Vietnam allows factories to buy electricity directly from renewable energy suppliers
The mechanism is regarded as an important step towards a competitive power market in the country
[HO CHI MINH CITY] Vietnam has issued a new decree that allows renewable energy producers to sell electricity directly to factories, effectively putting an end to the monopoly of state-owned distributor Vietnam Electricity (EVN).
The direct power purchase agreement (DPPA) scheme, effective from Wednesday (Jul 3), has been under discussion for the last seven years.
Vietnam is a regional manufacturing hub that houses facilities of global players including South Korean smartphone producer Samsung, Dutch brewer Heineken, US chip company Intel, and Danish toymaker Lego.
“The DPPA mechanism is expected to ease the investment burden on EVN for power generation and transmission, while also promoting private sector involvement in the power industry,” said Pham Minh Hoang, managing partner at VSE Lawyers.
Under the new rules, large electricity consumers will have the choice to procure renewable energy directly from producers via private transmission lines at negotiated prices, bypassing EVN.
Alternatively, consumers can buy electricity from producers using forward contracts and access the purchased output via the national power grid operated by EVN.
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In this option, the state-owned utility will engage in separate agreements on the spot market with the generators to purchase the electricity, inject it into the national grid, and sell electricity to the consumers from its pooled supply.
Not limited to wind and solar power plants, the DPPA scheme is open to various renewable energy generators such as small hydro, rooftop solar, waste-to-energy, and biomass power projects.
Renewable energy potential
While Vietnam is seen as the most suitable country in South-east Asia to develop wind and solar energy, only a fraction of the installed renewable power capacity has been utilised.
This is largely due to delays in project approvals, prolonged discussions on tariffs, regulatory ambiguity, and overload in the power transmission system.
As hydropower reservoirs dried up due to a period of intense drought last year, the nation was plagued by major energy shortages last summer, with blackouts interrupting production in the key industrial zones of several northern provinces.
Nguyen Van Hai, a partner at Vietnam-based law firm YKVN told The Business Times that the new rules will enable large factories to ensure a stable energy supply to avoid disruptions as well as utilise renewable energy to lower their emission footprints to meet requirements in key export markets.
“It will also create business opportunities for firms to obtain and trade certified emission-reduction credits or renewable energy certificates in the future,” Hai added.
Last year, Vietnam approved a long-awaited master power development plan that requires up to US$658 billion in total investment by 2050 to develop the country’s power sources and transmission grids.
Accordingly, Vietnam aims to double its power generation capacity to over 150 gigawatts by 2030. Wind, solar and other renewable sources, excluding hydropower, are planned to cover from 30.9 to 47 per cent of Vietnam’s energy mix by the end of this decade.
The country has also committed to carbon neutrality and the phase-out of coal by 2050.
Competitive power market
Experts said that the issuance of the DPPA mechanism is also an important step towards a competitive power market in Vietnam.
The ultimate goal of the country is to form a retail electricity market that allows for the establishment of electricity retail companies, whether state-owned or private, to compete equally for the retail of power to end-consumers.
Retail electricity prices in Vietnam are still regulated by the government, which periodically promulgates prices to groups of electricity users and retailers.
According to a report by CGS International, Vietnam offered the lowest electricity tariffs across Asean at around US$0.06 per kilowatt-hour (kWh) in the first quarter of 2024. Singapore had the highest commercial power tariffs at US$0.22 per kWh, with the Philippines closely behind at US$0.19 per kWh.
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