Vietnam's direct energy purchase drives renewable adoption, grid connectivity a challenge

Vietnam's new Direct Power Purchase Mechanism (DPPA), which stipulates mechanisms for direct energy purchase between power harnessing units and large electricity customers, will be a catalyst for renewable energy adoption in the coming years, market sources told S&P Global Commodity Insights at the Solar & Storage Vietnam 2024 in Ho Chi Minh City over July 10-11.

While the overall outlook was positive, sources did voice concerns over the lack of granularity in the mechanism.

According to a Vietnamese venture capital manager, 2024 is a 'milestone' year for renewable energy to finally take off. "With DPPA, more renewable energy capacity is slated to come up in the run up to 2030. Hopefully, it would also give a boost to the RECs market," he said.

Furthermore, a representative from a Vietnam-based energy construction company says that the DPPA will positively impact the I-RECs market. "The Ministry of Investment and Trade has a task force for I-RECs policy. They are amid creating a roadmap for the I-RECs market."

The Direct energy purchase under the decree will be carried out in two mechanisms, with the first one being direct power purchase via private transmission line.

In this, entities will have to sign an electricity purchase contract between renewable energy generators and large electricity users, where electricity will be delivered via a private transmission line. Large electricity customers can also buy additional electricity from Vietnam Electricity.

The second mechanism is direct power purchase through national grid, in which, entities will sign a forward contract between a renewable energy generation unit and a large electricity customer, or a retail supplier in an authorized area. Furthermore, renewable energy generators will have to sell produced electricity into the SPOT electricity market of the competitive wholesale market.

Despite the positive feedback, market participants expressed their concerns about the lack of details in the decree.

"Although the DPPA policy has opened new paths for corporates to bypass EVN to procure renewable energy, grid connectivity is another issue yet to be addressed," the representative of the energy construction company said.

"The DPPA can be a 'gamechanger' and open doors for renewable energy generators to meet [their] customer's demands," the Vietnam-based venture capital manager said. "But feasibility tests are yet to be conducted for renewable energy to reach grids in local municipalities."

In a presentation by Nguyen Ngoc Phuc Dang, legal specialist from EVN PECC3, rooftop solar projects can participate in private-transmission DPPA, while solar power projects with capacities over 10 MW can participate in either on-grid DPPA or private transmission.

Experts are expecting a surge in investments for rooftop solar projects, aligning with Vietnam's Net Zero emission goal by 2050. "Demand for rooftop solar from the commercial and industrial sector is high now. With the DPPA released, I am looking forward to a decree for rooftop solar next," Samresh Kumar from SkyX Solar said.