VIETNAM TO IMPLEMENT DIRECT POWER PURCHASE MECHANISM AFTER 2021

1. VIETNAM TO IMPLEMENT DIRECT POWER PURCHASE
MECHANISM AFTER 2021
On 8 April 2021, the Ministry of Industry and Trade published the latest Draft Circular on the
pilot implementation of the direct power purchase between renewable power project developers
(RE GENCO or GENCO) and consumers (“the Draft”). As of July 2021, it is reported that
MOIT is in the middle of preparation for Applicants Conference and Launch Event for the
DPPA pilot program launch as well as reviewing transaction agreements, a one-stop-shop
website for all information on the scheme and facilitating an application review process.
This mechanism suits customers who are committed to clean, sustainable energy use. DPPA
allows direct access to and purchase of an amount of electricity generated from a renewable-
energy generating unit through a long-term, bilateral contract with the price and duration of the
contract mutually agreed by both parties. As a result, DPPA can help corporates to manage
price fluctuations and reduce energy bills as well as facilitating a positive public image.
The pilot is to be implemented nationwide with a total capacity of selected wind and solar
projects of 1 GW (or 1000 MW) at max. The nominal capacity of each project must be 30 MW
and the project must have been listed in a National Power Development Plan. The GENCO and
Consumer must apply online together for participation in the pilot scheme. Consumers can
directly negotiate, purchase electricity with GENCO under a Fixed-term Contract. The two
parties shall agree upon electricity price and output in the Contract for future trading cycles.
GENCO and the consumer must also calculate and carry out payment for the contract output
under the Contract for the difference between the contract price and the market price (i.e.
reference price). Do note that consumers can be a single entity or a consortium of Consumers.
Under the Draft, renewable energy generators are defined as:
 organizations, individuals owing a grid-connected solar or wind power plant;
 installed capacity of the plant is more than 30 MW (conversion rate for solar plants: 01
MWp equals 0.8 MW);
 project already included in the power development plan that has been approved by
competent authority;
 have a binding principle agreement with consumers to sell electricity; and
 are selected for the pilot implementation of DPPA by competent authority.
Electricity consumers are:
 organizations, individuals purchasing electricity for industrial production at a voltage level
of 22 KV or higher;
 have a binding principle agreement with the RE GENCO to purchase electricity; and
 are selected for the pilot implementation of DPPA by competent authority.
Selection criteria of the pilot implementation participants:
For electricity generators:

2.  have a committed COD deadline of the whole power plant of no more than 270 working
days since the date of announcement on the plant being selected to participate in the pilot
implementation; or
 have written document of financial institutions on the financing for the power plant.
For consumers:
 have renewable energy usage commitments or is a manufacturing enterprise in the
supply chain of corporations or enterprises that have renewable energy usage commitments; or
 commit to contract at least 80% of total electricity consumption from the RE GENCO
The evaluation and selection of registration dossiers for participation in pilot direct electricity
purchase and sale shall be carried out through a service unit selected by the Ministry of Industry
and Trade and announced on the DPPA website.
Applicable power purchase agreement template:
 Between developer and EVN: the published contract templates in Decree 18/2020/TT-BCT
for solar energy project and in Circular 02/2019/TT-BCT for wind energy project
 Between developer and consumer: to be drafted by the parties
 Between consumer and EVN: to be drafted by EVN, taking into consideration consumers’
opinion.
Transactions in the DPPA mechanism:
a) Between GENCO and spot electricity buyer: GENCO to submit the price quotation to the
electricity system and market operator in which the offer price is zero (VND/kWh) for offered
capacity ranges, and the capacity in the quotation is the announced capacity of GENCO.
b) Between spot electricity buyer and EVN: Electricity purchase price and payment payable
by EVN must comply with the Regulation on operation of competitive wholesale electricity
market promulgated by the Ministry of Industry and Trade.
c) Between EVN and Consumer: EVN sells power to Customers as per the electricity purchase
price of EVN on spot electricity market plus the cost of direct electricity trading services (e.g.
transmission costs, distribution costs).
d) Between Consumer and GENCO: The price and output of electricity committed in the
contract for future trading cycles shall be agreed upon by the parties.
The direct power purchase agreement mechanism can bring about numerous benefits, namely
enabling the imposition of take-or-pay obligation on off-takers in order to guarantee
developer’s revenue stream, fixed electricity purchase price that is not subject to change in or
delay on the implementation of national legislation, flexibility in monthly exchange rate
calculation and increasing consumer’s environmental commitments. Developers and
consumers must incorporate international standards regarding step-in right, dispute settlement,
and termination clauses in order to make the direct power purchase agreement bankable. A
bankable DPPA put developers in advantage when seeking financial supports from banks and
other credit institutions.

3. On 23 June 2021, the Renewable Energy Buyers Vietnam Working Group, alongside the Clean
Energy Investment Accelerator and the USAID Vietnam Low Emission Energy Program II co-
hosted a webinar to discuss the development of the DPPA pilot program. In which, it was
advertised that the US International Development Finance Corporation (“DFC”) offer
financing tools such as long-term loans or equity financing to political risk insurance and
technical assistance development. The DFC is looking to collaborate with DPPA Pilot Program
participants.
MOIT is currently reviewing the Draft DPPA Circular based on the feedback of the private
sector , then will circulate throughout the rest of the government before being legally approved
and going into effect, ideally by the end of 2021. Within 15 working days from the effective
date of the DPPA Circular, MOIT will announce the pilot scheme for direct electricity trading.
Within 15 working days after that, MOIT will open the registration portal on the DPPA website
and publicize the service unit responsible for reviewing application dossiers. Duane Morris will
keep our readers updated of any new revisions to or decision regarding the Direct Power
Purchase Agreement mechanism.
For more information on the above, please do not hesitate to contact the author Dr. Oliver
Massmann under omassmann@duanemorris.com. Dr.Oliver Massmann is the General Director
of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance
JSC and the only foreign lawyer presenting in Vietnamese language to members of the
NATIONAL ASSEMBLY OF VIETNAM.