Vietnam's Direct Power Purchase Agreement(DPPA): A New Approach to Renewable Energy in Southeast Asia

Source: ChatGPT

The Southeast Asian nations experience rising demands to shift away from fossil fuels since they need sustainable energy systems to combat regional climate change. In order to fulfill international climate commitments to reach net-zero emissions by 2050, nations like Vietnam, Thailand, and Indonesia implement new policies to speed up their renewable energy adoption.

The Direct Power Purchase Agreement (DPPA) of Vietnam serves as a promising solution to this need, offering a new mechanism to diversify power procurement options in a market traditionally controlled by state enterprises with limited private participation.

The question is whether Vietnam's DPPA will serve as an effective catalyst for increasing corporate commitment to purchasing more green electricity.

Development of Vietnam's DPPA Framework

DPPA mechanism in Vietnam was initially proposed and piloted from 2022. In July 2024, the Direct Power Purchase Agreement was regulated for the first time by Government Decree 80/2024/NĐ-CP as a pilot legal structure. One year later, in March 2025, the government issued Decree 57/2025/NĐ-CP, providing the official regulatory framework for DPPAs under the Electricity Law 2024, with additional detailed regulatory oversight on renewable energy producers and large electricity consumers.

The DPPA allows large power consumers - specifically companies with minimum average consumption of 200,000 kWh monthly - to trade electricity directly with renewable energy generating companies (RE GENCOs) that have minimum installed capacity of 10MW and direct participation in Vietnam Wholesale Electricity Market (VWEM), completely bypassing the state-owned utility Vietnam Electricity (EVN). The regulations were established with the expectation of attracting and streamlining foreign direct investment (FDI) businesses in renewable energy, including major manufacturers like Apple, Samsung, and Foxconn, and establishing Vietnam as a renewable energy center in Southeast Asia.

Distinctive Design Features

There are several unique features distinguishing Vietnam’s DPPA from those of other countries and highlighting its novelty.

Firstly, Vietnam's DPPA has two primary models for electricity sales and purchases. The first form is Private DPPA, where electricity is transmitted through private transmission lines constructed to directly connect the power plant to the consumer facility.

Source: EVN-PECC3

The second form is Grid-Connected DPPA. In this model, the power generator sells electricity to the national grid via EVN through a Generator PPA, while the consumer buys electricity from the grid under a separate Consumer PPA. Although electricity is not delivered directly between the two parties, they sign a Contract for Difference (CfD) to settle the price difference between the agreed rate and the market rate. This financial arrangement simulates a direct power purchase and is known as a synthetic DPPA. 

By offering both direct and intermediary-based DPPA models, Vietnam enhances flexibility and accessibility to renewable energy projects for a wider range of investors and consumers.

Source: EVN-PECC3

Secondly, the mechanism is not a purely free market where buyers and sellers can negotiate electricity prices. Rather, payment prices continue to be set based on market prices quoted in the Vietnam Wholesale Electricity Market (VWEM) and are adjustable within predetermined ranges, i.e., regulated price caps.

Ultimately, the system employs a bilateral contract framework with financial and physical trade decoupling. Customers and EVN conclude physical purchase agreements of electricity, while generators and customers sign separate bilateral financial agreements to cover market prices and contract prices.

Feasibility of DPPA for Corporate RE Uptake

Returning to the question posed at the beginning of this article – whether Vietnam's DPPA will effectively drive corporate commitment to green electricity purchases – this section assesses its potential benefits and existing limitations.

The integration of this mechanism into a formal and comprehensive legislative framework, under the Electricity Law 2024, has provided the policy with greater sustainability and increased businesses' confidence to invest more in renewable energy. Additionally, by separating financial transactions from physical electricity delivery, the DPPA model helps stabilize electricity costs for buyers. This makes the mechanism more appealing to investors seeking price certainty.

Currently, many large international enterprises with manufacturing facilities in Vietnam have set RE100 targets or ESG reporting requirements. DPPA serves as a local solution empowering companies to attain their goals by directly accessing and using renewable power sources and offering a well-defined certification system to document the transmission and consumption of renewable power transparently and reliably.

However, some restrictions in this mechanism could cause obstacles for some companies. For instance, the high participation threshold previously mentioned excludes most small and medium enterprises that still desire to use renewable energy to green their operations and protect the environment. Furthermore, while the capital cost of constructing private transmission lines can be daunting, grid-connected systems do have limitations, such as continued dependence on EVN's infrastructure quality and coordination capabilities.

In conclusion, the DPPA mechanism holds strong potential to encourage large corporations, especially FDI companies, to increase the consumption of green electricity. However, broader market participation will require greater policy support, capacity building, and infrastructure upgrades.

At Mt. Stonegate, we assist businesses in navigating Vietnam's evolving energy landscape. For organizations considering DPPA participation or developing comprehensive renewable energy strategies, our ESG and energy policy specialists provide expert guidance to support informed decision-making.

References:

-       Corporate Direct Power Purchase Agreement (DPPA) new ... (n.d.). https://insightplus.bakermckenzie.com/bm/attachment_dw.action?attkey=7YXd%2FIR4jyPRAcqzGyEGUJIk7GflUDTSABBWkcAZq67fmGOUTzkv14RkrGPyU9rJf6Ul%2BOFLZqyogXXTWjZPsSTbM40gVB8%3D&nav=BwBK%2FUIHAYiVnh8H3xzPhwV2BJX9%2F0gFCGmBoCW7IoFY1f1HaATqFYV5CdgFQ8%2F2bOkj2okkfWQ%3D&attdocparam=%2B8BoTnB3ZqvrFWmSbfK1s17wFNtZoX1E0UAPibBEeuwpzmWOKOTYBntjOfQ9rxHGKFHz69hsRoaMQw%3D%3D&fromContentView=1 

-       Vietnam’s Direct Power Purchase Agreement (DPPA) decree could catalyze a new era for renewable energy. IEEFA. (n.d.). https://ieefa.org/resources/vietnams-direct-power-purchase-agreement-dppa-decree-could-catalyze-new-era-renewable