Vietnam Approves Direct Power Purchase Agreements, Boosting Renewable Energy Access

Vietnam’s recent approval of Direct Power Purchase Agreements (DPPAs) represents a significant shift in its electricity market, allowing factories to directly procure power from wind and solar producers. This regulatory change removes the previous requirement for all power consumers to purchase exclusively from the state-run EVN, aligning Vietnam with a growing trend towards decentralised electricity markets in Southeast Asia.

As per reports, the present reform which was anticipated since 2019, is welcomed by major foreign investors like Samsung and Apple. For these companies, the DPPA mechanism is crucial for meeting renewable energy commitments and gaining competitive advantages in markets that impose carbon taxes. By facilitating direct access to renewable energy, Vietnam aims to support its rapid industrial growth while addressing climate targets.

The introduction of DPPAs is expected to stimulate new investments in solar and wind farms, addressing long-standing investor concerns about access to stable and clean energy. This reform supports Vietnam's broader economic strategy of diversifying supply chains away from China. However, the success of DPPAs will depend heavily on Vietnam’s ability to upgrade its electrical grid, which requires an estimated USD 15 billion investment. The current grid infrastructure has struggled to keep pace with the rapid growth of clean power generation, posing a significant challenge for the new policy. Analysts suggest that ensuring a robust grid will be essential for factories to take full advantage of direct renewable energy procurement, thus bolstering the market’s overall reliability and efficiency.

Despite a recent uptick in fossil fuel use, the DPPA directive aims to reverse this trend by providing more certainty for renewable energy investments, potentially unlocking significant interest in developing new projects. The directive guarantees a market for specific wind and solar projects, offering businesses a more predictable and supportive environment for renewable energy development. This initiative is expected to liberalise Vietnam's electricity market further, promote renewable energy use, and advance the country’s economic and environmental objectives. If successful, the DPPA model could serve as a blueprint for other Southeast Asian nations seeking to balance rapid industrialization with sustainable energy practices.