Circular 15 issuance a baby step

• Circular 15 provides for the method for formulation of the Tariff Ranges applicable to Transitional Plants.
• Transitional Plants are defined as
  1. ground-mounted or floating solar plants and onshore or offshore wind power plants
  2. which have signed PPAs with the EVN before 1 January 2021 (for solar power plants) and before 1 November 2021 (for wind power plants) but
  3. failed to meet conditions to be eligible for FiTs under Decision 13/2020/QD-TTg on solar power projects and Decision 39/2018/QD-TTg and Decision 37/2011/QD-TTg on wind power projects in Vietnam.
• The general applicability section of Circular 15 stipulates that Transitional Plants must strictly comply with regulations on investment and construction, closely follow the absorption capability of the national power system and the release capacity of the power grids, comply with the tariff mechanism applicable at the time of COD, and be responsible for project effectiveness in accordance with the approved mechanism. In case of serious violation, investment licenses may be suspended or revoked in accordance with regulations on construction investment.

• Circular 15 only regulates the method for formulation of the Tariff Ranges but does NOT include any contents on determination of the tariff applicable to a specific Transitional Plant as in the second Draft.
• The definition of Transitional Plants (only those having signed PPAs) is much narrower as compared to the definitions in the Drafts. Although this is at least an objective criterion, it significantly narrows the scope of Transitional Plants.
• There is no reference to rooftop solar (RTS) and hence it appears that Circular 15 does not apply to RTS. The definition of onshore and offshore wind remains unchanged compared to that under Circular 02/2019/TT-BCT dated 15 January 2019.
• Presumably the signed PPAs of the Transitional Plants all follow the previous model PPAs issued under Circular 02/2019/TT-BCT dated 15 January 2019 (for wind power plants) and Circular 18/2020/TT-BCT dated 17 July 2020 (for solar power plants). Given the definition of the Transitional Plants (ie having signed PPAs) and the existing contractual terms, amendments will need to be made to the PPAs, even if just on tariff, and this may open the door to opportunities to negotiate other points.

• Standard power plant (either solar or wind power) is a power plant (Standard Power Plant) having installed capacity of 50MWp (for standard solar power plant) or 50MW (for standard wind power plant) and is used to provide a standardised set of data to calculate the Ceiling Tariff which is the upper limit of the Tariff Range for each technology.

• In the Drafts, a similar concept was used but did not provide for a specific installed capacity of 50MW/50MWp as in Circular 15.

• The Tariff Range is a range of values from zero to the Ceiling Tariff corresponding to either solar power or wind power.
• The Tariff Ranges will be formulated and issued by the MOIT one time only.

• This is consistent with the previous Drafts and so expected.
• As already noted, the major difference in Circular 15 compared with the Drafts is that it is completely silent on the relationship between the Tariff Range and the tariffs payable to specific Transitional Projects. Nevertheless, it is clear that the intention is that specific tariffs should be lower than the relevant Ceiling Tariff (ie within the Tariff Range).¹¹

• Ceiling Tariff (ie tariff applicable to the Standard Power Plant) is calculated in accordance with the following formula:

P = FC + FOMC

In which

P: power generating tariff (Dong/kWh);

FC: average fixed costs (Dong/kWh); and

FOMC: fixed O&M costs (Dong/kWh).

• Average fixed costs (FC) are calculated in accordance with the following formula:

              TC
  FC = ————
               E

  In which

  TC: Investment capital cost (not including VAT) for construction of the Standard Power Plant calculated per year (Dong); and

  E: the average delivered power for many years of the Standard Power Plant (kWh).

  TC is calculated based on (i) the investment capital cost per kWp/kW¹³ of the Standard Power Plant (Dong/kWp for solar power or Dong/kW for wind power) (SDT), (ii) the total installed capacity of the Standard Power Plant (ie 50MWp for solar power or 50MW for wind power), (iii) the economic life of the Standard Power Plant (ie 20 years), and (iv) the financial discount ratio of the Standard Power Plant (%).

  • Regarding (i), the investment capital cost per 1 kWp/kW is calculated based on the total investment capital costs of all power plants having signed PPAs (prior to 1 January 2021 in respect of solar power and 1 November 2021 in respect of wind power) with reference to data of consulting organisations.
  • Regarding (iv), various factors are used to calculate the financial discount ratio of the Standard Power Plant, including (a) loan over investment capital ratio (ie 70%), (b) capital ownership contribution over investment capital ratio (ie 30%), (c) the economic life of the Standard Power Plant (ie 20 years), (d) the average loan repayment period (ie 10 years), (e) the interest rate of loans in both VND and foreign currencies calculated in accordance with a statutory formula, and (f) ratio of before-tax profit over equity capital which is calculated based on the ratio of after-tax profit over equity capital (ie 12%) and corporate income tax rate.
• Fixed O&M costs (FOMC) are calculated in accordance with the following formula:

                 TC_FOMC
  FOMC = ————-
                      E

  In which

  TC_FOMC is the total fixed O&M costs of the Standard Power Plant which is calculated based on the investment capital cost (Dong) per kWp/kW (ie SDT in (i) in the calculation of TC above), the total installed capacity of the Standard Power Plant (ie 50MWp for solar power and 50MW for wind power), and the ratio of the fixed O&M costs over the total investment capital costs for each type of power plants as follows (%):

  • Floating solar: 1.5%
  • Ground-mounted solar: 1.8%
  • Onshore wind: 2.0%
  • Offshore wind: 1.8%
• The average delivered power for many years of the Standard Power Plant (E) is determined based on, among others, technical variables in the approved feasibility studies and technical designs of the power plants having PPA signed before 1 January 2021 for solar power and before 1 November 2021 for wind power (with reference to data of consulting organisations) including:
  • in relation to solar power, total area of solar panel installation (which is calculated based on total installed capacity of the Standard Power Plant (ie 50 MWp), nominal capacity of the solar panel (Wp) and the solar panel area (m²)), average intensity of solar radiation, conversion rate of solar panel and performance rate of the Standard Power Plant (%);
  • in relation to wind power, total delivered power over many years of the Standard Power Plant at the expected rate of 50% (kWh), instability rate of the Standard Power Plant (%), the total installed capacity of the Standard Power Plant (ie 50MW) and capacity rate of the Standard Power Plant applicable to wind power (%).

• The Drafts provided for a similar method to calculate the Tariff Ranges—one for solar power and one for wind power.
• This method is consistent with the method to determine the tariff ranges applicable to thermal power plants (coal-fired and gas combined cycle) set out under Circular 57/2014/TT-BCT dated 19 December 2014 regulating the method and sequence for development and promulgation of the power generating tariff range (as amended). Arguably this lends some credence to the possibility that Circular 15 can set up solar and wind power plants’ participation in the VWEM.
• The method of formulation of the Tariff Ranges is essentially the same for solar power and wind power, except for certain built-in formula and data such as the total investment costs per kWp and the average delivered power for many years which vary between the technologies.

• Within 15 days from the effective date of Circular 15 (ie by 9 December 2022), investors of all solar power plants having PPAs signed before 1 January 2021 and wind power plants having PPAs signed before 1 November 2021 are required to submit technical designs or feasibility studies of the plants to EVN for selection of suitable data to calculate the Ceiling Tariffs.
• Within 45 days from the effective date of Circular 15 (ie by 9 January 2023), and based on the data above, EVN calculates or hires consultants to calculate the Tariff Ranges and submit the same to the Electricity Regulatory Authority of Vietnam (ERAV) for appraisal.
• Within 5 working days from receipt of the calculation dossiers from EVN, ERAV will review the content, sufficiency and validity of such dossiers and will request clarifications or supplementals (if necessary).
• Within 45 working days from the date of receipt of the calculation dossiers, ERAV will review the Tariff Ranges in accordance with the method of formulation set out in Circular 15 and may consult with independent experts or a consulting committee to be established by the MOIT with a maximum of nine members (if necessary).
• No later than 10 working days from the date of the appraisal outcome, ERAV will finalise the calculation dossiers and submit the same for the MOIT’s approval of the Tariff Ranges applicable to the Transitional Plants. The Tariff Ranges will be made public on MOIT’s and ERAV’s websites.

• The process set out in Circular 15 is similar to that in the Drafts, though with slightly different timelines for each step and the following differences:
  • In the Drafts, from the date the circular is issued, investors of all solar and wind power plants having signed PPAs before 1 November 2021 (with no distinction between solar power and wind power) will have to submit technical designs or feasibility studies of the plants to EVN for selection of the Standard Power Plants (with no reference to 50MW) to calculate the Ceiling Tariffs.
  • In the Drafts, there is no mentioning of the option to consult either independent experts or a consulting committee established by the MOIT.
• Despite the fact that Circular 15 is not yet effective as a legal instrument, we understand EVN has already sent formal requests to Transitional Project investors requesting the information contemplated in Circular 15.
• Strictly speaking, the latest date for all the steps to be completed to formulate the Tariff Ranges is by end of March 2023 (though this excludes the time required to prepare and supplement dossiers to make them sufficient and valid if required).