It came as no surprise that the launch of the DPPA program in Vietnam has been met with huge expectations from the corporates. The chance to procure credible renewable energy at scale in a region where many have emission-intensive operations has so far been limited. The DPPA is a first-of-a-kind pilot, launched by the Vietnamese Government alongside USAID, which presents a window of opportunity to scale up the adoption of renewable electricity, supporting the growing demand for renewable energy opportunities in the developing countries with high electricity demand and high carbon footprint.
As a renewable energy advisory to the corporates, act renewable has been heavily involved in facilitating entry into the program for some of our clients. Here we share our experience to date, introducing the key considerations for any corporates considering entry to the program and our learnings so far.
What is this pilot DPPA in Vietnam and the rationale for launching the program?
Firstly, this is not the typical direct PPA which is usually associated with the ‘DPPA’ acronym, it is more synonymous with a virtual-PPA, setting contract for difference between the offtaker and a developer. A set purchase price is agreed, the matched offtaker and developer then submit an application for the pilot program, and a selection of pairs will be granted entry to the program.
The aims of the DPPA program are two-fold, crucially for Vietnam, it supports the build-out the renewable energy capacity in the country and opens the market for investments to do this. Secondly, it is acting as a vehicle to attract more investment from foreign brands knowing there is the possibility for a credible means of procuring renewable energy in the country.
What makes this program so interesting for the corporates?
The initiative from corporates to drive meaningful emission reduction requires a close look at the manufacturing element of their operational setup, whether this is their own or the supply chain. The renewable energy transition is a key tool to support on this, however, the regions where credible procurement of renewables is possible, have been limited. Up to now, the only option in Vietnam has been solar rooftops capped at 1MW capacity per load point. The DPPA essentially opens up a new possibility for the corporates to purchase renewable energy in a scalable manner, in line with the commitments brands and manufacturers in Vietnam have made, without the need for direct investment. It presents a good business case and a window of opportunity for procurement in a region that has been complex to address.
What are the next steps for a company that wants to get involved?
To start with, an offtaker must as a minimum, consider the following:
As this is first of a kind pilot project, we have also seen the credit rating and financial transparency of the companies is key. An international and Vietnamese presence and experience are preferred in the case of the developer.
If the profile fits, we strongly recommend taking on the feasibility exercise as early as possible. This would involve building the business case, understanding how relevant and interesting the program really is for your company – meaning you have a clear idea of risk tolerance when to push forward with an application to a program, vs. stepping away or holding out for a second round. In a program where there is limited certainty on the final details, it is vital those bidding are very clear on the parameters acceptable to their own business, where the value in involvement lies and the company-specific risks.
What are the general risks are we considering here?
Nothing is certain in the program yet and the sign-off has already been delayed to the latter part of this year. The major risks linked to the unknown elements are the price components based on the brand-new wholesale market and an additional DPPA charge. Also, the final requirements in terms of minimum off-take volumes and how this is measured and enforced during the PPA contract period is considered a critical risk and something which potentially can be a deal-breaker for some. All this means the corporates must be prepared for different scenarios and have a clear understanding of what they are able to accept in terms of clauses and pricing structures.
Despite the risks, there are equally clear opportunities the program has the potential to deliver. For those companies with big emission footprints in Asia and ambitious targets, the program will go a long way to support the transition in a challenging region. There are benefits for many in securing a stable electricity price, and with it being a first-of-a-kind, there is the accolade of being an early mover. With a retail market price in Vietnam which has increased 57% since 2005 and a looking to further increase annual between 3-7% p.a. in the coming year (World Bank, 2020), the financial opportunity is also there. Finally, those assessing their options and understanding the business case for the DPPA in Vietnam now will be in the best position for potential future rounds of the program too.
What kind of support is optimal for this program?
An independent advisor with PPA experience and a good understanding of the renewable energy market in Vietnam is key. Matching the off-taker with the right project and picking the right developer to partner with is not a straightforward process, due to the many restrictions of the program and the immature nature of the renewable energy developer market in Vietnam. To ensure the best chance of selection, a good pairing that fulfills the requirements of the program is very important – this should also be considered from an unbiased standpoint to ensure the optimal matching for both parties. Then, once there is a clear understanding of the landscape, build a picture of what involvement in the program could look for your company.
For more information on the Vietnam DPPA pilot program or other aspects of renewable energy transition planning, get in touch via firstname.lastname@example.org