VIETNAM – POWER SECTOR REFORM COMPETITIVE AUCTION MECHANISM FOR NEW GENERATION INVESTMENT - WHAT YOU MUST KNOW:

1. Vietnam – Power Sector Reform Competitive Auction Mechanism For New
Generation Investment - What You Must Know:
By: Dr. Oliver Massmann
On 31 August 2018, Asian Development Bank (ADB) and Ministry of Industry and Trade (MOIT) co-
arranged a workshop to introduce the first ADB’s Technical Assistance (TA) on competitive auction
mechanism for new power generation investment in Vietnam. The TA aims at improving the arrangements
for investment to ensure adequate energy supply and to be compatible with Vietnam Wholesale Electricity
Market (VWEM) in Vietnam’s power sector.
Please find below key topics of the workshop since this may affect the power generation sector and its
policy in the upcoming years.
1. MOIT’s Highlights on Current Status and Challenges for New Generation
Vietnam has enjoyed one of the world’s most rapid economic growth rates i.e., an average of more than 6%
p.a. Vietnam has a wide range of primary energy sources such as crude oil, coal, natural gas and hydropower
for economic development. However, it has still relied heavily on less “environmentally friendly” primary
fossil fuel, though it started to promote renewable energy recently.
The revised Power Development Plan for 2011 – 2020, vision to 2030 (revised PDP VII), adopted in 2016,
is evidence of a growing appreciation of the role alternative sources of energy, targets a 7% share of
electricity generated from renewable energy by 2020 and 10% plus by 2030. The revised PDP VII forecasts
the electricity demand using an annual average growth rate at 10% from 2011 to 2030. The demand will
increase from 86 TWh in 2010 to 265 - 278 TWh in 2020 and 572-632 TWh in 2030. The estimated installed
capacity would be 60 GW in 2020 and 129.5 GW in 2030.
2. Foreign investment is a must!
Vietnam desperately need a significant amount of investment on new power generation to achieve its
demand under the revised PDP VII, approx. US$7 billion to US$10 billion annually. However, the
Government of Vietnam does not currently provide guarantee for this sector, and ODA loan is not a viable
option for new generation investment. Local financing and resource are also constrained as Electricity of
Vietnam (EVN)’s credit limit has been reached. Currently, several power generation projects have been
delayed for 3 to 5 years, that would cause the revised PDPVII’s estimates for 2025 to be outdated very
soon.
It is also noted that Vietnam is facing a high risk on fuel guarantee for power generation as one of its key
sources (natural gas) is unstable as a result of crisis at Bien Dong area (or South China Sea). In fact, the
progress of Block B and Blue Whale are very risky and delayed.

2. Accordingly, Vietnam must reform its playfield and framework to harmonize the system and policies to
attract more foreign investment projects on power generation sector.
Vietnam Full Wholesale Electricity Market is coming soon!
The MOIT reported its 4 steps timeline for implementation of full VWEM: (i) 2016: Pilot VWEM Step 1
(Paper Market), (ii) 2017 to 2018: Pilot VWEM Step 2, (iii) 2019: Initiating VWEM under MOIT’s decision
3038, and (iv) finally after 2019: implementing full VWEM under MOIT’s Decision 8266.
Full VWEM will have the following key features:
- Market Model (Mandatory Cost-Based Gross Pool): (i) all generators (30MW or more)
is required to directly participate the full VWEM to sell its power, (ii) all retailers (5 Power
Corporations under EVN) must buy energy from the full VWEM, and (iii) gradually, the
cost-based Pool will be transformed to Price-Based Pool.
- Trading and Dispatch intervals: will be reduced to 30 minutes from 1 hour.
- Generation Scheduling: will apply the model of full transmission network stimulation
when the full market IT system available.
- Key types of contracts under VWEM: vesting contract, bilateral contract and centrally
contract auction.
3. Competitive Auction Mechanism for New Generation Investment
The TA is to recommend the Vietnam Government to consider and implement policies for implementation
of Competitive Auction Mechanism for new generation projects with the following key features:
- To ensure that new power generation projects to be selected through auction process based on
least cost and greatest value;
- To improve and ensure the competition between domestic and international developers, and
competition between technologies;
- To consistently implement VWEM-compatible contracting framework irrespective of type of
developer or technology; and
- To apply and prefer BOO like long term CFDs (contracts for difference) rather than current
PPAs (power purchase agreements) as the CFDs are more bankable and may produce more
efficient outcome over the generator’s lifetime.
Unfortunately, details of Competitive Auction Mechanism such as forms of PPAs, CFDs, BOO

3. projects, auction process, currency exchange and repatriation guarantee, will be researched and
presented by ADB later within this year.
4. Other MOIT’s Highlight on Renewable Power Projects
At the workshop, the MOIT’s representative also commented on certain new policies for renewable
power projects as below:
- The MOIT is drafting a policy to introduce new Feed-in Tariff (FIT) and draft PPA for Solar
Power Projects that fail to meet COD deadline under Decision 11. The MOIT confirmed that such new
FIT will be lower than the current 9.35 US Cent. This policy is likely to be approved by the Government
within this year.
- The MOIT is drafting a policy to promulgate new FITs and draft PPAs for wind projects. This
policy is likely to be issued within this year.
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Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com or any
lawyers in our office listing if you have any questions or want to know more details on the above. Dr.
Oliver Massmann is the General Director of Duane Morris Vietnam LLC.