Different methods offered in the energy sector

The Vietnamese government last week issued Decree No. 80/2024/ND-CP allowing rooftop solar, waste-to-energy and biomass projects to enter into Direct Power Purchase Agreements (DPPAs) without having to go to Vietnam Electricity (EVN).

It establishes clear mechanisms for direct purchasing of energy between energy users and large electricity consumers. This serves multiple purposes, including meeting growing market demand for clean energy, stimulating investment in renewable energy sources and creating a competitive electricity retail market in Vietnam.

Under the decree, which comes into effect immediately, the government allows the direct sale of electricity through two methods: through private power lines and the national grid.

In private transactions, renewable energy generators include solar, wind, small hydro, biomass, geothermal, wave, tidal, ocean current and rooftop solar. These projects are not limited in capacity but must be licensed for electricity operation or exempt from licensing under the law.

For national grid transactions, only wind and solar are included. All cases are at 22 kV or above, with average consumption of 200,000 kWh per month.

Previously, customers purchased electricity only through EVN and did not have access to electricity resources from thermal, hydropower or renewable energy projects. However, with DPPA, they can be sure that they are using clean energy, considered essential for the manufacturing industry as Vietnam’s exports face increasingly stringent environmental requirements.

Renewable energy expert Nguyen Phuong Mai said many countries in Europe or North America have high requirements for goods exported to their market that use electricity from renewable sources. “This decree will create a strong environment for manufacturers to prove to buyers and export markets that their products are made from renewable sources, along with certification,” Mai said.

With DPPA, companies can not only enjoy green certification, confirming their prestige in the global commitment to renewable energy sources and sustainable development, but also ensure their long-term energy supply and reduce the risk of price fluctuations, Mai added.

However, operational issues require specific guidance. Pham Van Viet, president of Viet Thang Jean Co., Ltd., said the company installed rooftop solar panels several years ago, and the average surplus power was 35% per month, equivalent to 600-700 kWh.

“We have the tools to count the excess electricity, so we want to sell that part to customers through the grid or private transmission line. I am still waiting for specific instructions and procedures to do that,” Viet said.

Ngo Duc Lam, former director of the Industrial Safety and Environmental Techniques Agency at the Ministry of Industry and Trade (MoIT), said the DPPA benefits the country because it does not invest in new energy sources.

“However, solar power is unstable, so there needs to be a proper connection plan to avoid putting pressure on the national grid,” Lam said. “A possible solution is to use an energy storage device to send energy to the grid during periods of no sunlight. However, energy storage devices are not cheap, so companies need additional support policies from the government.”

Tran Viet Ngai, chairman of the Vietnam Energy Association, said investors in rooftop solar installations should carefully calculate the costs before deciding to sell the electricity through a private line or the national grid.

“If the selling price is high enough to offset the cost of branch lines to transmit electricity, investors will choose this option. If the selling price is not good enough, selling electricity through the national grid will be more profitable. This means that the cost of private lines may be higher than purchasing through EVN, buyers will not participate if they see no benefits,” Ngai explained.

He added that the branch line needs to be connected to the national power system, which is complicated and risky for the system’s security. Large customers want to buy cheap electricity during peak hours from DPPA, but they need to prepare a plan B when the weather is not guaranteed for power generation.

“If they go back to buying electricity from the state when the DPPA market is congested, the national grid will always have to wait to deliver it on time. This not only causes difficulties at the distribution stage, but also raises the problem of waiting costs for the national power system,” Ngai stressed.

Three wind farms in Gia Lai Province in the Central Highlands have not been put into operation, but Decree 80 opens up some opportunities for them to overcome difficulties in distributing electricity.

Tran Minh Tien, CEO of Eastern Power Group, commented: “We would prefer to conduct transactions within the national grid. However, we need more detailed regulations on the pricing of electricity infrastructure services because the power plant is located in a different location from the customers. We should connect to the national grid, and the state also needs to charge for the services. There is still some work to be done before it is launched.”

The MoIT study found that around 20 large companies are interested in direct purchases, with a combined demand of almost 1,000 MW. At the same time, 24 renewable energy projects with a capacity of 1,773 MW intend to sell electricity through DPPA, while 17 projects with a capacity of 2,836 MW are considering participating.

According to Decree No. 80/2024/ND-CP, in the case of private power lines bypassing EVN, renewable energy projects are not limited in capacity, but must have or be exempt from electricity exploitation licenses. Renewable energy producers and large consumers will sign purchase agreements with mutually agreed terms and prices. Excess electricity can be sold back to EVN under specific agreements detailing capacity, production, and pricing. Consumers can purchase electricity directly from renewable energy producers, the National Power Transmission Corporation, or other retail electricity entities outside of EVN. Vietnam has more than 100,000 rooftop solar projects with a total installed capacity exceeding 9,500 MW. Under the country’s Energy Development Plan VIII, this number is set to increase by an additional 2,600 MW by 2030, or half of government and residential buildings. For transactions on the national grid, the decree clarifies the sale of electricity through the spot market and through the National Power Transmission Corporation. Spot market prices are determined based on the total market price of electricity in each transaction cycle, combining wholesale power and capacity market prices. In both scenarios, consumers must be entities or individuals using electricity for production at a voltage of 22 kV or above, with an average monthly consumption of at least 200,000 kWh. This threshold is lower than the 500,000 kWh requirement of the previous draft. According to research conducted by energy companies, 30 percent of large customers use more than 500,000 kWh, while more than 7,700 customers, or 36.5 percent of total electricity consumption, use 200,000 kWh or more.

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