ESCO & DPPA - Two breakthrough mechanisms in renewable energy electricity development

With the "Decree 57/2025/ND-CP Regulating the mechanism for direct electricity purchase and sale between renewable energy generators and large electricity users" officially allowing large consuming enterprises to sign direct electricity purchase and sale agreements (DPPA) through separate transmission lines or through the EVN grid, helping to gradually shift away from traditional monopoly. This is considered a "turning point" to create a more competitive retail electricity market, promote private investment and support enterprises to achieve greening goals, especially in the FDI sector such as Apple, Samsung, 

With more than 380 industrial parks nationwide with an estimated potential rooftop capacity of about 12 GWp to 20 GWp, rooftop solar deployment helps save costs and reduce the load on the grid. 

What is ESCO? What is the role of ESCO?

ESCO (short for Energy Service Company) is a business model in which companies provide energy services to help customers save energy and reduce costs. ESCOs take on roles from design, construction, installation, operation, maintenance, risk management, and even share profits from energy savings and transfer equipment after the contract period. Customers do not need to invest their own capital in these projects, but instead, they share a portion of the energy savings benefits with ESCO. 

Many businesses understand the advantages of renewable energy and want to invest in this type of electricity. However, they lack capital to invest or have difficulty accessing finance from banks. ESCO will solve this problem by providing a “Zero Capex” model, where businesses do not have to make an initial investment, but only pay gradually from the electricity savings.

ESCO will optimize electricity usage efficiency: ESCO not only invests in renewable energy systems (such as rooftop solar power) but also improves lighting, air conditioning, motors... to help reduce electricity consumption by 20% to 40%. 

In addition, ESCO also shares technical and operational risks: Businesses do not need to worry about maintenance or performance because ESCO is responsible from start to finish. 

With the development of ESCO, thousands of small and medium enterprises can access clean energy without large capital. ESCO will bring clean energy solutions to industrial parks, buildings, and factories in remote areas where capital is less accessible. 

Direct Power Purchase Agreement (DPPA) unlocks the market 

Previously, Vietnam Electricity (EVN) was the sole buyer and seller of electricity in the Vietnamese electricity market. All electricity transactions had to go through EVN. DPPA allows businesses to buy electricity directly from renewable power plants, creating the first competitive market in the Vietnamese electricity industry. So how important is DPPA? 

DPPA triggers private investment and FDI in clean energy: International investors such as Apple, Google, Samsung... demand green electricity. The DPPA mechanism helps them buy renewable electricity from the right source, meeting ESG standards, reducing emissions in electricity use (scope 2). 

DPPA helps stabilize long-term electricity costs for businesses: Businesses can sign contracts for difference (CfD) from 5 years to 20 years, fixing prices, avoiding the risk of electricity price increases from the national grid. DPPA creates a competitive wholesale electricity market, which is a premise for the roadmap to a competitive electricity market. 

In the long term, DPPA will help Vietnam escape the one-way electricity trading model from the factory to EVN and then from EVN to electricity users. In addition, DPPA will activate tens of GW of solar and wind power without the need for state capital. In addition, DPPA will also contribute to reducing national emissions, contributing to the implementation of Vietnam's Net Zero 2050 commitment. 

Some problems need to be solved 

Although Decree 57 has been issued, there are no detailed instructions on the operating mechanism, transmission fees, CfD price adjustment, dispute resolution, and have not created peace of mind for the participating parties. The licensing of private power lines, electricity bidding, and coordination with the EVN grid are still complicated and entangled in long-term administrative procedures. 

The power grid in many places is not capable of receiving solar power capacity, leading to grid overload or forced capacity layoffs. 

Lack of smart metering facilities, storage systems (BESS), and connection between producers and consumers via the national grid still have many problems. 

The initial investment cost is high, especially for small and medium enterprises, such as the high interest rate (7% -8%), which somewhat limits the ability to participate in ESCO or DPPA. In addition, the lack of personnel with technical, legal, and negotiation knowledge makes it difficult for many businesses to access. 

Conclusion 

Toma believes that DPPA is the market gateway, opening the way for free trade renewable energy to develop. ESCO is the implementation key, helping businesses deploy renewable energy and save energy even without initial investment capital. 

Both complement each other, together removing the biggest barriers of Vietnam's renewable energy market, which are limitations in legal mechanisms and difficulties in investment finance.  

Therefore, DPPA and ESCO are two key factors to create a breakthrough in scale and depth in renewable energy application in Vietnam.