Decree No. 80/2024/ND-CP was issued by the government on July 3, 2024, outlining regulations for direct power purchase agreements (DPPAs) between renewable energy producers and large electricity consumers. The Decree is deemed compatible with Vietnam’s policies and strategies aimed at attracting both domestic and foreign investment, particularly from enterprises utilizing advanced and environmentally-friendly technologies.

Two methods of direct electricity trading

Decree No. 80 defines direct electricity trading as the process of buying and selling electricity through two distinct methods.

The first involves direct power purchases via dedicated connection lines, which entails executing a power purchase agreement and transmitting electricity through a dedicated private connection line connecting a renewable energy generator with a significant electricity consumer, as outlined in Chapter II of the Decree.

The second method, direct power purchase via the national power grid, entails the purchase and sale of electricity through fixed-term contracts between renewable energy producers and large electricity consumers, or authorized retail electricity providers in designated areas, in accordance with Chapter III of the Decree. This includes renewable energy producers selling their entire electricity output to the immediate electricity market within the competitive wholesale electricity market; large electricity consumers or authorized retail electricity providers in designated areas entering into contracts with Electricity of Vietnam (EVN) or its authorized / delegated units to fulfill all their electricity needs; and renewable energy producers and large electricity consumers or authorized retail electricity providers in designated areas engaging in electricity trading through fixed-term contracts.

Regarding the first method, the Decree outlines that renewable energy producers and large electricity consumers engage in direct electricity transactions through these dedicated connection lines based on the following principles.

An electricity purchase agreement must adhere to Article 22 of the Law on Electricity and relevant legal provisions. This includes key aspects such as contracting parties, usage purposes, service standards and quality, rights and obligations, electricity pricing, payment methods, contract duration, termination conditions, responsibilities for contract breaches, and other agreed-upon terms.

The agreed electricity selling price applies, except as specified in Article 6.4 of the Decree.

Renewable energy producers negotiate, agree upon, and sign electricity purchase contracts with EVN or its authorized entity concerning capacity, output, and pricing for surplus electricity, as stipulated.

In addition to direct electricity transactions via a dedicated connection line, large electricity consumers may purchase electricity from EVN or authorized retail providers as regulated.

In cases where the electricity utility performs both generation and retail functions in integrated area-based or clustered models, electricity procurement from the national grid and other sources for retail sale to consumers in these models must comply with the regulations on electricity pricing implementation issued by the Ministry of Industry and Trade (MoIT).

Regarding the second method, the Decree specifies the sale of electricity by renewable energy producers through the spot electricity market and purchasing electricity from the EVN.

The spot electricity market price is determined by the electricity energy market price and electricity capacity market price, as specified in regulations on operating a competitive wholesale electricity market issued by the MoIT.

Multiple goals

According to the MoIT, the enactment of Decree No. 80 will enable the government to pursue several objectives concurrently: meeting the increasing demand for clean energy among electricity consumers, attracting investment in sustainable renewable energy development to safeguard the environment, advancing the implementation of a competitive retail electricity market in Vietnam, and enhancing the effectiveness of State management over direct electricity trading between renewable energy producers and major electricity users.

The Decree also aligns with Vietnam’s policy to encourage and attract both domestic and foreign enterprises, particularly those with advanced, eco-friendly technologies, to invest in the country, and ensures compliance with the Law on Electricity and related directives.

As per the Vietnam Energy Association, prompt approval of Decree No. 80 by the Prime Minister to expedite the implementation of the DPPA mechanism will introduce additional market “buyers” beyond EVN and its current distribution subsidiaries, thereby advancing the market towards competitive wholesale and retail stages.

Moreover, the DPPA mechanism will create opportunities for substantial investment in renewable energy sources and facilitate the early acquisition of renewable energy certificates and carbon emission reduction certificates by enterprises, enhancing the competitiveness of their products for international markets.

However, in the current context, as well as in the short term, the Vietnam Energy Association also highlights several important considerations.

Firstly, whether through direct (via dedicated connection lines) or virtual (via the national power grid) power purchase agreements, there is significant strain on the electricity grid to balance the increasing share of renewable energy. Therefore, it is essential to implement appropriate moderation policies that align with the grid’s capacity.

Secondly, the current high prices of gas and storage are double the retail electricity price of EVN, discouraging external enterprises from investing in this sector, despite the ambitious targets set in Vietnam’s Power Development Plan VIII (PDP8). If EVN undertakes these investments independently, it risks financial losses. However, without adequate gas and storage infrastructure, meeting the demand for renewable energy from enterprises interested in DPPAs becomes unfeasible.

Thirdly, Vietnam currently does not employ a two-part electricity pricing system. This results in exorbitant costs to prepare and maintain standby power capacity for customers engaging in DPPAs, particularly for renewable energy plants. Selling electricity based solely on real-time supply and demand within the restricted market price limits without capacity charges leads to unfair business conditions, as EVN lacks the necessary funds to sustain standby power capacity.

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