Corporate renewable power purchase deals are a step closer to reality in Vietnam following a proposal from the Ministry of Industry and Trade (MOIT) recommending the Prime Minister approve a so-called DPPA pilot project this year. In Proposal 544 dated 21 Jan 2020, the MOIT gave its formal recommendation to the PM to approve a pilot program for between 400MW – 1,000 MW of wind and solar generation capacity and provided a draft PM Decision that would enact such a pilot and establish the process to implement and operate it.
Duane Morris is the legal advisor to the USAID-funded Vietnam Low Emissions Energy Program (VLEEP) that has spent several years working closely with the MOIT, ERAV, investors and consumers to advocate for a DPPA pilot program and propose a specific design and parameters. Among other things, Duane Morris developed an action plan to devise and implement a DPPA legal framework that fits within Vietnam's existing electricity sector legislation and is developing template agreements for use by DPPA pilot project participants.
Enabling corporate power purchases is a major step forward to enable corporates to meet their clean power objectives in Vietnam, something hitherto all but impossible. Vietnam is home to many RE100 investors and their supply chain counterparts and demand for direct procurement of verifiable clean energy is high. At the same time, the specific DPPA design (a virtual or synthetic model) supports the continuing development of Vietnam's relatively nascent competitive wholesale electricity market (VWEM) and has the potential to unlock greater private financing of new clean energy capacity at a time when private finance is needed more than ever.
If the PM approves the pilot program Vietnam will be in good company. Corporate renewable power purchase deals are growing rapidly around the world and show no signs of slowing down. Bloomberg has reported that corporations directly bought a record 20GW of wind and solar production in 2019, some 44% more than in 2018 and triple the number in 2017. This was said to amount to more than 10% of all the renewable energy capacity added globally in 2019, at a build cost of some US$20-$30 billion.
While the majority of these deals were in the US, activity in other markets is gathering pace. Vietnam's enabling legislation, if approved by the PM, is likely to see strong interest here on both investor, and consumer sides of the equation.
According to the Bloomberg report, more than 80% of the 2019 deals were done using virtual PPA models (synthetic contracts) which is consistent with the model recommended by the MOIT to the PM in Vietnam.
The PM's draft Decision contemplates renewable gencos participating directly in the VWEM and agreeing contracts for differences (CfDs) with consumers at agreed long-term strike prices. Consumers are motivated to participate to meet sustainability goals, satisfy customer expectations and to hedge against long-term power price fluctuations.
The draft PM Decision recommended by the MOIT contemplates a process to implement the pilot project as follows:
- Within 15 working days from the date on which the formal DPPA Decision comes into effect (still TBC), MOIT will publicize the details of the pilot program.
- Within 15 working days thereafter, MOIT will open an e-application portal for interested DPPA program participants (both gencos and consumers).
- Interested participants will have 45 working days thereafter to prepare and submit applications.
- The MOIT will have a further 45 working days to assess, select and publish a list of participants.
- Participants will then have 180 working days to negotiate and execute necessary agreements, complete development of projects and achieve commercial operation (for participation in the wholesale market).
These steps and timelines will be subject to final approval of the PM in the formal Decision. It is expected that further details re project application details and assessment criteria and process will be developed by the MOIT.
Contact us for further details about the proposed design of the DPPA pilot project, the agreements involved and the process to get involved as either genco investor or consumer offtaker.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.