Vietnam’s direct power purchase agreement (DPPA) decree could catalyze a new era for renewable energy, according to a recent report.

An extraordinary feature of the decree, which was issued by the government on July 3, is that it permits DPPAs for renewable energy between private project developers and private energy consumers, including entirely privately developed, owned and operated transmission lines, states Grant Hauber in a commentary for the Institute for Energy Economics and Financial Analysis (IEEFA), where he is the strategic energy finance adviser for Asia.

This provision could allow the development of large-scale solar or wind farms at remote sites to supply industrial consumers directly, he adds, noting that “this landmark legislation could ignite a new wave of rapid renewable energy development in Vietnam.”

The policy, the adviser notes, creates two new approaches for private development of renewable energy capacity: a wheeling model and full private one.

In the wheeling model, a private renewable developer constructs and generates electricity at its site. The electricity is sold at wholesale market prices to the state utility, Electricity of Vietnam (EVN). EVN then transmits the power through its grid network to a private buyer who has contracted to purchase the supplied capacity.

In the fully private model, the private sector develops and owns the renewable energy generation facilities. The energy is sold to a private sector consumer through a contract and delivered via private transmission connections directly between the generator and the buyer.

The policy, Hauber shares, applies to large-scale consumers, defined as any end user connected to a 22-kilovolt supply line and using over 220 megawatt-hours per month. Many consumer groups would qualify, including individual industrial consumers and the aggregated demand within industrial parks.

A parallel decree issued on July 11, the adviser highlights, allows uncontracted excess energy generated from privately developed projects, up to 10% of the total output, to be sold to EVN at predetermined, discounted rates.

The EVN wheeling model seems oriented towards consumers who want access to renewable energy but may be located in densely developed areas where creating private transmission may be impractical.

The fully private model is the most revolutionary aspect of the law, Hauber posits, creating effectively private utilities that can generate, transmit and supply electricity to customers without involving EVN. This model allows private companies full control over renewable energy project development, enabling them to bypass the challenges of negotiating with the national utility.

As a result, project implementation time is significantly reduced, and clean energy can be delivered faster. Businesses, he shares, will encounter fewer limitations in designing, financing, constructing and operating these ventures, paving the way for gigawatts of new renewables to quickly come online.

Economic benefits

The DPPA policy, Hauber details, addresses several challenges.

Firstly, Vietnam wants to keep its industrial sector supplied with energy sufficient for GDP growth of 5% to 6% per annum. EVN has struggled to establish projects for all consumer segments across generation, transmission and distribution. The DPPA decree mobilizes the private sector to help close that gap.

Secondly, this policy will help Vietnam retain multinational manufacturers and service companies with corporate renewable energy mandates. Globally, major data centre operators, such as Google’s parent Alphabet, Microsoft and Amazon Web Services, are among the largest corporate renewable power purchase agreement signatories. Vietnam’s new Telecommunications Law, adopted July 1, now permits 100% foreign ownership in data centre infrastructure. Combined with the DPPA decree, such companies may seek to invest in new facilities supplied with 100% green energy.

Thirdly, providing impetus to Vietnam’s renewables development can help stabilize energy costs. Over the past two years, the extreme volatility of coal and LNG import markets troubled price-sensitive government planners. Renewables, with their fixed up-front expenses and zero fuel costs, protect against fuel price volatility. Additionally, with the majority of Vietnamese renewable energy development being funded by local companies and banks, exchange rate risk on power sold could be minimized or eliminated.

Finally, given Vietnam’s commitment to net zero made under the July 2022 National Climate Change Strategy, adding substantial amounts of clean energy under DPPAs will help reduce the economy’s carbon intensity.

Holistically, the new law, Hauber argues, can be considered revolutionary. The government has responded to industry demands for wider availability of cleaner energy and has created favourable conditions for rapid capacity addition.

The prospect of direct private-to-private transmission addresses the challenges that incremental capacity additions could place on the EVN grid. Increased clean energy capacity reduces greenhouse gas emissions, supporting Vietnam’s environmental commitments.

Engaging Vietnam’s private sector in renewable energy development, the IEEFA adviser argues, gives EVN time to plan larger, national-scale interventions. All of this can be accomplished without any state budget allocation, making it a win-win for Vietnam and its power consumers.