Mechanism for direct power purchase, promoting competitive electricity market

DNHN - Decree 80 recently issued by the Government allows the implementation of direct power purchase (DPPA mechanism), not only unlocking renewable energy resources, attracting investment but also helping transition to green production.

On July 3, 2024, the Prime Minister issued Decree No. 80/2024/ND-CP regulating the direct power purchase mechanism between renewable energy generation units and large electricity consumers (DPPA mechanism), effective immediately from the date of signing, July 3. This mechanism opens up many opportunities to develop a competitive electricity market, freeing up resources and investing in renewable energy.

Releasing investment capital in renewable energy

Decree 80 stipulates that renewable energy generation units include solar power plants, wind power, small hydropower, biomass, geothermal, ocean wave, tidal, ocean current, other forms of renewable energy, and rooftop solar power systems that are licensed for electricity operations.

This is also a decree that businesses have long awaited. With this decree, it opens the path to establishing a competitive electricity market in Vietnam, while giving manufacturing enterprises the opportunity to choose renewable electricity suppliers to obtain green production certificates as more and more international customers require, significantly contributing to environmental protection. "Greening" is a mandatory path, the sooner businesses implement it, the more advantageous their export opportunities will be.

According to Decree 80, direct power purchase transactions are carried out in two forms:

1. Direct power purchase through a separate connection line, which involves signing a power purchase agreement and delivering electricity through a separate connection line between the renewable energy generation unit and the large electricity consumer, with prices agreed upon by both parties.

2. Direct power purchase through the national grid, which involves transactions through a term contract between the renewable energy generation unit and the large electricity consumer (or authorized retail electricity unit in zones, clusters) and includes: The renewable energy generation unit sells all produced electricity into the spot market of the competitive wholesale electricity market.

The decree allows large electricity consumers or authorized retail electricity units in zones, clusters to sign power purchase contracts with the Electricity of Vietnam (EVN - or an authorized/decentralized unit) to buy all the electricity needed; the renewable energy generation unit and large electricity consumer or authorized retail electricity unit in zones, clusters buy and sell electricity through a term contract.

The Electricity Regulatory Authority (ERA) considers the issuance of the DPPA mechanism very important in building and perfecting advanced, fair, transparent mechanisms/policies, creating motivation to attract private capital in renewable energy investment and usage, as well as promoting the development of a competitive electricity market in Vietnam.

On July 5, just two days after this decree took effect, the Minister of Industry and Trade chaired a conference with 63 provinces, ministries, and related organizations to implement the DPPA mechanism.

Mr. Nguyen Sinh Nhat Tan, Deputy Minister of Industry and Trade emphasized: "This is a new mechanism, we have anticipated the situation and proposed solutions, and we have established a task force to monitor and promptly respond during the implementation of this decree."

Promoting a competitive electricity market

There are many new points in Decree 80 compared to the previous draft, such as the draft stipulating large electricity consumers at 500,000 kWh/month, while Decree 80 lowers the average consumption level to 200,000 kWh/month, calculated on the average of the nearest 12 months. Retail electricity units in industrial zones (IZs), economic zones, export processing zones, industrial clusters, high-tech parks... with electricity purchase volume of 200,000 kWh/month or more connected at 22 kV or higher.

Why specify that customers must have an electricity purchase volume of 200,000 kWh/month? Because they must be large customers with significant electricity consumption. When choosing the 200,000 kWh/month level to apply to this mechanism, the Ministry of Industry and Trade calculated from customers using 200,000 - 1 million kWh/month. Among them, the number of customers consuming from 200,000 kWh/month is about 7,700 customers, accounting for more than 36% of the total number of electricity customers, aligning with the current supply capacity of renewable electricity from wind and solar.

The ERA (Ministry of Industry and Trade) said the demand for participating in the direct power purchase form is currently very high. Some large corporations such as Samsung, Nike, Google, Apple, Heineken... have sent letters to the Prime Minister and the Ministry of Industry and Trade expressing support for the DPPA mechanism and readiness to participate.

For the buyers (for production purposes from 22 kV voltage level or higher), nearly 50% of surveyed customers want to participate in the DPPA mechanism with an estimated total demand of 996 MW. For sellers, out of 95/106 projects with installed capacity of 30 MW or more (64 wind power projects, 42 solar power projects), 24 projects (with an installed capacity of 1,773 MW) want to participate in the DPPA mechanism; 17 projects (with a capacity of about 2,836 MW) are considering participation conditions.

With the DPPA mechanism taking immediate effect, dozens of projects with thousands of MW of renewable electricity will be released after being stuck due to legal gaps, adding a significant power supply as our country's electricity source faces potential shortages.

The DPPA mechanism will undoubtedly increase the number of "buyers," promoting a competitive electricity market, instead of just EVN and its distribution companies as it is now, bringing the electricity market closer to competitive "wholesale" and "retail" levels.

With this decree, it also creates opportunities for investors in renewable energy who have been stuck for various reasons.

For export manufacturing enterprises, directly purchasing renewable electricity from investors in IZs will help them quickly obtain carbon emission reduction certificates, enhancing the competitiveness of their goods when exporting to international markets.

Decree 80 took effect on the day it was signed, showing how urgently the DPPA mechanism is needed, especially to quickly connect customers and power generation units; unlocking the significant potential of renewable energy in our country, attracting investment in this field, to help our country achieve its commitment to Net Zero by 2050.

A timely piece of news: On July 9, the Southeast Asia Clean Energy Fund II (SEACEF II) managed by Clime Capital (headquartered in Singapore) invested $10 million in a Vietnamese enterprise, Nami Distributed Energy (Nami) - a clean energy company providing innovative solutions in distributed energy, to produce clean electricity.

Mr. Luu Hoang Ha, Chairman of Nami, said: "This investment and the rapidly expanding project portfolio position Nami perfectly for the next round of fundraising and continued growth in the clean electricity field."

This is a positive signal, an immediate effect of Decree 80, showing how urgently this decree is needed...

Vinh Hy