific launch date for the scheme has been confirmed by the prime minister.

Unlike the latest draft circular, the decision does not describe the implementation and pricing mechanisms of transactions in significant detail, nor specify the criteria for participation in the programme. In addition, although it is not explicitly stated in the draft decision, a difference in the pricing mechanism is that power consumers will purchase power from Electricity of Vietnam at retail price rather than spot price, plus applicable fees and charges, as was stipulated under the draft DPPA circular.

Global firms had been ramping up calls for such a pilot over the years, with 26 top international companies and organisations purchasing more than 16 million mWh of electricity and boasting total investment in Vietnam of $1.57 billion, as well as signing a declaration of support for DPPA in Vietnam in 2019.

Vietnam has experienced a rapid deployment of solar (18GW) and wind (4GW) assets over the past three years. This has resulted in material issues around grid congestion and curtailment, requiring wholesale upgrades to Vietnam’s transmission infrastructure. As a result, the DPPA scheme is limited to an aggregate capacity of only 1,000MW.

The current draft Power Development Plan VIII acknowledges Vietnam’s existing grid overload and curtailment issues, with the MoIT committing to building 86 gigavolt-amperes of additional capacity for 500kV stations and nearly 13,000km of transmission lines, requiring up to $32 billion in investment to 2030.

Vietnam Investment Review