Vietnam Notifies Decree 80/2024/ND-CP on Direct Power Purchase Agreements: Key Details

Decree 80/2024/ND-CP on Direct Power Purchase Agreements (DPPA) is part of Vietnam’s broader strategy to promote environmental sustainability and enhance the competitiveness of its retail electricity market.

On July 3, 2024, the Vietnamese government issued Decree 80/2024/ND-CP on Direct Power Purchase Agreements (DPPA), marking a significant milestone in the renewable energy sector and demonstrating Vietnam’s commitment to decarbonizing its economy and achieving net-zero emissions by 2050.

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The DPPA facilitates the direct sale of rooftop solar and other renewable energy sources via both private transmission lines and the national grid. It establishes clear mechanisms for direct energy purchases between power harnessing units and large electricity consumers. This serves multiple goals, including meeting the growing market demand for clean energy, stimulating investment in renewable resources, and creating a competitive electricity retail market in Vietnam.

The Decree came into effect on the same day it was issued. The Ministry of Industry and Trade (MoIT) is now expected to enhance promotion activities, coordinate with competent units to disseminate the decree, and work with relevant organizations and individuals to implement the DPPA mechanism. 

Direct Power Purchase Agreements: How the mechanism will work

Two forms of direct power purchase

Decree No. 80/2024/ND-CP introduces two primary forms of direct energy purchase:

• Direct Power Purchase through a Dedicated Connection Line: This involves signing a power purchase agreement and delivering electricity through a private connection line between a renewable energy generation unit and a large electricity customer. The agreement must include details such as contract subject, usage, service standards and quality, rights and obligations of the parties, electricity price, payment method, contract duration, and termination conditions.

• Direct Power Purchase through the National Power Grid: This involves buying and selling electricity through forward contracts between renewable energy generators and large electricity users, or retail electricity suppliers in authorized areas or clusters. Renewable energy generators sell all produced electricity into the spot electricity market of the competitive wholesale electricity market. Large electricity users or authorized electricity retailers then sign contracts to purchase the electricity needed to meet their demand.

Key provisions and regulations

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The Decree mandates that renewable energy harnessing units negotiate, agree upon, and sign power purchase agreements on capacity, output, and price for surplus electricity with Vietnam Electricity (EVN) or an authorized entity. This ensures that any excess electricity generated can be efficiently integrated into the national grid.

In cases where large electricity customers buy electricity from EVN or other retail electricity suppliers, the retail electricity prices are regulated by the Ministry of Industry and Trade.

Rules for direct electricity trading via private connection lines

The Decree sets out specific rules for direct electricity trading through private connection lines:

• Both parties must agree on the terms of the electricity purchase contract in accordance with the Law on Electricity and related legal documents.
• The electricity price is mutually agreed upon by both parties, with exceptions as specified in the Decree.
• Renewable energy generators must negotiate and sign contracts for surplus electricity output with Vietnam Electricity Group or an authorized unit.
• Large electricity users are permitted to buy and sell electricity with the Electricity Corporation or other authorized electricity retailers.

Spot electricity market

For direct electricity purchases through the national grid, the Decree specifies the sale of electricity by renewable energy generators through the spot electricity market. The spot electricity market price is determined by the sum of the market electricity price and the market capacity price, which are regulated by the MoIT.

A competitive retail market for electricity and promoting clean energy

The new Decree is part of Vietnam’s broader strategy to promote environmental sustainability and enhance the competitiveness of its retail electricity market. By facilitating direct power purchases, the government aims to attract more investments in renewable energy projects, thereby accelerating the country’s transition to cleaner energy sources.

To sum up, Decree 80/2024/ND-CP represents a critical move towards a sustainable energy future for Vietnam. It not only supports the growth of the renewable energy sector but also ensures that large electricity consumers can access clean energy more efficiently, fostering a more competitive and environmentally friendly electricity market in the country.

How industries and businesses can harness Vietnam’s clean energy policy

Industries and businesses should view Vietnam’s policy move on creating a competitive framework for renewable power purchases as an alignment with global sustainability and decarbonization trends.

Business can consider ways to harness the new development under a corporate strategy that could include the following:

• Corporate social responsibility (CSR): Adopting DPPAs can enhance a company’s CSR profile, showcasing commitment to sustainable practices and reducing carbon footprints, which is increasingly important to consumers, investors, and partners.
• Cost management and stability: Engaging in DPPAs could offer businesses more predictable and potentially lower energy costs compared to fluctuating fossil fuel prices. This stability can aid in long-term financial planning and budgeting.
• Competitive advantage and market differentiation: Early adoption of renewable energy through DPPAs can provide a competitive edge. Companies that integrate clean energy may find favor with environmentally conscious customers and stakeholders, differentiating themselves in the market.
• Mitigation of regulatory risks: As global and local regulations tighten around carbon emissions, businesses that proactively switch to renewable energy sources through mechanisms like DPPAs will be better positioned to comply with future regulations, avoiding potential penalties or additional costs.

New investment opportunities

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By viewing Decree 80/2024/ND-CP not just as a regulatory change but as a gateway to numerous new opportunities, industries and businesses can strategically position themselves to take advantage of Vietnam’s evolving energy landscape.

Below, we briefly discuss a few areas where new investment opportunities could emerge:

• Renewable energy infrastructure: Investing in the development and installation of renewable energy systems, such as rooftop solar, wind farms, and other sustainable energy projects, will be in high demand. Businesses specializing in these areas stand to benefit greatly.

• Energy storage solutions: With the increased generation of renewable energy, there will be a growing need for efficient energy storage systems. Companies developing advanced battery technologies and other storage solutions could find significant investment opportunities.

• Private transmission lines: Investing in the construction and maintenance of private transmission lines to facilitate direct power purchases offers another avenue for businesses. This includes both the technical infrastructure and the service contracts associated with them.

• Energy management services: As businesses adopt DPPAs, there will be a need for sophisticated energy management services to optimize usage, monitor performance, and ensure compliance with contractual agreements. Firms offering these services will find new markets emerging.

• Financial and legal advisory services: The new Decree will create demand for financial and legal expertise to navigate the complexities of DPPA agreements. Firms that can offer specialized advisory services in this area will find numerous opportunities.

• Green Tech innovation: Investment in innovative technologies that enhance the efficiency and integration of renewable energy, such as smart grids, IoT-based energy management systems, and AI-driven energy analytics, will be highly attractive.

• Corporate renewable energy procurement: Large corporations will likely seek to procure renewable energy directly. Businesses that can broker or facilitate these deals, including aggregators that combine demand from multiple smaller businesses to negotiate better terms, will see growth opportunities.

• Government and public sector contracts: With the government’s push for renewable energy, there will be numerous public sector projects and contracts up for grabs. Companies that can navigate and secure these contracts will benefit from stable, long-term engagements.

• Environmental credits and carbon offsetting: As renewable energy projects increase, so will the production of environmental credits and carbon offsets. Businesses that can trade these credits or offer consulting on carbon management will find new revenue streams.

• Education and training: With the shift to renewable energy, there will be a need for education and training programs to upskill the workforce. Institutions and businesses offering specialized training programs in renewable energy technologies and DPPA agreements will see increased demand.

(With inputs from Vu Nguyen Hanh.)

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