Vietnam set to trial Direct Corporate Power Purchase Agreement

By Oliver Massmann*    August 9, 2018 | 10:14 am GMT+7

Vietnam set to trial Direct Corporate Power Purchase Agreement

Workers check solar panels of a project in Vietnam. Photo by VnExpress/Annie Le

Vietnam’s plan to pilot a direct power purchase agreement for renewable energy in 2019 has drawn keen interest from investors.

On June 12 this year, at a seminar on renewable energy, the Electricity Regulatory Authority of Vietnam (ERAV) discussed and disclosed information about such a pilot DPPA.

Generally, a DPPA is an agreement between a power generator and a corporate customer in which power is physically delivered and sold to the customer for its operation.

ERAV said it is a time-consuming process since it and its consultants had to do research and collect massive amounts of information on fundamental issues, design, details, and criteria for DPPAs, especially for cases such as Vietnam.

It is also challenging for ERAV to consult other departments of the Ministry of Investment and Trade for piloting the DPPA.

ERAV’s consultants have submitted a first preliminary report on international experience regarding the basic design, mechanism and operation of DPPA.

It is known that ERAV and its consultants also sent a questionnaire to several industries, sectors, companies and other stakeholders to seek their opinion on the consumer market, demand, participants, and other issues.

When the report is available, ERAV will organize a seminar to release it and seek opinions from all stakeholders.

At this stage there is no final decision on the capacity, licensing process, participants, location, wheeling fees, and contractual terms for the DPPA.

However, ERAV is considering some of the following models:

Firstly, physical DPPA: onsite DPPA where the power plants are constructed around the consumers, and/or offshore DPPA where power plants are constructed anywhere.

Secondly, financial DPPA: this would be formed with a competitive market for selling power.

ERAV also said that the pilot DPPA would be preferably designed for a 110 KV system (not 220 KV or 22-25 KV) since this is the most popular, efficient and feasible.

Investor interest in renewable energy

Vietnam has long recognized the important role of renewable energy in achieving energy security, sustainable development and stable growth rate.

The country has a wide range of primary energy sources such as crude oil, coal, natural gas and hydro power. However, it has experienced risks since its economy is based on fossil fuels.

For instance, in April 2015 thousands of people blocked a national highway for more than 30 hours in a protest against pollution by the Vinh Tan 2 coal power plant.

It seems most of the hydropower potential will be fully exploited soon.

These are just two examples of what could significantly affect the nation’s power security. Therefore, Vietnam must reduce its reliance on less “environmentally friendly” primary fossil fuels and quickly promote renewable energy.

The revised Power Development Plan for 2011 – 2020 (revised PDP VII), adopted in 2016, is evidence of a growing appreciation of the role of alternative sources of energy, and targets a 7 percent share of electricity generated from renewables by 2020 and 10 percent plus by 2030.

It forecasts electricity demand by projecting annual average growth of 10 percent between 2011 and 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 is 60 GW in 2020 and 129.5 GW in 2030.

Since early 2017 there has been a sharp rise in the number of solar and wind power projects approved by the government after the promulgation of new feed-in-tariffs for on-grid solar projects and other reform policies to attract foreign and local investment in this green industry.

Market access under CPTPP and EVFTA

There are no foreign ownership restrictions in the energy sector under local laws or Vietnam’s international commitments. A foreign investor could opt for a 100 percent foreign-invested company, joint venture or public-private partnership in the form of a BOT contract.

Vietnam is tied in first place with Singapore in terms of market access liberalization.

The recent conclusion of the EU – Vietnam FTA (EVFTA) negotiations and legal review and the signing of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) further opens the market to foreign investors.

Investors now can bring their technology and know-how, especially from countries with a high level of development of the renewables sector such as Germany, to Vietnam with less market access barriers and more security.

In fact, the CPTPP and the EVFTA make it possible for foreign investors to sue the Vietnamese government for its investment-related decisions under arbitration rules.

The final arbitral award is binding and enforceable without any reference to local courts regarding its validity. This is an advantage for investors considering the fact that the rate of annulled foreign arbitral awards in Vietnam remains relatively high for various reasons.

*Oliver Massmann is General Director of Duane Morris Vietnam LLC

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