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| Workers of Lai Chau Electricity Company, Lai Chau province, check power grids in the province__Photo: VNA |
The Government on July 3, 2024, issued Decree 80/2024/ND-CP, establishing a mechanism for direct electricity trading between renewable energy-generating units and big electricity consumers.
At a conference held by the Ministry of Industry and Trade to discuss the implementation of Decree 80, Pham Quang Huy, Deputy Director of the Ministry’s Electricity Regulatory Authority of Vietnam, stressed the importance of the new mechanism - Direct Power Purchase Agreement (DPPA). Huy noted this demonstrated the determination and great efforts of the Government, the Ministry of Industry and Trade as well as related ministries, ministerial-level agencies and business groups in developing advanced, fair and transparent mechanisms and policies. The initiative aims to attract private investment in renewable energy and boost the development of a competitive electricity market in Vietnam.
Under the new Decree, for the first time in Vietnam, big electricity consumers with an average consumption output of 200,000kWh/month who wish to use renewable energy can purchase electricity “directly” from renewable energy producers. They can choose to do so either through exclusive connection lines or the national electricity grid.
Direct electricity trading via exclusive connection lines
This mechanism involves concluding contracts on electricity trading and delivery through exclusive connection lines between renewable energy-generating units and big electricity consumers.
Renewable energy-generating units refer to electricity units with power plants utilizing solar energy, wind power, small hydro-electric, biomass, geo-thermal, sea wave, tidal, oceanic and rooftop solar-power systems. These projects are not limited in terms of output and must be licensed for electricity operation or may be exempt from license.
Big electricity customers are defined as organizations or individuals with an average consumption output of 200,000 kWh/month or more.
The Decree stipulates that renewable energy-generating units and big electricity consumers may carry out direct electricity trading through exclusive connection lines based on the following principles:
- The electricity trading contracts between renewable energy-generating units and big electricity consumers for direct electricity trading through exclusive connection lines must be mutually agreed upon in accordance with Article 22 of the Electricity Law and relevant legal documents. The principal contents of these contracts include: contractual parties, use purposes; service standards and quality; rights and obligations of the parties; electricity prices, payment methods and time limits; conditions for contract termination; liabilities for breach of contract; contract duration; responsibility to invest in, construct and manage the operation of, the exclusive connection lines; any other mutually agreed contents.
- Electricity prices will be agreed upon by both parties, except where electricity units perform both electricity generation and retail within zones or complexes, combining purchase of electricity from the national electricity system with purchase of electricity from other local sources for retail to electricity customers in such zones or complexes. In these cases, the retail prices must comply with the regulations on electricity sale prices of the Ministry of Industry and Trade (Article 6.4 of Decree 80).
Sale prices of electricity purchased through exclusive connection lines will be mutually agreed upon by both parties. For surplus electricity, electricity generators can resell it to the Vietnam Electricity (EVN) through trading contracts that specify capacity, output and prices.
In addition to direct purchase from renewable energy-generating units, electricity purchasers may choose to trade electricity with EVN or electricity retailing units other than EVN.
Renewable energy-generating units will negotiate and conclude electricity trading contracts on capacity, output and prices of surplus electricity with customers or their authorized units under regulations.
Direct electricity trading through the national electricity grid
Apart from direct electricity trading through exclusive connection lines, big electricity consumers can also trade electricity with EVN or other electricity retailing units.
Regarding this trading form, the Decree also clearly defines the mechanism for electricity sale by renewable energy-generating units through the electricity spot market and for electricity trading with EVN.
These activities involve termed contracts between renewable energy-generating units and big electricity consumers (or authorized electricity retailing units in zones or complexes). The specific electricity trading activities include:
(i) Renewable energy-generating units selling their entire generated electricity output into the electricity spot market of the competitive electricity wholesale market;
(ii) Big electricity consumers or authorized electricity retailing units in zones or complexes sign electricity trading contracts with EVN (or authorized/delegated units) to buy the entire required electricity outputs; and,
(iii) Renewable energy-generating units and big electricity consumers or authorized electricity retailing units in zones or complexes trade in electricity under forward contracts.
Under regulations, the electricity spot market prices are total electricity market prices formulated for each transaction cycle of the electricity spot market. These prices are the sum of the market power price and the market output price, both of which are defined in the Regulation on operation of the competitive electricity wholesale market issued by the Ministry of Industry and Trade.
Assessing the above-mentioned policies, many hold that these are crucial for the development and completion of the electricity market in all three key aspects: competitive electricity generation, competitive electricity wholesale and competitive electricity retail. These are also seen as a vital step for Vietnam to transition toward green economy and circular economy and achieving net-zero emissions.
Ngo Duc Lam, former Deputy Director of the Energy Institute of the Ministry of Industry and Trade, emphasized the importance of this policy, noting that it addresses many bottlenecks in renewable energy management and operation, especially for many potential renewable energy projects that have been stalled for a long time.
It is anticipated that many electricity traders and transmission line investors will buy solar power energy in industrial parks for retail to factories with demand. This is crucial for enterprises to obtain carbon credits for their export products, meeting the requirements of import markets. More importantly, the prices agreed upon between sellers and buyers will help ease the network pressure for EVN. Currently, there are over 100,000 rooftop solar power projects across the country, with a total output of 9,500 MW.
Meanwhile, many enterprises in industrial parks, export processing zones and hi-tech parks are increasingly interested in accessing renewable energy. As a result, participation in the DPPA mechanism for direct power purchase from these zones or complexes is expected to rise. This will facilitate positive responses and support for gas emission reduction and green initiatives in industrial parks.
According to Ngo Duc Lam, the DPPA mechanism will strengthen electricity sources and enable big electricity consumers to directly purchase power. Moreover, appropriate mechanisms and policies are needed to ensure the safety of the electricity network as renewable energy supply sources continue to grow. In the long term, establishing a renewable energy-regulating center in Central Vietnam, which has significant renewable energy development potential, would be beneficial.
Ngo Phuong Mai, an independent renewable energy specialist, noted that with this Decree, the number of consumers directly purchasing renewable energy will increase, compared to the past when EVN was the sole purchaser.
At the conference, representatives from various agencies, units and international organizations such as Vietnam Business Forum, Japan International Bank, US Embassy, Asia Clean Energy Coalition and big electricity consumers like Samsung expressed their support. They highly valued the Ministry of Industry and Trade’s efforts in promulgating the DPPA mechanism, which ensures electricity supply security and assists customers in achieving production and green growth targets.
Minister of Industry and Trade Nguyen Hong Dien highlighted that the issuance of this Decree represents a breakthrough step in Vietnam’s roadmap for developing a competitive electricity market. It will help the Government achieve multiple objectives simultaneously: promoting the use of clean energy by electricity customers; attracting investment for the sustainable development of renewable energy to protect the environment; guiding the application of a competitive electricity retail market in Vietnam; improving the efficiency of the state management of direct electricity trading between renewable energy-generating units and big electricity consumers.
At the same time, the Decree will provide production enterprises with opportunities to choose electricity suppliers, enabling them to acquire green production certificates. Minister Dien proposed provincial and municipal People’s Committees to attach importance to inspecting and supervising the implementation of direct electricity trading contracts as well as settling complaints and handling violations in the course of realizing this mechanism within their respective jurisdictions.
EVN and its attached units are instructed to promptly calculate the costs associated with using electricity using services under the DPPA mechanism. They must also well manage the participation registration process and guide units in joining the DPPA mechanism via the national electricity network, and ensure the stable, safe and continuous operation of the electricity system by inspecting and overseeing technical requirements.-
