Game changer for the energy arena

09:00 | 06/03/2020
Vietnam has recently created several favourable policies, including the Politburo’s Resolution No.55-NQ/TW on the orientation of Vietnam’s national energy development strategy to 2030 with a vision towards 2045, to boost renewable energy development, with a new programme of corporate power purchase agreements being formulated to attract funding into the sector. Vaibhav Saxena, lawyer at Vietnam International Law Firm, ventures into the policy outlook on renewable energy in this country, which may prove extremely beneficial for financiers who expect to grow their energy investments.
game changer for the energy arena
Vaibhav Saxena, lawyer at Vietnam International Law Firm

The Civil Affairs Committee at the Ministry of Industry and Trade (MoIT) in January released Resolution No.21/NQ/BCSD on principles and procedures for adjustments and supplements of master plans of power projects. Accordingly, the supplement of master plans shall be implemented with priority given to power grids over power sources; and regions with fewer renewable energy projects and capable of releasing capacity (with calculated release capacity) will be prioritised. Other regions should also be carefully considered, in particular two groups.

The first is grouping based on the power grid for the ventures. Priority order shall be as follows:

- Group of transmission power grid projects not in the Power Development Master Plan VII (PDP7) as amended and not requiring dossiers, including power grid projects approved in the five-year Plan of Electricity of Vietnam (EVN), and power grid projects with a voltage level of 220kV approved in the master plan on development of electricity in provinces and municipalities in the period of 2016-2025, with consideration until 2035;

- Projects included in the PDP7 as amended but requiring adjustments to operating progress and scale;

- Power grid initiatives serving the capacity release of sources of hydroelectricity or renewable energy;

- Grid projects supplying power to new loads or adjusting power supply plan to loads such as industrial zones and factories using high capacity; and

- Power sources connecting projects approved in the master plan, but not approved for connection or being proposed for suitable amendments.

The second group is based on the power source of the ventures. Priority order for master plan approval here is outlined as such:

- Wind projects with plants and power grids likely to be completed before November 2021 in areas where grids have not been overloaded, with priority given to projects that have completed the first stage, and proposals to expand capacity or utilise existing connection infrastructure to proceed to the second stage;

- Waste power projects;

- Biomass power schemes;

- Small and medium-sized hydropower projects requiring adjustments to the installed capacity;

- Small and medium-sized supplementary hydropower projects; and

- Traditional power projects, with priority given to power sources that support integrating large amount of renewable energy such as large hydropower or electrification. However, further research for these projects is required due to their high complexity.

Individual planning of solar power projects shall not yet be considered.

game changer for the energy arena
Game changer for the energy arena

There will be competent authority for appraisals and decisions on adjustment of master plans. For power grid projects, the MoIT shall appraise and submit power grid projects to the PM for deciding on the adjustment of the planning of electrical grids with voltage level of 220kV or higher. The ministry will also issue a document to consistently adjust provincial electricity master plans with respect to local proposals for electric grids with voltage level of 110kV or lower.

For power projects, the MoIT shall appraise and approve additional adjustments to the master plan for power projects with wattage scale of under 50MW (except for some types of power resources with separate regulations); and appraise and submit to the PM for approving additional adjustments to the master plans of power projects with scale wattage of more than 50MW.

Also involved are procedures for adjustments and supplements to master plans for wind power projects. There is a two-step priority order for this. First, master plan supplement appraisal priority shall be given to provinces with fewer proposals for adjustments and capable of improving capacity, such as Quang Binh, Ha Tinh, Ba Ria-Vung Tau, and Hau Giang. After that, it proceeds to provinces with more project proposals, with priority given to regions with calculated master capacity release, such as the southwest region, or the central province of Quang Tri.

Meanwhile, there are processes for provinces with more proposals for supplements to master plans. Based on these, submitted by the provincial people’s committee, the Electricity and Renewable Energy Agency under the MoIT shall arrange an appraisal meeting to review projects suitable for the land, capable of connecting and achieving commercial operation date no later than November 2021 for consideration to be supplemented to the master plans. That is carried out first with projects that have been appraised. Projects submit for supplement to master plan on a first-come, first-served basis. Secondly, other projects shall be considered according to its date of submission for supplement on the basis of first submitted, first considered.

Corporate PPAs

Vietnam has released Proposal No.544/TTr-BCT on the issuance of a draft decision of the prime minister on piloting the direct power purchase agreement (DPPA) mechanism. The DPPA draft promotes a closer relationship between renewable power producers and users.

The goal of the DPPA programme is to pilot a direct power purchase mechanism between renewable power producers and end users. The programme is under review and is planned to be launched at a pilot stage in the first quarter of 2020.

Scope, scale, and subjects

Under the DPPA draft, the programme will be piloted nationwide with a capacity scale of 400MW to 1GW and is suggested to run for two years. In order to participate in the DPPA programme, the seller and the buyer must satisfy several conditions. In particular, the seller shall be the renewable energy producers who:

- Register for participation in the pilot DPPA programme;

- Have power plants’ installed capacity of over 30MW. However, 30MW shall be taken as global generation capacity or local? In Vietnam the status is unclear and such conditions may be a hurdle for the new investors;

- Are approved in the relevant power development master plan, with priorities given to projects in areas with zero- to low-risk of grid congestions; and

- Are financially and technically capable, and are experienced in the development and operation of renewable power projects.

The buyer in the DPPA programme would be the power users who use electricity for industrial production and register for participation in the pilot stage; buy electricity at a voltage level no lower than 22kV; are financially and technically capable; and with priority given to buyers who have given international undertakings concerning environmental goals, anti-global warming, and sustainable development.

Wholesale electricity

As provided in the DPPA draft, the transactions in the DPPA programme would be conducted via the Vietnam wholesale electricity market (VWEM), which is now mainly regulated by Decision No.8266/QD-BCT dated 2015, approving the detailed design of VWEM and 2018’s Circular No.45/2018/TT-BCT regulating its operation. The major players in VWEM include, among others, EVN’s five electricity corporations (ECs) and high-capacity customers (customers purchasing power at a voltage level of not lower than 110kV) as the buyers; and power producers with installed capacity of power or hydropower plants exceeding 30MW as sellers.

VWEM could be considered as a transparent platform for the sale and purchase of power. The market could allow the ECs (as the buyer) and the seller to directly enter into a model PPA whereby the parties could negotiate on the amount of power produced and the feed-in tariff using the formula provided in the model.

DPPA payment mechanism

Under the DPPA draft, the buyer would enter into a power purchase agreement with the ECs with the selling price equal to the buying price of the ECs on the VWEM during each transaction cycle of 30-60 minutes plus the DPPA service fee over each electricity unit. As mentioned, the DPPA programme would be conducted via VWEM; therefore the DPPA service fee could be understood to be paid to the National Power Transmission Corporation.

Besides the PPA between the buyer and the ECs, the buyer also directly purchases power from the seller through a negotiated contract for differences (CfD) with a term of at least 10 years. The price and the amount of electricity sold shall be subject to the agreement of the buyer and the seller. Under the DPPA draft, the seller would enjoy the payment for the electricity it generated and transmitted to EVN’s grid; and differences between prices under the CfD and that of VWEM. Similarly, the buyer would pay the ECs for the power provided under the PPA; and the seller under the terms and conditions of the CfD.

Vietnam is going through a transitional phase which every emerging economy experiences. Although enormous efforts are being made by the government to safeguard the interests of investors, the outcome is much awaited and 2020 will be a crucial year for the country.

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