Circular 07/2024/TT-BCT method to determine electricity generation prices and power purchase agreement

 CIRCULAR

Providing method to determine electricity generation prices and power purchase agreement

Pursuant to the Electricity Law dated December 03, 2004 and the Law Amending and Supplementing a Number of Articles of the Electricity Law dated November 20, 2012;

Pursuant to the Government’s Decree No. 96/2022/ND-CP dated November 29, 2022, defining the functions, tasks, powers and organizational structure of the Ministry of Industry and Trade;

Pursuant to the Government’s Decree No. 137/2013/ND-CP dated October 21, 2013, detailing a number of articles of the Electricity Law and the Law Amending and Supplementing a Number of Articles of the Electricity Law;

At the proposal of the Director of the Electricity Regulatory Authority;

The Minister of Industry and Trade hereby promulgates the Circular providing method to determine electricity generation prices and power purchase agreements.

Chapter I

GENERAL PROVISIONS

Article 1. Scope of adjustment and subjects of application

1. This Circular prescribes the methods to determine the electricity generation prices and power purchase agreements applicable to power plants of all types.

2. This Circular applies to the following subjects:

a) Power plants operating in the territory of the Socialist Republic of Vietnam, which are connected to the national power system;

b) Other concerned organizations and individuals.

3. Contents of the methods to determine electricity generation prices provided in this Circular do not apply to the following subjects: multi-target strategic hydroelectric power plants, small-sized hydroelectric power plants that apply avoidable cost tariffs, independent power plants (those were invested in the form of Build - Operate - Transfer (BOT)), power plants and operating units that supply auxiliary services; and power plants applying the electricity price mechanisms in documents issued by competent authorities.

4. Contents of a power purchase agreement template provided in Appendix 3 to this Circular do not apply to the following subjects: multi-target strategic hydroelectric power plants, small-sized hydroelectric power plants that apply avoidable cost tariffs, independent power plants (those were invested in the form of BOT)), power plants and operating units that supply auxiliary services, and power plants applying the electricity price mechanisms in documents issued by competent authorities.

Contents of a power purchase agreement template provided in Appendix 3 to this Circular do not apply to wind power plants and solar power plants, except for the case of participating in the competitive electricity market.

5. Power plants without electricity price mechanisms prescribed by the Government, Prime Minister or the Ministry of Industry and Trade shall comply with Article 9 of this Circular.

Article 2. Interpretation of terms

In this Circular, the terms below are construed as follows:

1. Seller means the electric generating unit.

2. Buyers mean the Vietnam Electricity (or representative unit according to decentralization or authorization), the Northern Power Corporation, the Central Power Corporation, the Southern Power Corporation, Hanoi Power Corporation, Ho Chi Minh City Power Corporation, big electricity-using customers or other electricity wholesale buyers in accordance with the electricity market’s regulations.

3. Project owner means an organization or individual directly involved in managing and using capital to invest in power plant projects, invest in power lines and transformer stations to load capacity of power plants.

4. Connection cost means construction investment cost for power lines and transformer stations from the power plant’s distribution yard to the connection point, and allocated costs relating to the shared power lines (if any).

5. Typical connection cost means the cost paid by the project owner (or allocated to) build power lines and transformer stations from distribution yards of a power plant or a number of power plants to load capacity of several power plants to the connection points when being assigned to invest and construct by the competent State agency.

6. Connection point means the point specified in the connection agreement between the project owner and the unit managing the electric grid in accordance with the law.

7. Delivered electricity energy means the entire electricity energy delivered to the buyer by the seller in service of the payment between the seller and buyer.

8. Electric generating unit means an organization or individual that owns one or more power plants in accordance with Vietnamese law.

9. Power system and market operator means the National Load Dispatch Centre or other name depending on the development of the electricity market.

10. Agreement of liquefied natural gas storage, recycling, and distribution (LNG) means agreements between an electric generating unit or a fuel trading unit and an LNG warehouse investing and managing unit for storing, recycling, distributing and supplying gas fuel for power plants, signed under current regulations, ensuring competitive and transparent prices.

11. Power purchase agreement (PPA) means an agreement used for the electricity sale and purchase of each power plant.

12. Gas sale and purchase agreement (GSPA) means a contract between the gas seller and the field owner to buy domestically exploited natural gas to supply to the gas buyer which is a power plant using gas for electricity generation.

13. Agreement for sale and purchase of fuel means agreements between the electric generating unit and the fuel trading unit to supply fuel for the power plant, signed under the current regulations, ensuring the legal source of fuel, competitive and transparent prices.

14. Agreement for transportation of fuel means agreements between the electric generating unit or the fuel trading unit and a fuel transporter in order to transport fuel for the power plant, signed under the current regulations, ensuring the competitive and transparent prices.

15. Base year means the year of approving the total investment or total investment adjusting the project used to calculate the electricity generation price.

16. New power plant means a power plant without a power purchase agreement signed for the first time.

17. Net heat loss rate means the amount of heat consumed to produce one kWh of electricity energy at the delivery point (BTU/kWh or kJ/kWh or kCal/kWh).

 18. Total investment amount includes all construction investment costs of a project determined according to current law provisions, compliance with the basic design and other contents of the construction investment feasibility study report.

19. Total adjusted investment means the total investment amount adjusted under the law on construction that takes effect at the time of electricity price negotiation.

20. Settled investment capital means the entire lawful expenses used in the investment process in order to put the project into operation. Lawful expense means the one used within the scope of approved project, design and estimates; construction agreements signed in accordance with law provisions; including adjustments and supplements approved in compliance with regulations and competence. Settled investment capital must be within the total investment limit approved (or revised) in accordance with law provisions.

Chapter II

METHODS TO DETERMINE ELECTRICITY GENERATION PRICES

Section 1

METHODS TO DETERMINE ELECTRICITY GENERATION PRICES FOR NEW POWER PLANTS

Article 3. Principles of determination of electricity generation prices

1. Electricity generation prices of a power plant shall be determined on a basis of:

a) Rational and reasonable expenses of the project owner during the entire economic life of the project;

b) The financial internal rate of return (IRR) does not exceed 12%.

2. The electricity generation price of a power plant include the following components:

a) Power purchase agreement price: As agreed by the seller and buyer; this price is determined according to the method specified in Article 4 of this Circular;

b) Typical connection cost (if any): As agreed by the seller and buyer; this cost is determined according to the method specified in Article 8 of this Circular;

3. Electricity generation price does not included value-added tax, natural resources tax, royalty for exploitation of water resources, forest environment service charge, environmental protection charge applicable to solid wastes and industrial wastewater (applicable to thermal power plants) and other taxes, charges and payables in cash according to the competent State agency’s regulations (except for taxes and charges already included in the electricity generation price plan).

4. Power purchase agreement price is used to compare with the electricity generation price bracket in the base year:

a) The power purchase agreement price in the base year must not exceed the electricity generation price bracket in the base year of the power plant that is issued by the Minister of Industry and Trade. In which, the power purchase agreement price of a power plant used to compare with the electricity generation price bracket in the base year shall be calculated on a basis of cost components corresponding to the components of costs used to calculated the electricity generation price bracket;

b) In case the base year of a power plant does not have an electricity generation price bracket, the power purchase agreement price of the power plant shall be calculated and converted on the basis of corresponding cost components to compare with the electricity generation price bracket of the most recent year of that type of power plant.

Article 4. Method to determine the power purchase agreement price in the base year for power plants

Power purchase agreement price in the base year P_C (VND/kWh) shall be determined according to the following formula:

P_C = P^CD + P^BD

1. P^CD (VND/kWh) is the fixed cost in the base year, determined according to the following formula:

P^CD = FC + FOMC_b

In which:

2. P^BD (VND/kWh) is the variable cost in the base year.

a) With regard to the thermal power plant, P^BD shall be determined according to the following formula:

P^BD = + ++

In which:

b) With regard to hydroelectric power plants, wind power plants and solar power plants: P^BD is zero (0).

3. Cost for testing, trial operation and acceptance of power plants: The payment for costs for testing, trial operation and acceptance arising before the date of commercial operation shall be agreed by the seller and buyer to ensure that they are not double-counted in the total approved project investment.

Article 5. Method to determine the average fixed cost for power plants

1. Average fixed cost (FC) for power plants shall be determined on the basis of financial analysis of projects according to Forms 1 and 2 specified in Appendix II to this Circular. Input parameters for the construction of average fixed cost (FC) for power plants shall be determined in accordance with Clause 2 of this Article.

2. Main input parameters shall be used for calculation of average fixed cost (FC) for power plants.

a) Investment cost: Investment cost shall be determined on the basis of the total investment amount (total adjusted investment amount or settled investment capital) that takes effect at the time of negotiation of the electricity price used for calculating the electricity generation price, including entire expenses under the investment responsibilities of the seller to the connection point of the power plant, comprising the following items: Power plants; infrastructure, wharves for power plants, LNG import warehouses (for power plants using LNG fuel), other related costs and costs allocated to the project (if any);

Particularly, the item of typical connection expenses used to calculate the typical costs shall comply with Article 8 of this Circular.

b) Economic life: shall comply with the regulations specified in Appendix I to this Circular, unless otherwise provided in other documents of the State agency competent to approve the economic life of the project, in such case, those documents (year) shall be applied.

c) Average electricity energy generated over years at delivery point (A_GN):

A_GN shall be converted and calculated as follows:

In which:

A_NM=P_t x T_max

With regard to power plants for which T_max, K_cs are not regulated in Appendix I to this Circular, such parameters shall be agreed upon by the seller and buyer;

In case of failure to determine A_GN by using the aforesaid formula, the seller and buyer shall determine it based on the basic design and technical design converted into the time of electricity delivery in effect at the time of negotiation. In case of failure to determine it by using the approved technical design or basic design, the determination shall be carried out according to documents issued by the competent state agency. In case of failure to determine by using documents issued by the competent state agency, A_GN shall be agreed upon by the seller and buyer.

d) Time for depreciation of each group of main fixed assets (year): Shall be determined according to time for depreciation of each group of main fixed assets in accordance with time frame of depreciation under the Ministry of Finance’s regulations in each period or documents of the State agency competent to permit depreciation which are different from the Ministry of Finance’s regulations (if any).

dd) Proportion of equity, loan capital and investment capital phasing in total investment amount: Shall be determined according to the decision on approving investment projects and the actual capital mobilization for the project at the time of negotiation, in compliance with regulations promulgated by the competent State agency. Proportion of equity at least equal to 15% of the total investment amount of the project.

e) Loan interest rate and time for payment of loan during the operation time: Shall be based on the loan agreement, documents and files between the project owner and lending credit institutions, banks.

In case total loans from loan agreements or legal documents between the project owner and credit institutions are lower than total loans in electricity price calculation plan, the loan deficit during the operation shall be agreed upon by the seller and buyer on the following principle: The period of loan repayment is at least 10 years, and regulations on loan interest rate are as follows:

- Foreign currency loan interest rate is determined by the secured overnight financing rate (SOFR) for an average term of 180 days (180 Days - Average) of the 36 consecutive months from the latest March, June, September or December of the negotiation year announced by the Fed (Website: www.newyorkfed.org) plus the average annual rate of the bank's loan arrangement fees of 3%/year;

- Domestic currency loan interest rate shall be determined by the average interest rate of deposits in VND with a 12-month postpaid term for individual customers of the first day of 60 consecutive years preceding the year of negotiation, from the latest March, June, September or December of the year of negotiation, of four commercial banks (Joint stock commercial Bank for Foreign Trade of Vietnam, Vietnam Bank for Trade and Industry, Joint Stock Commercial Bank for Investment and Development of Vietnam, Vietnam Bank for Agriculture and Rural Development or legal successors to these banks) plus an average annual rate of banks’ service charge of 3%/year.

h) Enterprise income tax rate; other types of taxes and charges: Shall be determined in accordance with relevant law provisions.

Article 6. Method to determine the cost for operation and maintenance of power plants

Cost for operation and maintenance in the base year FOMC_b (VND/kWh) is determined according to the following formula:

 FOMC_b = +

In which:

1. Cost for operation and maintenance according to major repair cost and other expenses in the base year  (VND/kWh), determined according to the following formula:

  (VNDg/kWh)

In which:

: Applying the method to calculate total major repair cost and other expenses Tcscl_scl in the base year according to the following formula:

TC_scl =VDT_XD+TB  k_scl + C_cdk

In which:

2. Cost for repair and maintenance according to workforce cost in the base year  (VND/kWh) is determined according to the following formula:

 (VND/kWh)

In which:

TC_nc =VDT_XD+TB  k_nc

In which:

Article 7. Method to determine the variable cost of thermal power plants

Variable cost of a thermal power plant in the base year P^BD (VND/kWh) is determined according to the following formula:

P^BD = + ++

In which:

1. Components of variable cost adjusted according to changes to cost of main fuel of the power plant in the base year , determined according to the following formula:

 (VND/kWh)

In which:

2. Components of variable cost adjusted according to changes to cost of secondary fuel of the power plant in the base year , determined according to the following formula:

 (VND/kWh)

In which:

3. Components of variable cost adjusted according to other changes in the base year V is determined according to the following formula:

 (VND/kWh)

In which:

4. Main fuel transport price of a power plant in the base year  is determined according to the following formula:

    (VND/kWh)

In which:

With regard to an agreement for sale and purchase of fuel in which the main fuel price  already includes charges for transportation of main fuel, collection, transportation, distribution, storage and recycling, then the corresponding main fuel transportation price  is zero (0).

Article 8. Method to determine the typical connection costs

1. Typical connection costs () for recovering typical construction expenses spent for construction investment by the power plant’s project owner or allocated and agreed with the buyer on the basis of investment capital and loan interest during the operation under a loan agreement, expenses for management, operation, maintenance and other factors as agreed upon by the seller and buyer to ensure the recovering of expenses for construction, management, operation and maintenance by the power plant’s project owner in accordance with law provisions. Unit used to determine such typical connection costs is VND/kWh or VND/kW or VND/month.

2. After settling the typical connection expenses, the seller and buyer shall re-calculated typical connection costs according to the method specified in Clause 1 of this Article.

3. Typical connection expenses shall be regarded as a rational and legal expenses, included in costs for power purchase in the calculation of the plan for the average retail price of electricity by the Vietnam Electricity.

Article 9. Methods to determine electricity generation prices, power purchase agreements for power plants for power plants of which the electricity price mechanism has not yet been regulated by the Government, Prime Minister or Ministry of Industry and Trade

The buyer and seller shall, based on the principles of determination of electricity generation prices specified in this Circular, formulation of a plan on electricity generation prices and power purchase agreements suitable to practical status of the power plants, and report to the Ministry of Industry and Trade for consideration and decision.

Article 10. Temporary price

During the negotiation, in case where the electricity generation price has not yet been negotiated, the seller and buyer shall reach an agreement on the temporary price, report the Ministry of Industry and Trade for decision on applying until the agreement on official electricity generation price is reached.

Article 11. Methods to determine electricity generation prices for wind power plants and solar power plants already signed power purchase agreements with Vietnam Electricity without official generation price

With regard to solar power plants already signed power purchase agreements with Vietnam Electricity before January 1, 2021, and wind power plants already signed power purchase agreements with Vietnam Electricity before November 1, 2021, which fail to satisfy the conditions for applying the electricity price specified in Clauses 1 and 3, Article 5 of the Prime Minister’s Decision No. 13/2020/QD-TTg dated April 6, 2020, on mechanisms to promote development of solar power in Vietnam, and Clause 7, Article 1 of the Prime Minister's Decision No. 39/2018/QD-TTg dated September 10, 2018, amending a number of articles of Decision No.37/2011/QD-TTg dated June 29, 2011, of the Prime Minister, on the mechanism supporting the development of wind power project in Vietnam:

1. The seller and buyer shall, based on the principles of determination of electricity generation prices specified in this Circular, develop the plan for electricity generation prices for the power plant:

a) Base year when the power plant negotiates the electricity generation price is the year of commercial operation of the power plant:

b) For the part of the power plant of which the electricity generation price has not yet been regulated, it shall be determined on the basis of the input parameter of the whole power plant.

2. Annual delivered electricity energy shall be determined as follows:

a) On the basis of the basic design (or technical design in case of failing to determine according to the basic design) appraised by the competent State agency;

b) In case of inability to determine according to Point a of this Clause, the seller and buyer shall reach an agreement on the basis of technical parameters in the basic design dossier or technical design dossier used in the competent State agency's notice of appraisal results. In case the annual delivered electricity energy is determined based on the basic design, the total investment amount according to the basic design shall be used. In case the annual delivered electricity energy is determined based on the technical design, the total investment amount according to the corresponding technical design shall be used.

3. Price for operation and maintenance in base year of the power plant FOMC_b shall be determined as follows:

  (VND/kWh)

In which:

: Total price for operation and maintenance of the power plant is determined according to the following formula: TC = VDT  k

In which:

4. Other parameters used to calculate the electricity generation price shall be agreed upon by the seller and buyer. Documents supporting the negotiation of power purchase agreements may be referred to in Clause 1, Article 19 of this Circular.

Section 2

METHODS TO DETERMINE ELECTRICITY GENERATION PRICESOF POWER PLANTS ALREADY PUT INTO COMMERCIAL OPERATION

Article 12. Method to determine electricity generation prices for power plants with power purchase agreement expired but economic life unexpired

For power plants (not applying avoidable cost) with power purchase agreement expired but economic life unexpired: The seller and buyer shall reach an agreement on the electricity generation price applicable to the following years until the end of the economic life, ensuring the average fixed cost remaining unchanged compared to the one agreed upon by the seller and buyer.

Article 13. Methods to determine electricity generation prices for power plants with economic life expired

1. Fixed costs of a power plant with economic life expired shall be determined according to the principle of ensuring that the power plant recovers expenses serving electricity production and business activities, the time for calculating the price according to the major repair cycle of main equipment and reasonable profit agreement. In case the time for calculating price is approved in writing by the competent state agencies, such written approval of the competent state agencies shall be applied.

2. Variable cost of thermal power plant with economic life expired is determined according to Article 7 of this Circular.

3. In case the power plant has reached the end of its economic life and has been invested and upgraded, the seller and buyer shall reach an agreement on and negotiate the power purchase agreement price of the power plant according to Articles 4, 5, 6 and 7 of this Circular and consistent with the depreciation time of the main equipment to be upgraded.

4. The agreement term of the power plant with economic life expired shall be agreed upon by the seller and buyer based on the major repair cycle of main equipment.

Article 14. Methods to determine electricity generation prices of hydroelectric power plants with valid power purchase agreements and expired electricity generation prices or hydroelectric power plants applying avoidable cost tariff with expired power purchase agreements

1. The determination shall follow the principle of ensuring that the power plant recovers investment costs (if any), electricity production and business costs and reasonable profit agreement.

2. Time for calculating the electricity generation price shall be based on the remaining time of the power plant's economic life.

3. Average electricity output shall be determined based on the actually declared data of the operating years prior to the time the electricity generation price expires.

4. Operation and maintenance cost shall be agreed upon by the seller and buyer.

5. The total investment in calculating the electricity generation price shall be determined according to the remaining value of the asset at the time the electricity generation price expires or the power purchase agreement expires.

Article 15. Method to determine electricity generation prices for power plants re-negotiating such prices according to settled investment capital

For the power plants of which electricity generation prices are re-negotiated according to the settled investment capital under Clause 2, Article 28 of this Circular:

1. After the settled investment capital is determined, the seller shall send to the buyer dossiers related to the settled investment capital.

2. The seller and buyer shall re-negotiate electricity prices according to the following principles:

a) Method to determine power purchase agreement prices shall comply with Article 4 of this Circular;

b) Parameters for calculation of power purchase agreement price are specified in Article 4 of this Circular and input parameters are updated at the same time as the settled investment capital is determined;

c) The power purchase agreement price to compare with the electricity generation price bracket must not exceed the electricity generation price bracket of the year of approval for the settled investment capital;

d) Electricity generation price shall be applied from the date of commercial operation of the plant; the fixed price for every year shall comply with Article 16 of this Circular and the annual fixed price shall not be adjusted before the seller and the buyer sign in the agreement on amending and supplementing the power purchase agreement according to the electricity price determined on the basis of settled investment capital;

dd) The base year of the power plant negotiating electricity prices according to the settled investment capital is the year of approving the settled investment capital.

Section 3

METHOD TO DETERMINE THE POWER PURCHASE AGREEMENT PRICE BY YEAR IN THE POWER PURCHASE AGREEMENT

Article 16. Principles for determination of fixed prices for each year in the power purchase agreement

1. The seller and buyer have the right to apply average fixed price agreed in years during the term of the power purchase agreement. In case the seller and buyer agree to convert average fixed price as agreed into the fixed price for each year, the determination of these fixed prices must conform to the principles specified in Clause 2 of this Article.

2. Based on conditions for actual loans and project's financial capability, the seller and buyer shall reach an agreement on converting the power plant's average fixed prices into fixed prices for each year (FC_j fixed price for year j), provided that the average fixed cost remains unchanged in comparison with the cost agreed by the seller and buyer, and conforms to the following principles:

a) Financial discount rate in the calculation of fixed price for each year as agreed by the seller and buyer according to the financial internal rate of return (IRR) of the power plant;

b) The project owner shall pay loans for investing in construction of the power plant according to the time limit for loan capital payment.

Article 17. Principles for revision of fixed price for each year in the power purchase agreement

1. Components of price for operation and maintenance of the power plant is revised according to the following principles:

a) Components of price for operation and maintenance by major repair expenses and other expenses are revised according to the average cost slippage rate specified in Appendix I to this Circular. The seller and buyer shall study and propose mechanism of revision of components of prices price for operation and maintenance by major repair expenses and other expenses for foreign currency-based items;

b) Cost for operation and maintenance by workforce cost shall be revised according to changes to region-based minimum wage at the time of payment or according to CPI index announced by the General Statistics Office but not exceeding 2.5%/year.

2. Annually, based on total foreign currency loans, plan for repayment of foreign currency loans, actual figures about repayment of principals, exchange rate agreed by the seller and buyer in the electricity generation price plan, exchange rate applied in the preceding year, the seller and buyer shall carry out calculation and payment of difference of exchange rates. Foreign exchange difference (FED) (VND) shall be determined according to the following formula:

In which:

m:      types of foreign currencies in the electricity generation price plan as agreed by the seller and buyer (types);

n:       number of repayment phases for principal foreign currency i in the calculation year (phases);

D_i,j:    the actual amount of original principal in foreign currency i paid in phase j in the calculation year;

_: exchange rate at repayment phase j for foreign currency i in the year (.../VND);

_: base exchange rate for foreign currency i as agreed by the seller and buyer in the electricity generation price plan (…/VND).

Article 18. Method to determine the power purchase agreement price for power plants at the time of payment

Power purchase agreement price of a power plant at the time of payment for electricity bills in month t, year j P_C,j,t (VND/kWh) is determined according to the following formula:

In which:

:   Fixed cost in year j, determined under Article 16 of this Circular (VND/kWh);

:     Price for operation and maintenance in month t, year j, determined under Clause 1 of this Article (VND/kWh);

:  Variable cost in month t, year j, determined under Clause 2 of this Article (VND/kWh).

1. Price for operation and maintenance in month t, year j is determined according to the following formula:

In which:

: Components of the price for operation and maintenance by major repair cost and other expenses in year j (VND/kWh);

: Components of the price for operation and maintenance by workforce cost in month t, year j (VND/kWh).

a) Components of the price for operation and maintenance by major repair cost and other expenses  are determined according to the following formula:

In which:

: Price for operation and maintenance by major repair cost and other expenses in the base year, determined according to the method specified in Clause 1, Article 6 of this Circular;

i:        Cost slippage rate of components of the price for operation and maintenance by major repair cost and other expenses specified in Appendix I to this Circular;

l:        Ordinal numbers of payment years starting from the base year (for the base year l=1).

b) Components of the price for operation and maintenance by workforce cost in month t, year j () is determined as follow:

- In case the salary calculated in the electricity pricing plan is equal to the region-based minimum wage, the components of the price for operation and maintenance by workforce cost shall be determined according to the following formula:

In which:

:     Price for operation and maintenance by workforce cost in the base year, determined according to the method specified in Clause 2, Article 6 of this Circular;

: Region-based minimum wages at the time of payment in month t, year j (VND/month);

: Region-based minimum wages in the base year (VND/month).

- In case where the total workforce cost TC_nc is calculated according to the ratio of construction and installation investment capital and equipment, then the cost for operation and maintenance by workforce cost shall be determined according to the following formula (VND/kWh):

In which:

:    Price for operation and maintenance by workforce cost in the base year, determined according to the method specified in Clause 2, Article 6 of this Circular;

:      Cost slippage rate of components of the price for operation and maintenance by workforce cost, determined according to the ratio of consumer price index (CPI) in year (j-1) compared to that in year (j-2) announced by the General Statistics Office of Vietnam in December of year (j-1), but not exceeding 2.5%/year;

l:       Ordinal numbers of payment years starting from the base year (for the base year l = 1, i₁ = 0).

2. Variable cost of a thermal power plant in month t, year j () (VND/kWh) is determined according to the following formula:

= + ++

In which:

: Components of variable cost revised according to changes to cost of main fuel of the power plant in month t, year j, determined according to Point a of this Clause (VND/kWh);

: Components of variable cost revised according to changes to cost of secondary fuel of the power plant in month t, year j, determined according to Point b of this Clause (VND/kWh);

: Components of variable cost revised according to other changes of the power plant in year j, determined according to Point c of this Clause (VND/kWh);

: Price for transport of main fuel of the power plant in month t, year j, determined according to Point d of this Clause (VND/kWh).

a) Components of variable cost revised according to changes to cost of main fuel of the power plant in month t, year j V is determined according to the following formula:

In which:

 Average net heat loss rate, determined according to Clause 1, Article 7 of this Circular;

k_HR:   Adjustment coefficient of the average net heat loss rate regarding actual conditions for operation under to the temperature of cooling water, ambient temperature, humidity, load level as agreed by the seller and buyer, or according to reality for each operating cycle;

k_HS:   Proportion of performance attenuation in year j (%);

l:        Ordinal numbers of commercial operation year of the power plant;

 Prices of main fuel for electricity generation at the time of payment in month t, year j, calculated by the weighted average according to volume of invoices under agreements for sale and purchase of fuel during the period as agreed upon by the seller and buyer.

b) Components of variable cost revised according to changes to cost of secondary fuel of the power plant in month t, year j () is determined according to the following formula:

In which:

: Components of variable cost revised according to changes to cost of secondary fuel of the power plant in the base year, determined according to Clause 2, Article 7 of this Circular;

k_HS:   Proportion of performance attenuation in year j (%);

l:        Ordinal numbers of commercial operation year of the power plant;

: Prices of secondary fuel for electricity generation, including transportation charges to the power plant at the time of payment in month t, year j;

: Prices of secondary fuel for electricity generation in the base year, determined according to Clause 2, Article 7 of this Circular.

c) Components of variable cost revised according to other changes in year j  are determined according to the following formula:

In which:

: Components of variable cost revised according to other changes of the power plant in the base year, determined according to Clause 3, Article 7 of this Circular;

i: Cost slippage rate of components of variable price revised according to other changes in accordance with the ratio provided in Appendix I to this Circular;

k_HS: Proportion of performance attenuation in year j (%);

l: Ordinal numbers of commercial operation year of the power plant, counting from the commercial operation year of the power plant, the first year of commercial operation year of the power plant is counted from the commercial operation year of the first operating unit, l=1);

m: Ordinal numbers of payment years starting from the base year (for the base year m=1).

d) Main fuel transportation price of the power plant in month t, year j  (VND/kWh) is determined according to the following formula:

In which:

: Average net heat loss rate, determined according to Clause 1, Article 7 of this Circular;

k_HR:   Adjustment coefficient of the average net heat loss rate regarding actual conditions for operation under to the temperature of cooling water, ambient temperature, humidity, load level according to the operating cycle as agreed upon by the seller and buyer (if any);

k_HS:   Proportion of performance attenuation in year j (%);

l:        Ordinal numbers of commercial operation year of the power plant;

: Price for transportation of main fuel at the time of payment in month t, year j, calculated by the weighted average according to the volume of invoices of agreements for transportation of fuel and agreements of LNG storage, gas recycling, and distribution agreements (if any) (excluding value-added tax). To be specific:

- With regard to coal-fired power plants: Equal to the weighted average under agreements for coal transportation;

- With regard to thermal power plants using natural gas: Equal to the weighted average according to charges for collection, transportation and distribution of gas approved by the competent State agency as prescribed;

- With regard to thermal power plants using LNG: Equal to the weighted average under the agreements for transportation of LNG, agreements of LNG storage, gas recycling, and distribution agreements (if any) approved by the competent agency as prescribed;

- With regard to waste-to-energy plants and biomass power plants: Price for transportation of main fuel shall be agreed upon by the seller and buyer according to the power plants’ actual conditions.

With regard to the agreement for sale and purchase of fuel already included prices for transportation of main fuel, then the component of price for transportation of main fuel  is zero (0).

3. Total cost for starting in month t of power plant  (VND) is determined according to the following formula:

In which:

u:       Order of the operating unit of the power plant;

U:      Number of operating units of the power plant;

f:       Type of fuel (main fuel f =1, secondary fuel f=2);

s:       State of starting of the operating unit;

S:      Number of states of starting of the operating unit;

p_u,f,s:  Number of starts of operating unit u, using fuel f in the state of starting s in the month;

M_u,f,s:           Quantity of lost coal (kg) for coal-fired power or quantity of lost heat for gas-fired power (BTU) for gas turbine for a starting of the operating unit u, using fuel f, in the state of starting s;

D_u,f,s: Unit price for a starting of the operating unit u, using fuel f, in the state of starting s, calculated in VND/kg for coal and in VND/BTU for gas;

: Total of other costs for a starting, calculated in VND.

The payment for starting cost of a thermal power plant shall comply with regulations on electricity market promulgated by the Ministry of Industry and Trade.

The payment for starting cost of waste-to-energy plants and biomass power plants shall be agreed upon by the seller and buyer.

Section 4

DOCUMENTS FOR THE NEGOTIATION OF POWER PURCHASE AGREEMENTS

Article 19. Documents for the negotiation of the power purchase agreement between the seller and buyer

1. Documents requesting negotiation of the power purchase agreement of new power plants include but not limited to the following documents:

a) Draft power purchase agreement made according to regulations specified in Appendix III to this Circular;

b) Approval of investment policy or decision on investment policy or certificate of investment registration of the project;

c) Decision on project investment and construction accompanied by explanations and investment project appraisal report by independent consultants and other relevant documents;

d) Decision on approving total initial investment amount of the project or total revised investment amount of the project that takes effect at the time of negotiation of electricity generation price and main contents in the basic design of projects related to the negotiation of the power purchase agreement, basic design appraisal report and notice of appraisal results of basic design and total investment amount of the State management agency in charge of construction as prescribed (if any);

dd) Agreement on connecting the power plant to the national power system according to the power plant's connection plan;

e) Loan agreements or any documents and files between the project owner and lenders, plans or reality of disbursement of loans;

g) Agreement for supply of fuel to power plants, specifying cost of fuel for generation of electricity, cost for transportation of fuel and cost for LNG storage, recycling, and distribution of gas and other charges, point of delivery and receipt of fuel, time limit for supply of fuel;

h) Document calculations about losses to transformer capacity and energy, transmission lines from the booster transformers to the point of connection with the national power system and document calculations about electricity for self-consumption in the power plant;

i) Documents for calculation of net heat loss rate for thermal power plants;

k) Electricity price plan determined according to Sections 1 and 3, Chapter II of this Circular;

l) Other relevant documents.

2. Documents for negotiation of the power purchase agreement of power plants already put into commercial operation include but not limited to the following documents:

a) Draft power purchase agreement made according to the form provided in this Circular;

b) Existing power purchase agreement;

c) Technical dossiers of the plant, technical figures of SCADA/EMS, automatic protection relay system, characteristic performance P-Q of the operating units till present time;

d) Agreements for supply of fuel to power plants;

dd) Electricity price plan of the power plant, determined according to Sections 1, 2 and 3, Chapter II of this Circular;

e) Audited financial statement of the power plant of the most recent years till the date of power purchase agreement negotiation.

Chapter III

INSPECTION OF POWER PURCHASE AGREEMENTS

Article 20. Application of power purchase agreement template

1. A power purchase agreement template specified in Appendix III to this Circular shall be used as the basis for the seller and buyer to negotiate and reach an agreement. The seller and buyer may negotiate and reach an agreement on supplementing terms specified in the power purchase agreement in accordance with Vietnamese laws.

2. Language used in the agreement is Vietnamese. The seller and buyer reach an agreement and add another language which is English for use in the agreement.

Article 21. Inspection of power purchase agreements

The seller and buyer shall reach an agreement, and take responsibility for reporting the Electricity Regulatory Authority for inspecting the power purchase agreement after finishing the negotiation and initialing the power purchase agreement.

Chapter IV

IMPLEMENTATION PROVISIONS

Article 22. Responsibility of the Electricity Regulatory Authority

1. To carry out inspection, give advice on power purchase agreements and supplements or amendments to power purchase agreements.

2. To provide instructions and handle difficulties arising during the negotiation of power purchase agreements between the seller and buyer.

3. To settle disputes arising during the implementation of power purchase agreements in case the seller and buyer reach an agreement on settlement of the dispute at the Electricity Regulatory Authority.

Article 23. Responsibility of Vietnam Electricity

To assume the prime responsibility for, and coordinate with the seller and buyer in, calculating and reaching an agreement on methods to pay difference of exchange rates during the implementation of power purchase agreements in accordance with this Circular.

Article 24. Responsibility of the buyer

1. To negotiate and reach an agreement with the seller on the re-allocation of typical connection costs to the project owner of power plants connected with such transmission lines and transformer stations, and revise the typical connection costs (if any) in order to ensure that the buyer can recover costs for construction, management, operation and maintenance of lines and transformer stations in accordance with law provisions.

2. To negotiate on power purchase agreements with the seller in accordance with this Circular; take responsibility for, and ensure the accuracy, reasonableness and validity of the provided figures and documents. To reach an agreement with the seller to report the Electricity Regulatory Authority for inspection of the power purchase agreements as prescribed.

3. To coordinate with the seller to calculate and reach an agreement on exchange rate differences during the implementation of power purchase agreements in accordance with this Circular, and provide them to Vietnam Electricity for consideration of the payment plan.

Article 25. Responsibility of the seller

1. To reach an agreement with the buyer on the negotiation and report the Electricity Regulatory Authority for inspection of the power purchase agreements as prescribed; take responsibility for, and ensure the accuracy, reasonableness and validity of the provided data and documents.

2. To develop investment projects to build lines and transformer stations to load capacity of a number of power plants in case of being assigned to invest in construction by competent State agencies in accordance with national and provincial electricity development master plans (if any). Power lines and transformer stations must ensure the operation and load of the full capacity and power output of the power plants in the region according to the approved master plans.

3. To permit power plants in the approved national and provincial electricity development master plans to connect to the lines and transformer stations that are assigned to invest for electricity generation to the national power system.

4. To negotiate and reach an agreement with the project owners of power plants on the allocation of typical connection costs and revise the typical connection costs (if any) in order to ensure that the project owners can recover costs for construction, management, operation and maintenance of power lines and transformer stations in accordance with law provisions.

5. To take responsibility for the management, operation and maintenance of power lines and transformer stations assigned to invest and build in accordance with law provisions.

6. To provide adequate information, take responsibility and ensure the accuracy, reasonableness and validity of figures and documents provided to relevant units and agencies during the negotiation and inspection of power purchase agreements.

7. The seller shall be responsible for organizing the selection of the fuel supplier and/or the fuel transporter, and sign agreements for purchase and sale, transportation of fule in accordance with Vietnamese laws, ensuring fairness, competition and transparency.

8. The seller shall take responsibility for the whole input parameters for the calculation of power purchase agreement prices and controlling agreements of provision and transportation of fuel, ensuring the legal fuel source with a competitive and transparent price as prescribed by law.

9. To coordinate with the buyer to calculate exchange rate differences during the implementation of power purchase agreements on an annual basis in accordance with this Circular, and provide them to Vietnam Electricity for consideration of the payment plan.

Article 26. Responsibilities of the fuel providers and transporters

1. With regard to gas

a) The domestic natural gas supplier or transporter shall sign gas sale and purchase agreements (GSPAs), fuel supply agreements and gas transportation agreements (GTAs) in accordance with relevant laws.

b) A unit providing or transporting gas fuel imported by pipelines and LNG shall provide gas in accordance with relevant laws. To be specific:

- In case of delivery at export port: The imported gas price is the price of gas at the time of gas delivery at the export port;

- In case of delivery at the Vietnam-based gas distribution station or LNG warehouse, the gas price shall include cost for imported gas or LNG purchase and reasonable costs related to the import (if any) such as import duty, financial costs, insurance, norm profits and other expenses related to the import of the fuel supplier.

2. With regard to coal

The organization of selecting coal transporter and signing of coal transportation agreements shall comply with Vietnamese laws in a fair, competitive and transparent manner.

Article 27. Modification of power purchase agreements upon changes in laws and policies promulgated by competent State agencies

1. In case there is a change in laws or policies promulgated by a competent State agency that adversely affects the legitimate interests of the seller or the buyer, they shall have the right to renegotiate the electricity generation prices.

2. In case competent state agency (inspecting or auditing agency) issues conclusions on contents relating to electricity generation price or power purchase agreement, the seller and buyer shall renegotiate the electricity generation price or power purchase agreement.

3. In case where the seller is assigned to invest in upgrading and renovating lines and transformers according to master plans, the seller and buyer shall have the right to reach an agreement and negotiate to add the typical connection price in order to ensure that the project owner can recover costs for construction, management, operation and maintenance in accordance with laws.

4. In case where power plants in operation need to invest in renovating and upgrading equipment to meet national technical regulations on environment, the seller and the buyer shall reach an agreement to add these costs to the electricity generation price of the power plants. The calculation of electricity generation price shall be implemented according to the electricity generation price calculation method as agreed by the seller and buyer in the signed power purchase agreement, and report to the Ministry of Industry and Trade for consideration.

5. In case the power plants have a plan for treatment and consumption of ash and slag approved by a competent agency to ensure standards on waste, emissions, and environmental protection, the seller and the buyer shall reach an agreement on adding these expenses to the ash and slag treatment price component, which is a typical price component for the treatment and consumption of ash and slag under the power purchase agreement, ensuring the following principles:

a) Scope of investment, process of operating ash and slag treatment constructions approved by the competent authority;

b) The selection of units treating ash and slag of the plant must comply with law regulations, ensuring competition and transparency;

c) The seller and buyer must settle costs for treatment of ash and slag under the actual situation of the preceding year. Revenues from the sale of ash and slag of the plant shall be used to offset costs for treatment of ash and slag and to reduce electricity generation price of the power plant.

Article 28. Transitional provisions

1. With regard to power purchase agreements signed before the effective date of this Circular, the seller and buyer shall continue to perform the signed power purchase agreements until their expiration.

2. With regard to power projects for which power purchase agreements already have been signed according to the methods provided in Circular No. 56/2014/TT-BCT, Circular No. 51/2015/TT-BCT and new power projects starting before September 19, 2017, if the settled investment capital is funded, the seller and buyer may request for re-calculating electricity generation prices according to the settled investment capital approved under Article 15 of this Circular.

3. With regard to power plants already signed power purchase agreements, the seller and buyer may negotiate and reach an agreement on modify power purchase agreements in accordance with this Circular.

4. In each period of the electricity market, the seller and buyer shall be responsibility for modifying terms of the power purchase agreements in accordance with each level of the electricity market.

Article 29. Effect

1. This Circular takes effect from June 1, 2024, and replaces the Minister of Industry and Trade’s Circular No. 57/2020/TT-BCT dated December 31, 2020, providing method to determine electricity generation prices and power purchase agreements.

2. To repeal Article 2 of the Minister of Industry and Trade's Circular No. 31/2022/TT-BCT dated November 8, 2022, amending and supplementing a number of articles of the Minister of Industry and Trade's Circular No. 57/2014/TT-BTC dated December 19, 2014, prescribing the method and order for formulation and promulgation of the electricity generation price bracket, and the Minister of Industry and Trade's Circular No. 57/2020/TT-BCT dated December 31, 2020, on providing method to determine electricity generation prices and power purchase agreement.

3. To repeal the Minister of Industry and Trade’s Circular No. 02/2023/TT-BCT dated January 19, 2023, repealing a number of regulations defined in Circular No. 57/2020/TT-BCT dated December 31, 2020 of the Minister of Industry and Trade, on providing method to determine electricity generation prices and power purchase agreement.

4. Any difficulties arising in the courses of implementation should be promptly reported to the Ministry of Industry and Trade for supplements and amendment./.

Appendix I

PARAMETERS USED FOR CALCULATION OF THE POWER PURCHASE AGREEMENT PRICE

(Attached to the Minister of Industry and Trade’s Circular No. 07/2024/TT-BCT dated December 4, 2024)

* Other Appendices are not translated herein.