Vietnam to Open Bilateral Power Purchase Agreements for Renewable Energy

Nov 2022

Since 2020, the Vietnamese government has been working on a plan to permit bilateral power purchase agreements (PPAs). A pilot scheme for renewable energy is expected to start in the first quarter of 2023. 

Vietnam’s Ministry of Industry and Trade (MoIT) hopes to open up the country/s electricity market to PPAs through a pilot program that will allow renewable energy generators to sell electricity directly to private off-takers under virtual or synthetic deals for the first time. Putting into context, the state-owned energy company Electricity Vietnam (EVN) currently has a monopoly over the transmission, distribution, wholesale, and retail of electricity.

The Vietnamese Government has proposed several regulations since 2020. The tariff structure was revised in January 2022. Under the current version, the off-taker would purchase electricity at retail price instead of paying the spot market price plus PPA fees. EVN would continue to pay Genco, the national utility, at wholesale rates. Additionally, a forward contract for difference for future trading cycles would be made between the buyer and the generator. 

This mechanism grants investors a fixed tariff and transfers the risk of tariff fluctuation to the off taker. The tariff change from wholesale to retail tariff for off-takers means an increase of around 2% to EVN and hence slightly reduced returns on the investor side (assuming the off-taker will aim for the same total tariff) and slightly less attractive for off-takers due to the change in electricity tariff risk.

(Source: PV Magazine)

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