DIRECT POWER PURCHASE AGREEMENT MECHANISM

On 3 July 2024, the Government issued Decree No. 80/2024/ND-CP providing a mechanism on direct sale and purchase of electricity by renewables generation companies and large power consumers, taking effect on the same date (the “DPPA Decree”). The DPPA Decree introduces two models: (i) a sale and purchase of electricity via private wire systems (the “Private Wire Model”), and (ii) a sale and purchase of electricity via grid connection (the “Virtual DPPA Model”).

The key takeaways from the DPPA Decree include:

  1. Eligible Renewable Energy Generators (GENCOs): These include power plants utilising solar, wind, small hydropower, biomass, geothermal, and other renewable sources, as well as rooftop solar developers. Eligible GENCOs must hold an electricity operating license or be exempt from licensing requirements. In addition, GENCOs are required to comply with the relevant legislation on planning, investment, safety in relation to electricity, firefighting and prevention, construction and land, environmental protection and operation (including generation, transmission and distribution of electricity), and safety in electricity usage.
  2. Large Power Consumers: These are defined as those purchasing electricity for personal use without reselling it to any third party. They are identified by the MOIT as "large power consumers" from time to time or have an average monthly consumption or registered monthly consumption of at least 200,000 kWh.
  3. Virtual PPA Model:
  • This arrangement is available only to renewable plants with a minimum installed capacity of 10 MW. This model involves Vietnam Electricity (“EVN”) and Power Corporations acting as intermediaries between GENCOs and Large Power Consumers.
  • GENCOs will sell the entire electricity output to EVN at a spot price regulated by the Vietnam wholesale electricity market under a power purchase agreement according to the template annexed to this decree.
  • Large Power Consumers will purchase electricity from the Power Corporations at a retail price by entering into a power purchase agreement according to the template annexed to this decree. The electricity retail price will take into account the spot price, service charges in relation to transmission, distribution, load dispatch, administration, operation and maintenance.
  • GENCOs and Large Power Consumers will enter into a contract for differences according to the template annexed to this decree which outlines the duration, strike price and committed electricity output and the settlement of the differences between the strike price and the spot price.
  • Large Power Consumers are required to register the arrangement by submitting an application dossier to the National Load Dispatch Centre (“NLDC”), which will obtain opinions from EVN, the relevant Power Corporations. The NLDC will reply to the Large Power Consumers within five (5) business days of receiving opinions from the relevant organisations on the registration dossier. [larger picture.]


4. Private Wire Model:

  • There is no standardized PPA for this arrangement. Direct PPAs under the Private Wire Model are required to include the essential elements specified in Article 22 of the current Law on Electricity. These elements include the identification of the parties, the purpose of use, standards and quality of the services, rights and obligations, liabilities for contractual breaches, pricing terms, mode of payment, termination rights, contract duration, and responsibilities related to the investment, construction, operation, and management of the private wire system.
  • The parties involved in direct PPAs under this model have the flexibility to incorporate additional provisions and to negotiate and agree upon the electricity prices. This Private Wire Model does not prevent GENCOs from selling the electricity surplus to EVN (or its authorised entity) according to the prevailing regulations.
  • Large Power Consumers are required to report to the relevant People’s Committee at the provincial or municipal level, the relevant Power Corporation and NLDC on the execution of the direct PPAs.

IMPLEMENTATION PLAN FOR PDP VIII

In May 2023, the Prime Minister of Vietnam issued Decision 500/QD-TTg, approving the National Power Development Plan (“PDP VIII”) for the period of 2021 to 2030, with a vision to 2050. This ambitious plan aims to achieve net-zero emissions by 2050 and increase the share of renewable energy in the national electricity mix. To implement PDP VIII effectively, the Ministry of Industry and Trade (“MOIT”) has prepared and proposed an implementation plan, which was recently approved by the Prime Minister under Decision No. 262/QD-TTg on 1 April 2024 (“Implementation Plan”).

The key contents of the Implementation Plan are discussed here or accessed via our website www.asia-counsel.com

On 25 June 2024, under Letter No. 4404/BCT-DL the MOIT proposed amendments and supplements to the Implementation Plan to the Prime Minister on the basis of the comments and proposals from other Government authorities and local authorities.

IMPLEMENTATION PLAN FOR THE NATIONAL COMPREHENSIVE ENERGY PLAN

The National Comprehensive Energy Plan for the period of 2021 to 2030 with a vision to 2050 was approved on 26 July 2023 (the “NCEP”). On 24 April 2024, the Prime Minister issued Decision No. 33/QD-TTg approving the implementation plan for the NCEP, which identifies specific project categories, outlines the implementation progress of programs and projects in phases from now until 2030, and proposes methods, resources, and coordination mechanisms in the implementation process.

Key elements of the plan include:

  1. Funding Sources: All investment projects in the energy sector will utilize funding sources other than public investment capital.
  2. Renewable Energy Development: The development of offshore wind power integrated with other renewable energy sources to produce new forms of energy (such as hydrogen and green ammonia) for both domestic use and export is prioritized. These projects are allowed without limitation, provided they ensure national defense, energy security, and economic efficiency.
  3. Land Requirements: The land required for developing energy infrastructure and facilities is estimated to be around 93,500 – 97,000 hectares for the period 2021 – 2030, and approximately 171,400 – 196,700 hectares for the period 2031 – 2050.
  4. Offshore Area Requirements: The offshore area allocated for wind power projects is estimated to be approximately 334,800 hectares by 2030 and between 1,302,000 – 1,701,900 hectares by 2050.
  5. Investment Demand: The total investment demand for the energy sector during the period 2021 – 2030 is projected to be approximately 4,133 – 4,808 trillion VND (approximately USD165.32 billion – USD192.32 billion).
  6. Energy Database: The MOIT will develop a comprehensive database for energy, including data on planning and implementation, to monitor the progress of the plan.


DRAFT AMENDED LAW ON ELECTRICITY

On 27 March 2024, the MOIT released the second draft of the law amending the Law on Electricity (the “Draft Law”).

The Draft Law introduces the following notable provisions:

  1. Selection of Investors: The selection of investors for power source projects or transmission projects outside the public-private partnership framework will be conducted through bidding procedures as stipulated by the Law on Tendering. However, certain projects are exempt from this requirement. These exemptions include projects critical to national defense, national security, or State secrets; emergency projects; projects subject to simultaneous investment policy and investor approval under the law on investment; expansions of existing power sources and transmission grids; self-consumption power projects; and projects aligned with the approved five-year investment and business plans of enterprises established with the Prime Minister's approval.
  2. Definition of Offshore Wind Farm: An “offshore wind power plant” is defined as a plant comprising wind turbines located both beyond a six-nautical mile marine territory and in areas with significant sea depth. The specific depth considered 'significant' is not detailed in the draft but is delegated to the Government to define based on actual survey data.
  3. Investment Policy Approvals: The Draft Law supplements the Law on Investment (2020) by specifying that the Prime Minister will issue the investment policy approval (“IPA”) for offshore wind projects in sea areas not defined within a province's boundary, within areas allocated by the Prime Minister, or spanning multiple provincial boundaries. If the project lies exclusively within a single province's jurisdiction, the provincial People's Committee will issue the IPA.
  4. Foreign Ownership Restrictions: The Draft Law also imposes a restriction on ownership transfer in offshore wind project companies, limiting investors to transferring no more than 49% of their total capital investment or contribution in a project company that develops and operates any offshore wind power plant, subject to approval from the original IPA-issuing authority. This restriction applies to both foreign and local transferees, potentially affecting project transfers and share or capital contribution transfers at the project company level.
  5. Renewable Energy Development: The Draft Law introduces a new chapter dedicated to the planning and development of renewable energy and new energy. This chapter establishes a framework for the Government to create preferential policies aimed at encouraging the growth of these energy sources. Additionally, the State allocates investment funding for research and comprehensive assessments of the current status and potential of solar, wind, geothermal, sea wave, tidal, and ocean current power.

The Draft Law is expected to be finalized and adopted in 2025.


ROOFTOP SOLAR POWER FOR SELF-CONSUMPTION

According to the power source allocations approved under PDP VIII, the total planned capacity for rooftop solar power for self-generation and self-consumption until 2030 is approximately 2,600 MW (the “RTS Planned Capacity”). This capacity has been distributed across various regions in Vietnam according to the Implementation Plan (the “Allocated RTS Quota”). Subsequent to the release of PDP VIII and the Implementation Plan, the MOIT is drafting a decree to promote the development of rooftop solar power for self-generation and self-consumption (the “Draft RTS Decree”). Key points from the Draft RTS Decree, as of its current version dated 15 June 2024, are detailed below:

  1. RTS Self-Consumption Definition: This refers to electricity generated and used by the same individual or entity for their own benefit. Trading or commercial activities involving electricity generated from these projects are strictly prohibited.
  2. Exemption from Licensing: Developers of RTS Self-Consumption projects do not need an electricity operating license.
  3. Registration Requirement: Developers of RTS Self-Consumption projects must register and obtain a certificate from the Department of Industry and Trade at the provincial or municipal level before commencing the construction and installation of the systems. The registration requirement also applies to RTS systems installed after 31 December 2020 and before the effective date of the official decree.
  4. RTS Model Types: The Draft RTS Decree introduces two models for RTS Self-Consumption:
  • Grid-Connected Projects: Total capacity must not exceed the Allocated RTS Quota for the respective province or municipality. Developers can export surplus electricity to the national grid.
  • Off-Grid Projects: These are not bound by the Allocated RTS Quota.


OFFSHORE WIND ENERGY

In accordance with PDP VIII, the total capacity for offshore wind energy is stated to achieve 6,000 MW by 2030 and expand to a range of 70,000 MW to 91,500 MW by 2050. However, the current regulatory framework for offshore wind farm development remains inadequately developed. On 24 April 2024, the MOIT submitted a proposal for a pilot scheme to facilitate offshore wind development to the relevant governmental authorities for their review and feedback (the "Offshore Wind Proposal"). The primary elements of the Offshore Wind Proposal are as follows:

  1. Definition of Offshore Wind Farms: An offshore wind energy project means the wind energy project located both beyond a six-nautical mile marine territory and in areas with a sea depth of above 10m.
  2. Legal Framework Establishment: The MOIT suggest three options for legislating offshore wind development:
  • Adopting a new law amending the existing relevant laws to regulate the development of offshore wind energy projects;
  • Amending the current Law on Electricity which will incorporate the necessary amendments to the relevant laws;
  • Adopting a resolution on a pilot scheme for offshore wind development.

3. Selection of Investors: The MOIT acknowledges that selecting foreign investors for offshore wind energy development poses a challenge due to the insufficiently developed regulatory framework in this sector. Consequently, the MOIT proposes to designate PetroVietnam, EVN, or the relevant agencies under the Ministry of National Defence to undertake the development of offshore wind energy projects during the pilot phase.


PUMPED STORAGE HYDROPOWER PLANTS – DRAFT ELECTRICTY GENERATION PRICING BRACKETS

On 29 May 2024, the MOIT released a draft circular providing the methods and procedures to formulate the electricity generation price brackets for pumped storage hydropower plants.

The electricity generation price range for pumped storage hydropower plants spans from a minimum of 0 VND/kWh to a maximum equivalent to the generation price of a standard power plant. The generation price of a standard power plant encompasses the sum of average fixed costs, fixed operation and maintenance costs, and variable costs incurred for the applicable year.

EVN is tasked with calculating the annual electricity generation price brackets, which will be submitted to the Electricity Regulatory Authority of Vietnam for appraisal and subsequent approval by the MOIT.


LNG-TO-POWER - DRAFT DECREE ON A PASS-THROUGH PRICE MECHANISM

Pursuant to the PDP VIII, Vietnam aims to achieve a total installed capacity of 22,400 MW from LNG-to-power projects by 2030. A list of 15 LNG-to-power projects has been identified under the PDP VIII for development between 2021 and 2030.

However, the PPAs for LNG-to-power projects are deemed non-bankable due to the lack of a pass-through price mechanism, which is essential for meeting international project financing standards and ensuring the sustainability of the LNG supply.

The MOIT is developing a draft decree providing a framework to develop power plant projects ustilising natural gas and liquefied natural gas (“LNG”). This mechanism would enable developers to use the price of regasified LNG supplied to the power plants as a basis for electricity price calculations in the PPAs signed with EVN.

Additionally, the PPAs for LNG-to-power projects may be executed in both English and Vietnamese, with the English version prevailing in the event of any inconsistencies between the two language versions.


LNG-TO-POWER – ELECTRICTY GENERATION PRICE BRACKETS

On 27 May 2024, the MOIT issued Decision No. 1260/QD-BCT which establishes the electricity generation price framework for combined cycle gas turbine power plants using LNG for the year 2024.

The electricity generation price framework for these power plants in 2024 ranges from 0 to 2,590.85 VND/kWh (excluding VAT). The parameters used to calculate the ceiling price are as follows:

  • Net Capacity: 1,579,125 kW
  • Net Heat Rate at 85% Load: 6,330.2 BTU/kWh
  • LNG Price (excluding VAT, storage, regasification, and distribution expenses): 12.9792 USD/MMBTU
  • Exchange Rate: 24,520 VND/USD


PRICING MECHANISM AND MODEL PPA FOR POWER GENERATION PROJECTS

In Vietnam, private power generation projects (or IPP projects) are subject to a regulated legislative regime on Model PPA and tariffs.

On 12 April 2024, the MOIT issued Circular 07/2024/TT-BCT taking effect on 1 June 2024, which provides methods in calculating electricity generation prices and model PPA for for certain power plants such as coal-fired power plants, wind and solar power plants, gas-fired power plants, LNG-to-power plants, hydropower plants having capacity of 30MW or above, and mini-hydropower plants voluntarily participating in the competitive electricity market.

The key elements of Circular 07 are discussed here and is available on our website.