Vietnam Approves Direct Power Purchase Agreement (DPPA) Mechanism for Renewable Projects

(Source: iStock_Credit_ismagilov)

The Vietnamese government has approved a mechanism allowing renewable energy developers to sell power directly to consumers through Direct Power Purchase Agreements (DPPA). Deputy Prime Minister Tran Hong Ha signed this mechanism on July 3, and detailed documents were released on July 4.

Under the DPPA, effective from June 3, large power consumers with a connection voltage of 22 KW or higher and an average monthly consumption of 200,000 kWh can choose to procure renewable energy directly from producers, bypassing the Electricity of Vietnam (EVN).

Renewable energy developers who are eligible include licensed owners of power plants using solar, wind, small hydropower, biomass, geothermal, ocean wave, tidal, marine current, and rooftop solar energy. Before this decree, EVN was the only electricity provider in Vietnam, which prevented businesses from buying power directly from developers.

This mechanism allows producers and consumers to negotiate power supply terms without restrictions on capacity, output, or connection voltage limits, although purchasers are prohibited from reselling the procured electricity. Consumers can also opt for financial or virtual DPPA, wherein EVN buys the power and sells it to consumers, though it does not guarantee the electricity is sourced from designated renewable energy projects.

Vietnam has decided to cancel a delayed 2,120 MW coal power plant project. This project, operated by Song Hau 2 Power Company Limited, a subsidiary of Malaysia's Toyo Ink Group Berhad, was terminated by Vietnam's Ministry of Industry and Trade in a letter dated July 1. The build-operate-transfer (BOT) contract for the Song Hau 2 coal power project (Song Hau 2 project) was signed in December 2020. However, in December 2022, the Ministry announced that the Song Hau 2 project failed to achieve financial closure as required, thus breaching contract terms.

The Vietnamese government is reducing coal power projects to achieve its net-zero emissions goal by 2050 and in line with the "Just Energy Transition Partnership" (JETP) agreement with the G7 and partners. The Song Hau 2 project is one of five delayed coal power projects listed in the 2021-2030 power development plan. The other four delayed projects are Cong Thanh (600 MW), Nam Dinh 1 (1,200 MW), Quang Tri (1,320 MW), and Vinh Tan 3 (1,980 MW).

According to the eighth edition of Vietnam's Power Development Plan (PDP8), these five delayed projects, which face shareholder changes and funding issues, will be canceled if they do not resume operations by June 30. Although TOYO INK SDN BHD signed a $980 million loan agreement with Malaysia Export-Import Bank on June 7, it could not sustain the project.

Christina Ng, a researcher at the Institute for Energy Economics and Financial Analysis, stated on July 3 that under the JETP agreement, Vietnam committed to limiting coal power capacity to 30.2 GW. This limit would likely be exceeded if the Song Hau 2 project were completed.

Reference: S&P Global