Principles of adjusting annual electricity generation prices in power purchase agreement in Vietnam

Principles of adjusting annual electricity generation prices in power purchase agreement in Vietnam (Image from the Internet)

1. Principles of adjusting annual electricity generation prices in power purchase agreement in Vietnam

According to the provisions of Article 17 of Circular 07/2024/TT-BCT, the principles of adjusting annual electricity generation prices in power purchase agreement include:

- The components of operation and maintenance prices of the power plant are adjusted according to the following principles:

+ Operation and maintenance price components based on major repair costs and other costs are adjusted according to the average cost sliding rate stipulated in Appendix I issued with the Circular 07/2024/TT-BCT. The Seller and the Buyer shall study and propose a mechanism for adjusting the operation and maintenance price components based on major repair costs and other costs for items with foreign currency origins;

+ Operation and maintenance price components based on labor costs are adjusted according to the fluctuation of the regional minimum wage at the time of payment or according to the CPI index published by the General Statistics Office, but not exceeding 2.5% per year.

- Annually, based on the total foreign currency loan, the foreign currency loan repayment plan, actual principal repayment data, the exchange rate agreed upon between the Seller and the Buyer in the electricity generation price plan, and the exchange rate implemented in the previous year, the Seller and the Buyer shall calculate and agree on the payment plan for exchange rate differences. The exchange rate difference for FED (VND) is calculated according to the following formula:

Where:

m: Number of foreign currencies in the electricity generation price plan agreed by the Seller and the Buyer (currency type);

n: Number of times principal of foreign currency i is repaid in the calculation year (times);

D_i,j: Amount of principal of foreign currency i actually repaid in instance j of the calculation year;

λ_i,j: Payment exchange rate in instance j of foreign currency i (.../VND);

λ_i,b: Base exchange rate of foreign currency i agreed by the Seller and the Buyer in the electricity generation price plan (.../VND).

2. Principles in determining annual fixed costs of the power purchase agreement in Vietnam

The principles in determining annual fixed costs of the power purchase agreement in Vietnam are specifically stipulated in Article 16 of Circular 07/2024/TT-BCT as follows:

- The Seller and the Buyer have the right to apply the average fixed price agreed upon for the years within the contract term. In case the Seller and the Buyer agree to convert the agreed average fixed price into annual fixed prices, the determination of these fixed prices must comply with the principles stipulated in Clause 2, Article 16 of Circular 07/2024/TT-BCT.

- Based on actual borrowing conditions and the financial capacity of the project, the Seller and the Buyer agree to convert the average fixed price of the power plant into annual fixed prices (FC_j Fixed price for year j) provided that the average fixed price does not change compared to the level agreed upon by the Seller and the Buyer and complies with the following principles:

+ The financial discount rate when calculating the annual fixed prices is agreed by the Seller and the Buyer as the internal financial rate of return (IRR) of the power plant;

+ The investor fulfills the obligation to repay the loans for the construction investment of the power plant according to the debt repayment schedule.

Vo Tan Dai

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