In the newly issued Power Development Plan VIII (PDP VIII), the direct power purchase agreement (DPPA) mechanism is said to be implemented on a pilot basis. The DPPA mechanism could offer an alternative for renewable energy projects to sell electric energy. However, PDP VIII stops short of providing broad strokes of what the DPPA mechanism will look like. That said, before the PDP VIII was issued, in 2022, a draft decision of the Prime Minister (Draft Decision) on a pilot scheme (Pilot Scheme) for the DPPA mechanism was circulated for public opinion collection. Such a scheme offers a look into the possible structure of the DPPA mechanism under PDP VIII. In this article, we will discuss the basic structure of the DPPA mechanism and some key points in a DPPA.

Under the Pilot Scheme, the DPPA mechanism is financial/synthetic DPPA and works as follows:

1.         the renewable energy generator will enter into a DPPA in the form of a forward contract (hợp đồng kỳ hạn) with a customer, under which the customer will guarantee a fixed price for the energy produced by the renewable energy project (see 3) and in return, the generator will transfer the “environmental attributes” created by the project to the customer;

2.         though the name DPPA suggests there is a sale of electric energy between the generator and the customer, under the DPPA mechanism, the generator won’t physically deliver electric energy to the customer; that is why it is called financial/synthetic DPPA. Instead, the generator will sell all of the generated electric energy to EVN in the wholesale electricity market under a template power purchase agreement provided in the Draft Decision. The power companies of EVN will then sell electric energy to the customer at retail prices. Such electric energy may not necessarily come from the project.