On April 12, 2024, the Ministry of Industry and Trade issued Circular No. 07/2024/TT-BCT ("Circular 07") outlining the methodology for determining electricity generation prices and electricity purchase agreements. Circular 07 replaces Circular No. 57/2020/TT-BCT ("Circular 57") and includes several notable points as follows:
1. Acknowledgement of the principle ensuring the validity of costs for determining electricity generation prices
Under Circular 07, the costs considered when determining electricity generation prices must adhere to the principle of being “reasonable and valid” for the entire economic life of the project. This provision clarifies and supplements the principle in Circular 57, which only required costs to be "reasonable," and aligns with the current general legal regulations.
2. Adjustments to the method for determining the average fixed price of power plants
Circular 07 revises the criteria for determining the average fixed price of power plants to be more comprehensive and reflective of practical conditions, specifically:
- Replacing the criterion “Total Investment” with “Investment Cost,” which offers a more comprehensive and inclusive approach, covering a broader range of expenses.
- Substituting the criterion “Average Annual Generated Electricity at the Generator Terminals” with “Average Annual Generated Electricity at the Electricity Delivery Point (AGN).” This criterion is considered to more accurately reflect the actual power generation data of the plants. Specifically for thermal power plants, Circular 07 allows both the buyer and seller to apply the criterion “Capacity Reduction Rate” as determined by the approved basic design or the manufacturer’s technical documents.
- Providing specific guidance on the criterion “Loan Interest Rate and Repayment Term during Operation” in cases where the total loan of the investor is lower than in the calculation plan for electricity prices. Circular 07 outlines reference principles for loan term and interest rates for the remaining loan portion.
3. Addition of Provisions for Determining Electricity Generation Prices and Electricity Purchase Agreements for Special Cases
Circular 07 adds provisions for determining electricity generation prices for special cases, including:
- Power plants that do not yet have an electricity purchase price mechanism as regulated by the Government, the Prime Minister, or the Ministry of Industry and Trade;
- Cases where the electricity generation price has not yet been agreed upon;
- Solar and wind power plants that have signed power purchase agreements with Vietnam Electricity Group but do not yet have an official electricity generation price;
- Hydropower plants with effective power purchase agreements where the electricity generation price has expired or plants applying the avoided cost tariff whose power purchase agreement has expired.
4. Allowance for applying temporary prices before agreeing on an official price
Circular 07 permits the seller and the buyer to agree on a temporary price, which must be reported to the Ministry of Industry and Trade for approval, to be applied until an official electricity generation price is agreed upon.
5. Allowance for renegotiating electricity generation prices in expired power purchase agreements while the power plant is still operational
Under Circular 57, the electricity generation price specified in the current power purchase agreement was to be applied in subsequent years until the end of the plant's economic life.
Circular 07 modifies this by allowing the seller and the buyer to negotiate and agree on an electricity generation price to be applied in subsequent years until the end of the plant’s economic life, ensuring that the average fixed price does not change from the previously agreed price.
6. Simplification of administrative procedures for investors in adjusting annual electricity generation prices in power purchase agreements
Circular 57 required that each year, when adjusting the electricity generation price in power purchase agreements, the seller and the buyer had to calculate exchange rate differences and propose a payment plan to the Electricity Regulatory Authority for review and submission to the Ministry of Industry and Trade for consideration and decision.
Circular 07 simplifies this by allowing the parties to the power purchase agreement to negotiate the exchange rate difference payment plan without needing approval from state authorities.
Circular 07 takes effect from June 1, 2024.
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