PILOT DIRECT POWER PURCHASE AGREEMENT (DPPA): PROMULGATING AUTHORITY AND PROPOSED MODEL

On 9 May 2022, the Draft Prime Minister’s Decision (“Draft PM’s Decision”) on direct power purchase agreement (“DPPA”) mechanism between renewable energy generators and large electricity consumers was uploaded to the Online portal by the Ministry of Industry and Trade and is being finished after a period of public consultation.

Nevertheless, the Decree No. 39/2022/ND-CP on Government’s Working Regulations issued by the Government on 18 June 2022 provides some changes to the Government’s authority over pilot mechanisms in comparison to the Decree No. 138/2016/ND-CP. According to point b, Article 5.2 of Decree No. 138/2016/ND-CP, the Prime Minister has the authority over pilot mechanisms and policies regarding essential issues stipulated by law as the basis for amendment to or issuance of new mechanisms and policies. While point b, Article 5.2 of Decree No. 39/2022/ND-CP prescribes that the Prime Minister only decides on pilot mechanisms and policies within the authority of the Prime Minister as stipulated in Article 30 of the Law on Promulgation of Legislative Documents, which only includes:

1. Measures for governing and operating the Government and State Administrative system, regulations on working with members of the Government and local authority, as well as other issues within the authority of the Prime Minister; and
2. Measures for instructing and coordinating members of the Government; inspecting the adherence to policies of Communist Party, policies and laws of the State by Ministries, ministerial agencies, Governmental agencies, and local governments.

Therefore, with the Decree No. 39/2022/ND-CP, the DPPA pilot scheme no longer falls within the Prime Minister’s authority.  According to point b, Article 15.2 of the Law on Promulgation of Legislative Documents, the National Assembly has the authority to “pilot some new policies within the National Assembly’s decision authority that are different from the applicable laws or not governed by any law”, therefore, the National Assembly is the government organization that is competent to decide on the pilot DPPA. This means the pilot DPPA must be delayed because the Draft PM’s Decision will have to be replaced by a Draft National Assembly’s Resolution to maintain its legality.

In terms of content, the Draft PM’s Decision shows that MOIT proposed financial DPPA model (Synthetic DPPA) and established a relatively detailed schedule for implementing the pilot scheme.

In financial DPPA model:

1. Consumer buys electricity from Power Corporations at the current retail price; and at the same time, directly enter into a forward contract (Contract for Different –CfD) with a generator with electricity price and output agreed by both parties for future trading cycles.
2. The consumer will make up for the difference if the spot market electricity price for the committed power output in the contract is lower than the agreed price. This agreement will protect parties against financial risks caused by fluctuation of electricity market prices, thereby maintaining sustainable investment in renewable energy production. Generator signs a power purchase agreement with EVN to sell all the electricity on the spot electricity market.

Thus, in principle, EVN represents consumers to buy electricity from the generators at the spot market price and sells it back to the consumers at the retail price. Consumers can choose and access the source of the clean energy that they will use for manufacture and business for the purpose of protecting the environment and being recognized with renewable energy certificates (RECs). EVN is compensated for electricity transmission and management cost by the difference between the retail price and the spot market price.

Following the Article 9 in the Draft PM’s Decision, the pilot scheme is divided into 2 stages: the preparation stage and operation stage:

1. At the preparation stage, MOIT is responsible for officially announcing the pilot scheme, opening the registration portal on the pilot scheme’s website, evaluating and selecting qualified candidates;
2. At the operation stage, generators and consumers will proceed to complete the negotiation process, enter into relevant contracts, complete the construction of renewable energy plants, and put them into operation within the committed time. Based on the implementation result, within 01 year after the deadline where generators must commercially operate the power plants and participate in the electricity market, MOIT will assess market, technical, financial and legal aspects thereof, then proposes improvements for the DPPA mechanism to the competent authorities for their consideration and decision on an official implementation.

Read more: SOME KEY PROVISIONS OF THE LATEST DRAFT DECISION ON DIRECT POWER PURCHARE MECHANISM BY THE MINISTRY OF INDUSTRY AND TRADE

Phuc Dang