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  5. Vietnam: Draft new circular on the Vietnam wholesale electricity market's regulations and its implications for power projects

Vietnam: Draft new circular on the Vietnam wholesale electricity market's regulations and its implications for power projects

08 Apr 2024    1 minute read
Draft Circular Circular 45 Vietnam Wholesale Electricity Market VWEM

In brief

On 12 March 2024, the Ministry of Industry and Trade (MOIT)'s Electricity Regulatory Authority of Vietnam (ERAV) released for public comment a draft new circular ("Draft Circular"), which if adopted would take effect from 1 July 2024 and would replace Circular No. 45/2018/TT-BCT dated 15 November 2018 regulating the operation of the Vietnam Wholesale Electricity Market (VWEM) in Vietnam (as amended) ("Circular 45").

Most of the adjustments made to the Draft Circular are technical in nature. However, the release of the Draft Circular is part of a wider effort by the government to update its legislation around grid-connected projects ahead of the launch of numerous LNG-to-power tenders this year, including through the concurrent preparation of a separate draft new circular on power tariff determination and model power purchase agreement (which we have previously discussed – read 

here).

Contents

Key takeaways

  1. The development of the competitive electricity market has been planned in three stages, and the VWEM (which legally became fully operational in 2019) corresponds to Stage 2 of this development. The Draft Circular has not established Stage 3 of the plan yet (i.e., the Vietnam Retail Electricity Market), although its general structure has already been designed.1
  2. The VWEM involves the participation of various government stakeholders, most of whom depend either on the MOIT directly or on Vietnam Electricity (EVN). Various plans are being considered in order to restructure some of these entities to increase independence between the various functions assumed by the government in the VWEM.
  3. Generally, thermal and hydropower plants with capacity exceeding 30 MW are required to participate directly in the VWEM. Various projects are not required to participate directly in the VWEM and can instead continue to sell electricity to EVN on a direct basis. These projects include Build-Operate-Transfer (BOT) and power importing projects.
  4. A power producer will receive two types of payments in the VWEM: (i) a spot market payment (based on actual dispatch); and (ii) a Contract for Differences (CfD) payment (based on a contractual output). Spot market payments will themselves depend on bids submitted by power producers for each 30-minute trading interval, which bids will partially determine the dispatch levels of the units they operate.
  5. Pricing on the VWEM is currently based on costs incurred by producers, although the government plans to ultimately switch the VWEM to a purely price-based pool once prerequisites are met.

Click here to read the full alert.

1 Decision No. 2093/QD-BCT dated 7 August 2023 of the MOIT on approving the project on designing the retail electricity market model.

Contact Information
Thanh Hai Nguyen
Partner at BakerMcKenzie
Hanoi
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thanhhai.nguyen@bakermckenzie.com
Charles Magdelaine
Associate at BakerMcKenzie
Hanoi
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charles.magdelaine@bakermckenzie.com

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