Key takeaways

We have summarized the key points of Circular 54 below for your reference.

Amendments to Circular 09's methodologies for determining and approving power tariff frameworks

1. Circular 54 broadens the scope of projects subject to power tariff frameworks, as determined and approved in accordance with Circular 09, including the following:
   1. Small renewable power plants whose avoided cost tariff (ACT) period has expired
   2. Power plants that have commercially operated and whose PPA tariff period has expired
   3. Power plants whose build-operate-transfer (BOT) contract period has expired and that are handed over to the Government.
2. Circular 54 introduces a methodology for determining the maximum price of the power tariff frameworks for (i) small renewable power plants whose ACT period has expired, (ii) power plants that have commercially operated and whose PPA tariff period has expired, and (iii) power plants whose BOT contract period has expired and that are handed over to the Government, among others. The methodology includes the following:
   1. General principles are used to determine the maximum price, including the power generation price, fixed average price, variable price, and operation and maintenance price, as already regulated under Circular 09.
   2. The economic life used to calculate the maximum price shall correspond to the remaining economic life of the power plant.
   3. The investment cost used to calculate the maximum price shall be determined based on the remaining value of the plant's assets at the time when the power generation tariff or the PPA expires, plus any renovation or upgrade costs (if any) approved by the competent authority or mutually agreed with the power purchaser. For power plants whose BOT contract term has expired, the investment costs used to calculate the maximum price shall be based on the remaining asset value approved by the competent authority.
   4. Other input parameters used to calculate the maximum price shall be determined based on the power plant's actual data, as agreed between the power seller and the power purchaser.
3. Circular 54 adds independently invested BESS to the list of exclusions from the application of methodologies for determining and approving the power tariff frameworks in Circular 09. This update aligns with the MOIT's ongoing preparation of a separate draft circular on methodologies for determining and approving tariff frameworks applicable specifically to BESS.
4. Circular 54 updates the economic life parameters applied in calculating investment costs and the average fixed price for the following:
   1. Offshore wind power plants: 25 years
   2. Flexible power plants: 25 years, or determined based on the feasibility study report dossier as approved by the competent authority (Circular 54 newly defines flexible power plants as thermal power plants using either reciprocating internal combustion engines (RICE) or aeroderivative gas turbines (Aero-GT) to generate electricity, characterized by fast start-up capability and flexible modular design for balancing capacity and maintaining power system stability)
   3. BOT power plants: the plant's operational period, as specified in the BOT contract

Amendments to Circular 12's methodologies for determining and calculating power generation tariffs

1. Circular 54 adds pumped-storage hydropower and independently invested BESS to the list of exclusions from the application of methodologies for determining and calculating power generation tariffs regulated in Circular 12. This update aligns with the MOIT's ongoing preparation of separate draft circulars on methodologies for determining and calculating power tariffs applicable specifically to these technologies.
2. Circular 54 clarifies that the "P50 expectation level" is the multi-year average delivered power output value of a power plant, with a 50% probability that the multi-year actual delivered power output will meet or exceed this value.
3. Circular 54 updates the economic life parameters that are used in calculating average fixed price (FC) for the following:
   1. Offshore wind power plants: 25 years
   2. Flexible power plants: 25 years, or determined based on the feasibility study report dossier as approved by the competent authority
4. Under Circular 12, multi-year average power output at the delivery point (AGN) is one of the factors used to determine the average fixed price (FC) for calculating the power generation tariff. AGN is calculated based on the following formula: 

"A_GN = A_NM x (1-t_td) x (1-k_CS)"

Under Circular 54, the annual average output at the delivery point of the power plant (ANM), excluding battery storage, that is used to calculate AGN is now determined based on more comprehensive technical/design documentation and subject to the source of the project funding. This replaces the previous single reference to basic design in effect at the negotiation time, as regulated in Circular 12. ANM shall be determined as follows:

1. Projects using public investment capital or state capital other than public investment: ANM shall be determined based on the basic design (or the technical design if it cannot be determined according to the basic design) in accordance with the power plant's installation parameters, as appraised by the competent authority (for wind and solar power plants, ANM shall be determined according to the P50 expectation level).
2. Projects not using public investment capital or state capital other than public investment: ANM shall be agreed between the power seller and the power purchaser, based on the feasibility study report dossier (or the technical design dossier if it cannot be determined according to the feasibility study report dossier) in accordance with the power plant's installation parameters, as approved. ANM shall not be lower than the power output value specified in such dossier (for wind and solar power plants, ANM shall be agreed upon according to the P50 expectation level).
3. For thermal power plants, ANM is calculated based on the following formula: 

"A_NM = P_t x T_max"

The symbols in this formula mean the following:

• "P_t" is the terminal capacity of generators as specified in the approved design (kW).
• "T_max", as newly amended under Circular 54, is the number of operating hours at the plant's multi-year average maximum capacity. This is determined according to (i) the document issued by the competent authority approving T_max, if there is one, or (ii) the provisions specified in Appendix I of Circular 12. If T_max is not specified in Appendix I of Circular 12 (including biomass power, waste-to-power and flexible power plants), Tmax shall be determined either based on the feasibility study report dossier, as approved, or as agreed between the power seller and the power purchaser.

For projects not using public investment capital, if AGN cannot be determined using the prescribed formulas, the power seller and the power purchaser shall agree on AGN based on the feasibility study report dossier (or the technical design dossier if it cannot be determined according to the feasibility study report dossier) in accordance with the power plant's installation parameters, as approved and in effect at the time of negotiation. AGN shall be converted to the delivery point, but not lower than the power output value specified in such dossier. For wind and solar power plants, the P50 expectation level is a basis for determining AGN.

5. Circular 54 adds an entirely new formula for calculating AGN for renewable power plants integrating BESS. Specifically:

"A_GN = [A_NM - A_S x (1- n_RT)] x (1-t_td)"

The symbols in this formula mean the following:

• AS is average power output used to charge the BESS (kWh) determined according to the following formula:

"A_S = A_BESS x (T_BESS / n) x [1 – (k_v x n / 2)]"

"A_BESS" is the BESS capacity as per the approved design (kWh).

"TBESS" is the minimum charge-discharge cycles of the BESS agreed by the electricity seller and buyer based on the approved feasibility study report (or the appraised basic design) or the equipment manufacturer's technical documents at the time of negotiation (if any).

"n" is the power plant's economic lifetime (years).

"k_v" is the annual average capacity degradation rate of the BESS over the power plant's entire economic lifetime (%/year), agreed by the electricity seller and buyer based on the approved feasibility study report dossier (or the appraised basic design) or the equipment manufacturer's technical documents at the time of negotiation (if any).

• "n_RT" is charge-discharge cycle efficiency of the BESS (%) as agreed between the power seller and the power buyer based on the approved feasibility study report dossier (or the appraised basic design) or according to the equipment manufacturer's technical documents at the time of negotiation (if any). It must be no less than 85%.

6. Circular 54 updates the basis for determining the annual average delivered power output and total investment cost for transitional wind and solar power projects for which PPAs have been signed with Vietnam Electricity (EVN), but not fully satisfying conditions for enjoying the feed-in tariff (FiT) under Decisions previously issued by the Prime Minister.
   1. Projects using public investment capital or state capital other than public investment: The total investment cost and annual average delivered power output (based on the P50 expectation level) shall be determined based on the basic design in accordance with the power plant's installation parameters (or the technical design if it cannot be determined according to the basic design), as appraised by the competent authority.
   2. Projects not using public investment capital or state capital other than public investment: The total investment cost and annual average delivered power output (based on the P50 expectation level) shall be agreed between the power seller and the power purchaser, based on the feasibility study report dossier (or the technical design dossier if it cannot be determined according to the feasibility study report dossier) in accordance with the power plant's installation parameters, as approved.

If you would like to discuss the details of any specific issues, developments and transactions in relation to determining and calculating power tariff frameworks or power tariffs, please do not hesitate to contact us.

***

Hoang Anh Vu, Trainee Solicitor, has contributed to this legal update.