Vietnam Approves Direct Power Purchase Agreements to Boost Clean Energy Adoption

Vietnam's government has recently approved a decree allowing Direct Power Purchase Agreements (DPPAs), a move that foreign investors have long sought to enhance the country's position as a significant exporter. This change is particularly crucial as global markets increasingly favor companies that utilize clean energy, providing them with a competitive edge. According to Kyeongho Lee from Wood Mackenzie, interest in DPPAs is rising, with around 20 large companies expressing a desire to purchase clean energy directly from producers, amounting to an estimated demand of nearly 1 gigawatt. The success of DPPAs hinges on Vietnam's ability to modernize its aging electrical grid, which has struggled to keep pace with the rapid growth of renewable energy generation. Many factories may find it challenging to establish solar or wind farms nearby, leading them to rely on a "virtual" purchasing model. In this scenario, companies buy energy from the state utility, EVN, which sources power from renewable projects, while the companies cover any cost differences between the government rate and their purchasing agreement. Vietnam has significantly increased its solar and wind power usage, which now constitutes about 13% of total electricity generation. However, fossil fuel reliance has also risen, accounting for 53.6% of power generation in 2023, up from 49.7% the previous year. Experts like Dinita Setyawati from Ember believe that the new directive could reverse this trend by ensuring a market for specific renewable projects, potentially leading to increased installation of renewable energy capacities if the DPPAs prove successful.