Documents serving negotiation of Power purchase agreement between the parties in Vietnam as of June 1, 2024

Documents serving negotiation of Power purchase agreement between the parties in Vietnam as of June 1, 2024 (Internet image) 

Regarding this matter, LawNet would like to answer as follows: 

On April 12, 2024, the Minister of Industry and Trade issued Circular 07/2024/TT-BCT on methods for determining prices for electricity generation and power purchase agreement in Vietnam

Documents serving negotiation of Power purchase agreement between the parties in Vietnam as of June 1, 2024

Article 19 of Circular 07/2024/TT-BCT regulates documents serving negotiation of Power purchase agreement (PPA) between the parties in Vietnam as of June 1, 2024as follows:

(1) Documents proposing negotiation on PPA for new power plants include but are not limited to:

- Draft PPA according to Appendix III attached to Circular 07/2024/TT-BCT;

- Written approval for investment guidelines of Decision on investment guidelines or Certificate of investment registration of projects;

- Decision on construction investment and presentation, appraisal reports for power plant investment projects produced by independent advisors, and attachments.

- Decision approving initial total investment or revised total investment effective as of the date on which negotiation on electricity generation prices and main contents of fundamental design of investment projects relevant to PPA negotiation is conducted, appraisal reports for fundamental design and written notice on appraisal results of fundamental design, total investment issued by construction authorities as per the law (if any);

- Negotiation on connection of power plants to national electricity system and connection solution;

- Loan agreements or documents, texts between Developer and creditors, disbursement plan or recordings for all loan capital;

- Fuel supply contracts for power plants indicating fuel price for electricity generation, fuel transportation costs, LNG storage costs, gas regasification and distribution costs, and other fees, fuel delivery points and fuel supply time limit;

- Documents calculating loss of capacity and electricity in transformers, power lines from step-up transfers to points connected to national electrical system and documents calculating self-sufficient electricity in power plants;

- Documents calculating net heat rate in case of thermal power plants;

- Electricity pricing defined in accordance with Section 1 and Section 3 of Chapter II of Circular 07/2024/TT-BCT;

- Other relevant documents.

(2) Documents serving negotiation on PPA of active power plants include but are not limited to:

- Draft PPA using form under this Circular;

- Existing PPA;

-Technical dossiers of power plants, technical specifications of SCADA/EMS, protective and automated relay system, P-Q operational characteristics of generator groups thus far;

- Fuel supply agreements;

- Electricity pricing of power plants defined in accordance with Section 1, Section 2, and Section 3 Chapter II hereof;

- Financial statement of power plants of recent years until the date on which negotiation on PPA is conducted.

Principles in determining annual fixed costs of Power purchase agreement in Vietnam

The determination of the fixed price for each year of the electricity purchase contract must comply with the following principles:

(1) The parties have the right to apply negotiated average fixed costs throughout contract years. Where the parties agree to convert the negotiated average fixed costs to annual fixed costs, the determination of these fixed costs must adhere to principles under (2)

(2). On the basis of practical loan capacity and financial capacity of projects, both parties shall negotiate about average fixed costs of power plants and convert to annual fixed costs (FCj: fixed cost of year j) as long as average fixed cost does not change compared to mutually agreed value and following principles are complied:

- Financial discount rate when calculating annual fixed costs agreed by both parties shall equal the IRR of power plants;

- Projects developers shall return loans for investment and construction of power plants according to deadline for repaying loan capital

(Article 16 of Circular 07/2024/TT-BCT)

More details can be found in Circular 07/2024/TT-BCT which comes into force from June 1, 2024.

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