The Ministry of Industry and Trade of Vietnam (MOIT) recently released a new draft circular regarding the implementation of the pilot program for direct power purchase agreement (DPPA) mechanisms between renewable energy developers/power generation companies and private power buyers/consumers (“New Draft DPPA Circular“).1
Compared to the previous draft (in the form of a Prime Minister decision and later an MOIT decision), this new draft in the form of an MOIT circular has made certain changes with more detailed guidelines for implementing the DPPA pilot program.
The new draft circular retains a tight timeline for submission of applications by consumers. Within 45 working days from the date of the MOIT’s opening of the pilot DPPA program’s electronic information portal, generators/developers and power consumers who wish to participate will be required to prepare and submit their registration applications via the electronic information portal.
In terms of the COD deadline, the new draft circular has slightly extended the timeline compared to the previous draft, from 180 days (six months) to 270 days (nine months). Specifically, within 270 working days from the date on which the list of generation companies (GENCOs) and power consumers participating in the pilot DPPA program is announced, the participating GENCOs and power consumers must proceed with and finalize negotiations and execution of the necessary DPPA contracts, proceed with implementing and completing their development of selected renewable energy projects, achieve their commercial operation to participate in the wholesale competitive electricity market of Vietnam, and officially conduct the transactions under the DPPA mechanism.
The MOIT has also introduced a new requirement that the participating power consumers and developers must have a “binding in-principle agreement” for the sale and purchase of power to be selected. This kind of agreement (e.g., CfD in-principle agreement) must be submitted as part of registration application documents.
The new draft circular includes a list and templates of application documents required to be completed and submitted to the MOIT/ERAV in order to participate in the upcoming DPPA pilot program (together with other detailed guidelines).
However, the launch date of the DPPA pilot program remains to be confirmed and depends on when the MOIT Minister signs the proposed new circular.
DPPA mechanisms (also known as corporate PPAs) are surging around the world as a new driver and catalyst for renewable energy projects. Under the New Draft DPPA Circular, synthetic DPPA mechanisms (also known as financial, virtual direct or corporate PPAs) for off-site renewable energy projects in Vietnam was proposed with a pilot program at a scale ranging from 400MW to 1,000MW to be implemented from 2021 to 2023.
The DPPA mechanism refers to a power purchase agreement arrangement in which the power purchasers (off-takers) are private power consumers. This represents a growing global trend whereby instead of buying electricity directly from the state utility off-taker, private businesses purchase electricity directly from independent power developers (generators) under long-term contracts.
The New Draft DPPA Circular proposes specific mechanisms and principles for the pilot DPPA program, as well as its proposed scope, scale and objectives for implementing the pilot program.
Notably, these proposals continue to set out the specific criteria for participating private sector stakeholders, including renewables developers and private power consumers, and they place certain limitations on potential participants. Under the New Draft DPPA Circular, the MOIT proposed that participating generators/GENCOs be limited to solar and wind power generation project companies with solar or wind power plants each having an installed capacity of greater than 30MW (in the case of a solar farm, 01 MWp (DC capacity) shall be equivalent to 0.8 MW (AC capacity)), which has been approved for inclusion in the power development plans. In terms of qualifications for consumers under the New Draft DPPA Circular, the MOIT proposes that participating power consumers be limited to power consumers for industrial manufacturing purposes who purchase electricity at a voltage level of 22 kV or more.
In addition, the New Draft DPPA Circular sets out key transactional arrangements under draft DPPA contracts, including:
- contract-for-differences (CfD) between GENCOs and power consumers
- “market buyer power supply agreement” between power consumers and EVN/PC
- power purchase agreements between GENCOs (as power sellers) and EVN (as power buyers)
- interconnection agreements between GENCOs and EVN/PC
- associated arrangements with the Vietnam Wholesale Electricity Market (VWEM) and more details of DPPA charges and components
Renewable energy developers and power consumers should take into account the MOIT’s updated regulations and take the necessary steps to best position themselves to catch investment opportunities in the electricity business industry, given the tight timeline for bid submission once this proposed circular is signed in the final form.
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1 The New Draft Circular is attached together with MOIT’s Electricity Regulatory Authority of Vietnam (ERAV)’s Official Letter No. 157/DTDL-TTPT dated 18 February 2021, requesting for comments on the draft circular on the implementation of the pilot program on direct power purchase agreement (DPPA) mechanisms between renewable energy power generation companies and power consumers.