Issuance of Circular stipulating the method for determining electricity generation prices, and electricity purchase and sale contracts in Vietnam

Issuance of Circular stipulating the method for determining electricity generation prices, and electricity purchase and sale contracts in Vietnam

On April 12, 2024, the Minister of Industry and Trade issued Circular 07/2024/TT-BCT stipulating the methods for determining electricity generation prices and electricity purchase and sale contracts.

Circular 07/2024/TT-BCT applies to the following subjects:

- Power plants operating within the territory of the Socialist Republic of Vietnam connected to the national power grid;

- Other related organizations and individuals.

The contents regarding the methods for determining electricity generation prices specified in Circular 07/2024/TT-BCT do not apply to the following subjects: strategic multipurpose hydropower plants, small hydropower plants applying the avoided cost tariff, independent power plants invested under the Build - Operate - Transfer (BOT) model, power plants, and units providing auxiliary services; power plants applying the electricity purchase price mechanism as per the resolutions of competent authorities.

Issuance of Circular stipulating the method for determining electricity generation prices, and electricity purchase and sale contracts in Vietnam​ (Image from the Internet)

What is the basis for constructing the electricity generation price of a power plant in Vietnam?

Article 3 of Circular 07/2024/TT-BCT stipulates the principles for determining electricity generation prices as follows:

Principles for Determining Electricity Generation Prices

1. The electricity generation price of a power plant is determined based on:

a) The reasonable and legitimate expenditures of the investor throughout the economic life of the project;

b) The Internal Rate of Return (IRR) should not exceed 12%.

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

a) Electricity purchase agreement price: Negotiated by the Seller and Buyer and determined according to the method prescribed in Article 4 of this Circular;

b) Specific connection price (if any): Negotiated by the Seller and Buyer and determined according to the method prescribed in Article 8 of this Circular.

3. The electricity generation price does not include value-added tax, water resource tax, water resource usage fees, environmental service fees for forests, environmental protection fees for solid waste and industrial wastewater (applicable for thermal power plants), and other taxes, fees, and charges as prescribed by competent state management authorities (except for taxes and fees accounted for in the electricity generation pricing plan).

4. Electricity purchase agreement price for comparison with the base year generation price frame:

a) The base year electricity purchase agreement price should not exceed the base year generation price frame issued by the Minister of Industry and Trade, whereby the electricity purchase agreement price for a power plant compared to the base year generation price frame is calculated based on the cost components corresponding to those used to calculate the generation price frame;

b) When there is no base year generation price frame for a power plant, the electricity purchase agreement price of the power plant is calculated in accordance with the cost components to compare with the generation price frame of the latest year pertinent to the type of power plant.

Thus, the basis for determining the electricity generation price of a power plant includes:

- The reasonable and legitimate expenditures of the investor throughout the economic life of the project;

- The Internal Rate of Return (IRR) should not exceed 12%.

What are methods for determining the base year electricity purchase and sale contract price of a power plant in Vietnam?

Article 4 of Circular 07/2024/TT-BCT specifies the method for determining the base year electricity purchase and sale contract price of a power plant as follows:

The base year electricity purchase and sale contract price PC (VND/kWh) is determined by the following formula:

P_C = P^CĐ + P^BĐ

(1) PCĐ (VND/kWh) is the fixed price for the base year, determined by the following formula:

P^CĐ = FC + FOMC_b

Where:

FC: The average fixed price determined according to the provisions of Article 5 of Circular 07/2024/TT-BCT (VND/kWh);

FOMC_b: The fixed operation and maintenance price for the base year determined according to the provisions of Article 6 of Circular 07/2024/TT-BCT (VND/kWh).

(2) P^BĐ^ (VND/kWh) is the variable price for the base year.

- For thermal power plants, PBĐ is determined by the following formula:

P^BĐ = + ++

Where:

: The variable component price adjusted according to the fluctuation of the main fuel cost of the thermal power plant for the base year, determined according to the method prescribed in Clause 1, Article 7 of Circular 07/2024/TT-BCT (VND/kWh);

: The variable component price adjusted according to the fluctuation of the auxiliary fuel cost of the thermal power plant for the base year, determined according to the method prescribed in Clause 2, Article 7 of Circular 07/2024/TT-BCT (VND/kWh);

: The variable component price adjusted according to other fluctuations of the thermal power plant for the base year, determined according to the method prescribed in Clause 3, Article 7 of Circular 07/2024/TT-BCT (VND/kWh);

: The transportation cost of the main fuel for power generation for the base year, determined according to the method prescribed in Clause 4, Article 7 of Circular 07/2024/TT-BCT (VND/kWh).

- For hydropower, solar power, and wind power plants: PBĐ is 0 (zero).

(3) Experimental, trial run, and acceptance costs of the power plant: The payment of these costs incurred before the commercial operation date is agreed upon by the Seller and Buyer to ensure no duplication in the approved total investment.

Note: Circular 07/2024/TT-BCT takes effect from June 1, 2024.

Sincerely!