Recently, the Government issued Decree No. 80/2024/ND-CP on July 3, 2024, which regulates the mechanism for direct power purchase agreements between renewable energy generators and large electricity consumers. According to Decree No. 80/2024/ND-CP, direct power purchase involves two forms: Direct power purchase through private transmission lines and direct power purchase through the national grid.
– Direct Power Purchase through Private Transmission Lines is the activity of signing a power purchase agreement and transferring electricity through private transmission lines between renewable energy generators and large electricity consumers as stipulated in Chapter II of this Decree.
– Direct Power Purchase through the National Grid is the activity of power purchase through forward contracts between renewable energy generators and large electricity consumers (or authorized retail electricity units in specific zones and clusters) and actual power purchase transactions as specified in Chapter III of this Decree, which includes:
- Renewable energy generators sell their entire electricity production into the immediate wholesale electricity market;
- Large electricity consumers or authorized retail electricity units in specific zones and clusters sign power purchase agreements with the Power Corporation (or authorized/delegated units) to purchase all the electricity needed;
- Renewable energy generators and large electricity consumers or authorized retail electricity units in specific zones and clusters conduct power purchases through forward contracts.
The Decree also stipulates the principles for direct power purchase through private transmission lines. Regarding the direct power purchase through private transmission lines, renewable energy generators and large electricity consumers conduct direct power purchase through private transmission lines based on the following principles:
- The power purchase agreement between the renewable energy generator and the large electricity consumer, in case of direct power purchase through private transmission lines, is agreed upon by both parties in accordance with Article 22 of the Electricity Law and other relevant legal documents.
- The electricity selling price is negotiated by both parties, except as specified in Clause 4, Article 6 of this Decree.
Self-produced and self-consumed rooftop solar power systems connected to the national power grid, with installed capacity as per the approved national power development plan, if not fully consumed, the excess electricity can be sold to the national power grid but not exceeding 10% of the actual installed capacity. The actual installed capacity must not exceed the capacity stated in the development registration certificate issued by the competent authority. The Vietnam Electricity Corporation will pay organizations and individuals for the excess electricity fed into the national grid, but not exceeding 10% of the actual installed capacity.
According to estimates by the International Energy Agency (IEA), the global electricity consumption of data centers reached approximately 240-340 billion kWh (data from 2022); this calculation does not include cryptocurrency mining centers and electricity consumption for data transmission. Mega-companies such as Amazon, Google, and Apple, which own large data centers, always strive to use 100% renewable energy to create their “green” brand because brand value constitutes a significant portion of the company’s assets and is crucial for gaining public support. To achieve this, they need direct power purchase agreements (DPPAs). Besides creating a “green” image for the buyers, DPPAs also reduce the long-term electricity costs for the buyers and provide a secure investment source for the sellers—resulting in purely economic benefits. The “greenness” of the electricity is ensured by “green” certificates or carbon credits that the seller must fully transfer to the buyer. Thus, data center-owning companies can invest in one or more wind or solar power plants to obtain certificates for their data centers.
The power source for data centers must be extremely stable, so when they have a direct connection contract, they will not simply connect to a wind or solar power plant with storage batteries under the contract but will connect to at least two sources (renewable energy and grid electricity). Additionally, there is a third source, which is the backup generation system located within the data center’s premises, responsible for providing backup power during short-term grid outages. DPPAs typically have long durations of 10-15 years, ensuring that the seller can secure credit sources for investment in renewable energy. With such durations, the seller can justify the payback period and profitability, making it easier to find banks to provide credit. With long-term contracts, the electricity purchase price will be discounted to a low level for the buyer, as the electricity demand in the market is predicted to spike due to the demand for electric vehicles, leading to higher electricity prices. Furthermore, wind power in some areas is subsidized by the government, potentially making it cheaper than coal or gas electricity. However, this also poses a challenge for smaller companies (buyers), as they must have bank guarantees for these long-term purchase contracts. For example, a company wanting to sign a 15-year long-term contract to purchase 20 MW of electricity, even at a low price of 60 USD/MWh, would need to secure a credit guarantee of approximately 158 million USD for the DPPA contract. Therefore, to date, most “green” data centers belong to mega-companies.
The challenges of directly connecting data centers to renewable energy remain because renewable energy is intermittent and weather-dependent, while data centers require extremely stable power 24/7, more accurately 24/365. Thus, data centers are still primarily grid-connected in terms of physical connections. In this case, to avoid losses due to always ensuring stable electricity supply to data centers while the supply source is unstable renewable energy, the power company operating the system must, in addition to transmission costs, apply capacity fees and support service fees. These fees will help the power company cover the costs of sudden surges in generation. In China and Thailand, power companies must pay standby fees to gas power plants per kW/month, regardless of whether they generate electricity. This allows power companies to ensure a stable electricity supply.
Based on the advantages and limitations of implementing direct power purchase agreements (DPPA) from foreign experiences mentioned above, some lessons for Vietnam can be drawn:
- First: Companies that need direct power purchase agreements (called DPPA in Vietnam) in the form of direct connection will tend to purchase large hydropower sources in Vietnam, because they are cheap and provide stable power year-round. Small and medium hydropower sources can also be targeted because they are cheap and stable for a certain period; the rest they buy from the grid or through virtual DPPA. Therefore, the Government should reserve these sources for the common power system and not allow direct purchases.
- Second: Vietnam’s current transmission costs are too low compared to countries with similar systems, possibly not fully reflecting the actual costs if accounting fully and independently by distance and transmission location. Therefore, DPPA contracts may exploit low transmission costs.
- Third: Whether direct or virtual, DPPA contracts create significant pressure on the grid to balance with the increasing amount of renewable energy. Therefore, appropriate dispatching policies are needed in line with the grid’s load-bearing capacity.
- Fourth: The current cost of gas and storage is 1.5 times higher than EVN’s retail electricity price, which does not encourage non-EVN enterprises to invest in these two areas despite the ambitious goals set in Power Plan VIII. If EVN invests on its own, it will cause losses. Without gas and storage, it is impossible to further increase renewable energy as required by companies wanting DPPA.
- Fifth: Currently, Vietnam does not apply a two-part electricity tariff, so preparing and maintaining the readiness to supply capacity for data centers with DPPA with some renewable energy plants becomes extremely costly (if only selling electricity based on the actual amount of electricity provided, always sudden within the limited market price frame). Without capacity fees, it will create unfair business practices because EVN does not have the funds to maintain ready-to-activate capacity.
Simultaneously, Vietnam is currently facing many challenges in implementing carbon credit trading due to untimely and insufficient regulations. Additionally, the workforce in both the private and public sectors for these fields is lacking in both quantity and experience. With Vietnam expected to generate about 10.8 million voluntary carbon credits each year, the demand for a mechanism to exchange and trade these credits is increasing. This has led to much interest and discussion about establishing a domestic carbon credit exchange. The carbon credit market allows investors and corporations to simultaneously trade credits and offset carbon, providing dual benefits in addressing the environmental crisis and opening up new market prospects. Currently, Vietnam has signed an Emission Reductions Payment Agreement (ERPA) with the World Bank for six provinces in the North Central region. This agreement includes the transfer of 10.3 million tons of CO2 at a price of 5 USD/ton. As of now, the World Bank has disbursed 80% of the funds, equivalent to 41.2 million USD, to Vietnam.
With the mission of supporting businesses in achieving their sustainability goals through clean energy solutions, Alena Energy is now an official partner of I-REC Standard and a pioneer in providing I-REC credits in Vietnam. I-REC certificates help businesses demonstrate their commitment to using renewable energy, thereby contributing to environmental protection and sustainable development. Leveraging its collaboration with global RE100/ESG organizations, Alena Energy directly connects renewable energy plants in Vietnam with a team of experienced experts who are well-versed in the field of renewable energy. Proud to be the official partner providing I-REC renewable energy certificates for many major partners such as LG-Display, Sonova, REE, BYD, Foxconn, Google, Microsoft, and Ubisoft, this initiative not only helps customers reduce greenhouse gas emissions indirectly but also enhances their reputation and competitiveness in the international market.
Alena Energy believes that the above sharing will provide businesses with useful information about the direct power purchase agreement mechanism between renewable energy generators and large power consumers, aiming to minimize risks and costs for sustainable business development. This, in turn, elevates the company’s reputation with stakeholders, clearly demonstrating its commitment to social and environmental responsibility, contributing to global efforts to mitigate climate change and protect the green planet.
Join Alena Energy in creating a green future!
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