Experts say that direct electricity trading is quite complicated, and it is necessary to wait for instructions and legal synchronization time, so "at the earliest, there will be a project operating under this mechanism by the end of 2025".
In early July, the Government issued Decree 80 on the direct electricity trading mechanism (DPPA) between renewable energy generators (solar, wind, etc.) and large electricity customers. The conditions for participation are that large electricity customers are connected to a voltage level of 22kV or higher and consume an average of 200,000 kWh per month. Accordingly, 7,700 customers are eligible for direct trading, according to data from electricity companies. This number accounts for about 40% of the total electricity consumption in the country.
In the energy sector update report, the analysis team of Dragon Capital Securities Company (VDSC) said that DPPA will encourage investors to launch renewable energy projects after the FIT 2 fixed preferential price expires at the end of 2020. Accordingly, investors of transitional projects that are waiting for the price mechanism or preparing to deploy will benefit, as they do not depend on negotiations with EVN.
For example, Tan Phu Dong 1 wind power (capacity 100 MW) - a transitional project - negotiated price with EVN is 908 VND per kWh. In the future, if participating in the DPPA mechanism, investors will negotiate to sell electricity to units in need (other than EVN) at a price that may be better than the electricity industry buys from them, depending on the agreement between the two parties.
Or for the Refrigeration Electrical Engineering Joint Stock Company, the DPPA mechanism is a condition for them to continue investing in a series of wind power projects after 2025, including Tra Vinh 2 (80MW) and Tra Vinh V1-5 and V1 6 (48MW). On the intermediary buyer side, VDSC believes that this mechanism opens up opportunities for industrial park investors to participate as wholesale and retail electricity buyers.
US Ambassador to Vietnam Marc E. Knapper said that the DPPA helps international and domestic businesses reduce carbon and convert to clean energy. On the other hand, this mechanism also helps attract more foreign capital into renewable energy in Vietnam, according to Mr. Stuart Livesey, representative of the Vietnam Business Forum (VBF).
However, according to experts, there are many challenges to be overcome to implement the DPPA. The buyer and seller negotiate prices based on the model power purchase agreement (PPA) of the Ministry of Industry and Trade. The purchase method can be through a private line (ie not through EVN) or the national grid. However, both cases lack detailed instructions from the management agency.
At a press conference earlier this month, Deputy Minister of Industry and Trade Nguyen Sinh Nhat Tan admitted that "there will certainly be confusion" in implementation, including negotiations on "selling at what price" between the participating parties. Because the model PPA contract of the Ministry of Industry and Trade is directional, while the specific content is agreed upon by the two parties.
VDSC's analysis team believes that it will take a long time for projects to be implemented under the DPPA mechanism. Because the methods and implementation processes have not been guided in detail by the authorities. Legal documents implementing this mechanism also need to be revised and issued synchronously, including the Circular guiding the DPPA, the Decree on self-produced and self-consumed rooftop solar power, which stipulates the sale of surplus electricity. Or some regulations on prices and costs of operation, transmission, distribution... in the Electricity Law also need to be revised.
"At the earliest, there will be a project operating under this mechanism by the end of 2025," analysts at VDSC forecast.
Solar power plant has been put into operation in Phan Thiet city, Binh Thuan province. Photo: Viet Quoc
With private line trading projects, the parties themselves agree on capacity, output and price, but they have to pay for the investment costs of the line. SSI Securities' analysis team believes that buyers and sellers may have difficulty negotiating contracts due to a lack of guidance.
More specifically, experts from VDSC pointed out that investors will encounter difficulties when adding the power grid to the provincial and regional planning. Mr. Pham Dang An, Deputy General Director of Vu Phong Energy Group - a unit developing solar power projects - said that this additional process will be "complicated, time-consuming and resource-consuming". Because businesses must meet technical standards on safety, maintenance and periodic inspection of the power transmission system.
"These challenges can affect investment efficiency due to increased costs," he said. However, if implemented properly and in compliance with regulations, businesses can take advantage of direct electricity sales, long-term investment efficiency.
From another perspective, a representative of a business in Binh Thuan is concerned that large customers who need to buy clean electricity are mainly in the North and South, but large-scale renewable energy supplies are scattered in the Central region. This makes it difficult to sell electricity directly due to the high investment costs of separate transmission lines.
The case of buying and selling electricity directly through the national grid (ie still through EVN) is also not easy. According to the Deputy General Director of Vu Phong Energy Group, the authorities need to guide the method of calculating the selling price, the cost of operating the grid, as well as the technical standards and conditions for cooperation and project implementation.
In fact, in addition to the cost of the power plant, the transmission and distribution fees paid to the power companies are the components to calculate the selling price between the parties. With direct trading through the grid, the power generator will invest in a renewable energy plant but use the existing transmission and distribution system of the electricity industry.
However, Vietnam is applying a single-component electricity price, meaning these costs are included in the selling price. In fact, the current transmission cost is too low, by the end of 2023 it will be more than 79 VND per kWh (excluding VAT). This level is calculated on each kWh of transportation, not taking into account the correct and sufficient cost and distance. Meanwhile, the investment costs of the electricity industry (transformer stations, power lines) can vary between customers, depending on usage needs and location.
To overcome this problem, the Government requested the Ministry of Industry and Trade to study and soon apply a two-component pricing mechanism. With this mechanism, the electricity industry will separate the price and transmission fee from the cost of electricity. This creates fairness between buyers and sellers, including EVN, producers and electricity users, according to Minister of Industry and Trade Nguyen Hong Dien at a meeting in early July.
In addition, another challenge when implementing DPPA, according to VDSC, is to optimize the efficiency of negotiating output and prices according to power purchase contracts. Power generation companies must "fix" fixed prices for the whole year, or adjust them according to the time of day or season. Finding a balance between supply and demand is also a problem, because high prices are beneficial to sellers, but difficult to negotiate with customers. In addition, for the remaining electricity that is not fully generated, investors must bid on the competitive wholesale electricity market (a trading cycle of 48 sessions per day, each session lasting 30 minutes). However, the mechanism for renewable power plants to bid on this market is still unclear.
Not to mention, DPPA applies to renewable energy sources, in which solar power is an unstable source of electricity, depending heavily on weather factors. That is, this source of electricity can suddenly decrease in capacity when it is cloudy or rainy. Even though it is purchased and sold through branch lines, businesses still have to connect to the national power system. Thus, the national grid must always be "on standby" to provide timely supply. According to experts' estimates, 1 MW of rooftop solar power requires 4 MW from backup power sources (coal, gas, hydropower) for stable operation.
The option of using a battery storage system (BESS) is considered as a solution to support grid stability and reduce power loss in the context of unstable renewable energy. According to Mr. Pham Dang An, integrating a storage system should be considered as a condition when implementing projects. "This helps reduce the risk of power supply interruption and promote the potential of renewable energy sources," said Mr. An.
However, the investment cost of the BESS system is still high, so this option is not optimal. The research department of SSI Securities Company cited EVN's assessment that the retail price of electricity is about VND 2,006.79 per kWh (equivalent to 7.88 cents per kWh), lower than the cost of producing electricity from LNG or BESS technology. Experts from SSI expect that in the medium and long term, the two-component electricity price model will help solve this situation. In addition, the analysis team also noted that the implementation of DPPA must be accompanied by a more reasonable dispatch policy to ensure the load capacity of the grid.
Mr. Ha Dang Son, Director of the Center for Energy and Green Growth Research, said that the direct electricity purchase and sale policy was first introduced, so there needs to be a trial period. According to him, it is difficult for any mechanism to be perfect since its promulgation, because "each enterprise requires a different type". Authorities may not have fully calculated the infrastructure, mechanisms, and actual market size.
"The mechanisms still need to be tested, then gradually adjusted," he said, believing that this will create a safe buffer for the policy.
Source: Vnexpress
