DEVELOPMENT OF THE DIRECT POWER PURCHASE AGREEMENT MECHANISM

On July 25, 2023, the Ministry of Industry and Trade (MOIT) issued the Report no. 105/BC-BCT sent to the Prime Minister on the research and development of the Direct Power Purchase Agreement mechanism (DPPA Mechanism) between the unit that generates power from renewable energy (hereinafter referred to as generation unit) and large power user in the production group (hereinafter referred to as customer).

The draft regulation on DPPA Mechanism has the following main contents:

1. Scope of regulation: this regulation governs the DPPA Mechanism between the generation unit and the customer in two cases:

(i) through a private line directly connected.

(ii) through the national grid.

2. Subjects of application: this regulation applies to:

(i) The generation unit owns a wind or solar power plant connected to the nation power system that has a installed capacity of 10MW of more, except for the case of power purchase through a direct connection line betwen the generation unit and customer, not through the national power system.

(ii) Customers are organizations and idividuals that purchase power for production purposes from a voltage level of 22kV or higher, except for the case of power purchase through a direct connection line betwen the generation unit and customer, not through the national power system.

(iii) Electricity units include: the EVN; load dispatch and manage power market transactions units; power retailers.

3. Principle of transactions:

(i) The generation unit connects to the national grid and sell power from the plant to the spot market in the competitive wholesale electricity market.

(ii) Customers buy power from electricity retailers for all the power they use at the selling price.

(iii) Customers sign differential forward contracts with the generation unit (with commitments on the payment and price).

4. Regarding the power transactions by the generation units through the spot electricity market: regulations on signing contracts, announcing capacity and calaulating revenue for the generation unit.

5. Regarding the transactions and payment between customers and electricity retailers:

(i) Before the Law on Price and related guiding documents take effect: electricity price is based on the retail price regulated by the Government.

(ii) After the Law on Price and related guiding documents take effect: electricity price is the price that accurately and fully reflects the charges on the spot electricity market plus all kinds of service prices.

6. Regarding the contract between the customer and generation unit: regualtions on the signing of a forward contract in the form of the differnece (including contract output, the price, refernce price, principle of revenue payment according to the contract).

7. Implementation responsibilities: Assign the MOIT and the Ministry of Finance to implement the mentioned contents.

Details of report 105/BC-BCT can be found at:

https://drive.google.com/file/d/1Aw-HbNrf9May5sKtrJhDfIbOflCxzYbF/view?usp=drive_link

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For more information, please contact:

Hoang Pham (James) / Managing Partner at: hoang.pham@vselawyers.com

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Attention: This legal update is not an advice and should not be treated as such.