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Vietnam Energy Forum

Direct electricity trading mechanism and some initial recommendations for relevant parties and units

 - The Government issued Decree No. 80/2024/ND-CP dated July 3, 2024 regulating the direct power purchase agreement (DPPA} mechanism between renewable energy generators and large electricity users. Below is the main content of the Decree, along with some initial comments and recommendations from Vietnam Energy Magazine experts.

The form of Power Purchase Agreement:

1) The Direct Power Purchase (via private connection line): This is the signing of the Power Purchase and delivering electricity through a private connection line between the renewable energy generator and the customer's large electricity use.

2)The Direct Power Purchase (through the national grid): This is the Power Purchase through a forward contract between a renewable energy generator and a large electricity user (or electricity retailer in regional, group authorized zones) and electricity trading activities carried out according to the provisions of this Decree including:

- The renewable energy generation units to sell all produced electricity into the spot electricity market of the competitive wholesale electricity market.

- The large electricity users, or electricity retailers in authorized regions and groups to sign the Power Purchase contract with the electricity corporation (or authorized/decentralized units) to buy the entire power supply to meet demand.

- The renewable energy generators and large electricity users, or electricity retailers in regions and groups authorized to buy the Power Purchase through forward contracts.

The Principles of DPPA (via private connection line):

The Power Purchase contract between the renewable energy generator and the large electricity user (in case of direct power purchase through a separate connection line) is agreed upon by both parties by the provisions of Article 22 of Electricity Law and related legal documents, including the following main contents:

- The subject of the contract.

- The goal of uses.

- The service standards and quality.

- The Rights and obligations of the parties.

- The electricity price, payment method and deadline for paying.

- The conditions for terminating the contract.

-The liability due to violating the contract.

- The duration of the contract.

- Responsibility for investment, construction, management and operation of private connection line and other contents agreed upon by both parties.

The electricity price is agreed upon by both parties (except for cases specified in this Decree).

The renewable energy generation unit negotiates, agrees and signs an electricity purchase contract on capacity, output, and price for surplus electricity output with Vietnam Electricity of Vietnam (EVN), or the unit, authorized according to regulations.

In addition to direct power purchase through the private separate connection line specified above, large electricity users are allowed to buy electricity with the electric power corporation, or electricity retailers other than the power corporation.

In cases where the power unit performs both the power generation function and the power retail function in the models of zones and clusters combined with purchasing electricity from the national power system, at the same time with other on-site power sources for electricity retailing. For customers using electricity in models of zones and clusters, retail electricity prices for customers are implemented per the Regulations on implementation of electricity prices issued by the Ministry of Industry and Trade.

The Spot electricity market price:

According to regulations, the spot electricity market price is the total electricity market price formed according to each transaction cycle of the spot electricity market and is determined by the sum of the market electricity price and the market capacity price. In particular, the market electricity price and market capacity price are determined according to the Regulations on operating the competitive wholesale electricity market issued by the Ministry of Industry and Trade.

Initial comments and recommendations of Vietnam Energy Magazine:

The Prime Minister's early approval of Decree 80 so that the direct power purchase agreement (DPPA) mechanism can be quickly implemented will create more "buyers" in the competitive electricity market, instead of just EVN and general corporation Electricity distribution companies under EVN today, bringing the electricity market closer to the competitive "wholesale" and "retail" level.

On the other hand, DPPA will create opportunities for investment to strongly develop renewable energy sources and create opportunities for businesses to soon obtain renewable energy certificates and carbon emission reduction certificates to increase commodity competitiveness when exporting to international markets.

However, in the current context, as well as in the short term, we need to pay attention to a number of issues as follows:

Firstly: Whether direct (through a private connection line), or virtual (through the national grid), direct power purchase contracts also create great pressure on the power grid to balance the amount of electricity with renewable energy. Therefore, it is necessary to have a dispatch policy appropriate to the load capacity of the power grid.

Secondly: The current prices of gas and energy storage are one and a half times higher than EVN's retail electricity price, so it does not encourage businesses (other than EVN) to invest in this field, even though Power Development Planning VIII has great ambitions. If EVN invests on its own, it will cause losses. But without electrification and storage, it is impossible to further increase renewable energy as required by businesses that want DPPA.

Thirdly: Currently, Vietnam has not applied two-component electricity prices, so preparing and maintaining ready capacity to supply customers with DPPA with some renewable energy plants becomes extremely expensive (if we only sell electricity according to the amount of electricity supplied on demand, which is always unexpected within the limited market price frame). No capacity fee will create an unfair business, because EVN does not have the money to maintain available capacity to generate electricity.


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