The Vietnamese government has introduced Corporate PPAs in response to business demand to buy green energy directly from the source. In this insight, we explain the game-changing reform and the challenges and opportunities that lie ahead.
The spectacular growth of Vietnam’s renewable energy generation industry has, combined with public expectations on climate change and social responsibility, led large corporates to seek ‘green’ energy directly from the source (that is, the renewable energy generators). This necessitated the creation of a power purchase agreement (PPA) new to Vietnam but widely used elsewhere - the ‘Corporate PPA’. A green power purchase agreement between a green energy generator and its corporate customers, the new Corporate PPA is expected to create a more transparent and efficient energy market in the rapidly growing country.
The Vietnamese Government issued Decree No. 80/2024/ND-CP (Decree 80) on 3 July 2024. Decree 80 enables certain electricity users in Vietnam to purchase ‘green’ electricity directly from renewable energy generators in Vietnam.
This marks a significant milestone in the country's renewable energy landscape with more reform on the horizon. For large corporates, this not only helps to meet sustainability goals but also to gain more control over their energy sources and costs.
However, to realise the full benefits of this groundbreaking reform and ensure smooth implementation, further clarity is needed.
Corporate PPAs are widely used in various countries around the world. These agreements have been instrumental in driving the growth of renewable energy projects by providing a stable revenue stream for developers and helping businesses meet their sustainability targets. By introducing corporate PPAs, Vietnam is aligning itself with global best practices in renewable energy procurement.
The rise of renewable energy and the Corporate PPA in Vietnam
Until relatively recently, the state-owned vertically integrated electricity monopoly, Vietnam Electricity (EVN), was largely responsible for electricity generation in Vietnam.
In the renewables sector, this began to change in 2017 when the Vietnamese Government introduced its feed-in-tariff programme for renewable energy generation, following other programmes including BOT (Build-Operate-Transfer) models for coal and gas fired plants.
EVN’s share of Vietnam’s total generation capacity (approximately 76GW) now sits at slightly less than 40%, while renewables make up roughly half of all electricity generated according to IRENA. The country’s solar generation capacity comprises about 16 GW – some 1500% more than the 2018 figure of 1 GW.
The Vietnamese Government’s feed-in-tariff programme for renewable energy generation was very successful. Some might say too successful. In 2023, Circular No. 01/2023/TT-BCT abolished the feed-in-tariffs for renewable energy projects and the fixed tariff 20-year PPAs between EVN and developers which supported them. It replaced them with a framework for formulating new pricing frameworks for renewable projects, which is still being implemented.
Understanding the two types of Corporate PPA now authorised in Vietnam
Decree 80 establishes two types of Corporate PPA:
A “direct electricity purchase and sale via Private Connection Line” Corporate PPA - a single contract (commonly referred to as a private wire PPA) between the generator and the purchaser for the physical purchase of “green” electricity.
An “electricity trading through the National Grid” Corporate PPA - a futures contract (commonly referred to as a contract for difference in other markets) which puts the purchaser of electricity and its generator in the same position economically as they would have been if the purchaser purchased the electricity directly from the generator.
There are a few more steps to this process, involving the state-owned utility:
- The generator enters a Wholesale Electricity Market (WEM) PPA with EVN to physically sell its electricity to EVN.
- The purchaser enters a retail PPA with EVN or an authorised retailer to physically purchase electricity from EVN or the authorised retailer (and if the purchaser is purchasing electricity from an authorised retailer, then that retailer will also have had to enter into a PPA with EVN to purchase electricity from it).
This approach is commonly used to manage the presence of a national electricity transmission grid (invariably owned by a government or a third party) between the generator and the purchaser.
Key features of the two Corporate PPAs
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The Corporate PPA journey has begun, but steps remain: challenges and considerations
The renewable energy industry has welcomed Decree 80. However, local regulation and industry practice still have a way to go before a vibrant corporate PPA market can flourish in Vietnam.
Further clarity may be required on several issues, including:
- Who can own and operate the private lines for Private wire PPAs, including whether the project developer must build, own and operate them or, for example, the developer must build them while EVN owns and operates them.
- How will access to the National Grid be managed? In particular:
- How to allocate curtailment and payment timing risks between the parties to the numerous contracts which comprise, and sit behind, the Grid PPA?
- Whether USD currency pricing or USD/VND exchange rate indexation can be used in the Corporate PPAs. If allowed, this could help renewable energy developers to raise funds for projects.
- While VND pricing is consistent with the currency localisation objectives of the Vietnamese Government in Circular No. 01/2023/TT-BCT, this is a departure from the previous feed-in-tariff regime that permitted the use of the USD/VND exchange rate.
- Will authorities and public sector counterparties use their new powers under the ‘anti-profiteering’ mechanism to prevent ‘profiteering’ under a Corporate PPA?
- What security interest, remedy and enforcement rights can be granted to external financiers, whether directly in the Corporate PPAs or in direct agreements? Clarifying the ability to grant, and the granting of such rights, will make it easier for renewable energy developers to raise external finance.
The parties involved may be able to address some of these issues contractually, for example, through amendments to the form of futures contract before it is executed.
There is more renewable energy related reform to come
Decree 80 is the first step in significant electricity reforms by the Vietnamese Government. Other changes to come include:
- Separation of the National Electricity System Dispatch Center from EVN and establishment of the National Electricity System and Market Operation Company Limited (NSMO) (Decision No. 752/QD-TTg)
- Further regulation of the offshore wind and rooftop solar sectors
- A new Electricity Law
- A purchase programme for excess energy generated by small scale rooftop projects.
Embracing opportunities in Vietnam's evolving energy market
Decree 80 is a significant step towards greater certainty for sellers and (corporate) buyers of renewable energy in Vietnam, while also leaving room (some might say a little too much room!) for EVN, generators and power purchasers to agree sensible, and bankable, commercial terms.
The upcoming changes to the transmission and distribution sectors should also bring greater transparency and certainty, as will the new Electricity Law.
We are ready to assist our clients in developing opportunities in the rapidly changing Vietnamese electricity market.
This insight is provided for general informational purposes only and should not be construed as legal advice. King & Wood Mallesons does not practice Vietnamese law, and works closely with local lawyers to support our clients' needs in Vietnam. We are grateful to DFDL for their co-operation on this insight.
If an authorised electricity retailer (e.g. industrial zone retailed) is involved, it will be a party to the retail PPA with EVN and will enter into a further retail PPA with the final large electricity users, the contents of which are not regulated by Decree 80.
