REGULATION ON

AVOIDED COST TARIFF AND STANDARDIZED POWER PURCHASE AGREEMENT FOR SMALL RENEWABLE ENERGY POWER PLANTS

(Promulgated along with the Decision No. 18/2008/QD-BCT dated 18 July 2008 by the Minister of Industry and Trade)

CHAPTER 1

GENERAL PROVISIONS

Article 1:  Governing Scope and objects of application

1. This regulation stipulates conditions, procedures of preparation, amendment, supplementation and abolishment of the electricity tariff applied for small renewable energy power plants which are connected to the national power grid.
2. This Regulation is applied to organizations, individuals who buy or sell electricity generated by small renewable energy power plants.

Article 2: Interpretation of terminologies

In this Regulation, the terms below shall be construed as follows:

1. The Seller:means organization, individual who has permission on electricity activities in the field of small renewable energy power generation.
2. The Buyer:  means an electricity distribution unit which has permission on electricity activities in the field of electricity distribution and retailing, has power grid to which small renewable energy power plants are connected to and applies Standardized Power Purchase Agreement promulgated by Ministry of Industry and Trade (MOIT) in buying electricity with the Seller.
3. Avoided cost tariff: means the electricity tariff calculated by avoided costs of the national power grid when one (01) kWh is generated to the distribution power grid from a small renewable energy power plant.
4. Avoided cost:  means the production cost per 1 kWh of the most expensive power generating unit in the national power grid, which would be avoided if the buyer purchases 1 kWh of electricity from a substitute small renewable energy power plant.
5. Surplus electricity: means the amount of electricity which is produced in the wet season which exceeds the amount of electricity produced at the load factor of 0.85 in the wet season.
6. Busbar electricity: means the total amount of electricity production minus electricity amount used by the power plant’s auxiliary systems.
7. National Load Dispatch Unit: means the unit of power sector which commands, controls power generation, power transmission, power distribution units, operates the national power grid in accordance with stipulated procedures, technical standards and operation patterns.
8. Load factor: means the ratio between actual electricity production and possible electricity production at the operation of 100% rated capacity in certain duration of time (year, season, month, day).
9. Standardized Power Purchase Agreement: means the power purchase agreement issued by Ministry of Industry and Trade, applied to small renewable energy power plants which apply avoided cost tariff.
10. Wet season:  means time duration counted from 1 July to 31 October.
11. Dry season: means time duration counted from 1 November to 30 June next year.
12. Year of data which is used in calculation of electricity tariff for year N is taken from 1 July of year (N-2) to 30 June of year (N-1).
13. Renewable energy is the energy produced from such resources as small hydropower, wind, solar, geothermal, biomass, land field gas, gas from waste treatment and biogas, etc.
14. Eligible power plant: means a power generating plant which uses renewable energy and meets the conditions stipulated in the Paragraph 1 of Article 8 in this Regulation.
15. Technical requirement means technical requirements, norms, standards, regulations related to connection of a power plant to the distribution power grid.

CHAPTER II

THE AVOIDED COST TARIFF

Article 3:  Tariff structure

1. Avoided cost tariffs are calculated according to time of use in days and seasons in the year, which are stipulated in details in Annex 1 of this Regulation, including 7 following components:
   1. Peak hours in dry season
   2. Normal hours in dry season
   3. Off-peak hours in dry season
   4. Peak hours in wet season
   5. Normal hours in wet season
   6. Off-peak hours in  wet season
   7. Electricity surplus in wet season
2. Costs corresponding to the 7 above components of electricity tariff are stipulated in the Annex 1 attached to this Regulation, including:
   1. Avoided electricity generation cost;
   2. Avoided electricity transmission loss cost;
   3. Local environmental damage avoided cost (according to the existing regulation, this component is not taken into account);
   4. Avoided generation capacity cost (only payable during the peak hours in the dry season).
3. Avoided cost tariffs which are applied for the Northern, Central and Southern regions shall be announced yearly by Electricity Regulatory Authority of Vietnam (ERAV).
4. The time of electricity use within a day time is applied for avoided cost tariff in compliance with the stipulations in the existing electricity retailing tariff schedules.
5. The sellers who use standardized power purchase agreement shall install the time of use meters (three prices) in order to meter electricity, serving for electricity payment.
6. The methodology for calculating the avoided cost tariff is stipulated in the Annex 2 of this Regulation.
7. The Seller is responsible for investment, operation and maintenance of the power lines and step up transformer substation (if any) from the power plant of the Seller to connection point with the power grid of the Buyer.
8. The connection point with the power grid of the Buyer is the nearest point connected to the existing power network of the Buyer. The connection point shall be agreed by the Seller and the Buyer. In case the Seller and the Buyer cannot agreed on the connection point, each party shall prepare connection alternative, submit it to ERAV for consideration and making decision.
9. In the event that the metering and connection points are not the same, the Seller shall bear electricity loss on the connecting power line. Methodology for calculating the electricity loss on the connecting power line is stipulated in the Annex 3 of this Regulation.
10. Seller, when having signed the Standardized Power Purchase Agreement (SPPA) with the Buyer, has right to choose whether or not apply electricity tariff schedule according to the risk sharing mechanism as specified in SPPA.
11. The risk sharing mechanism is the mechanism for applying avoided cost tariff which is annually announced together with preset cap and floor electricity prices based on the avoided cost tariff of the signing year of SPPA. The electricity selling prices for the years after SPPA has been signed will be equal to the avoided cost tariff applicable for that year if that price is in the range between the floor and cap prices. If the avoided cost tariff is higher than the cap price, the cap price is applied and if the avoided cost tariff of that year is lower than the floor price of that year, the floor price of that year is applied.
12. The floor price of each component of the electricity tariff is counted equally to 90% of price of that component in the avoided cost tariff applied for the signing year of SPPA.
13. The cap price of each component of the tariff is calculated equally to 110% of that component in the avoided cost tariff applied for the signing year of SPPA.
14. Maximal time duration for applying the tariff with risk sharing mechanism is 12 years from the signing year of SPPA. The Seller can choose shorter time duration for application. After risk sharing mechanism application time is expired, tariff used in payment of the electricity charge specified in SPPA shall be the avoided cost tariff which is annually published.
15. When this mechanism is applied, in SPPA it needs to specify specific avoided cost tariff for signing year of SPPA, duration of risk sharing mechanism application, cap and floor prices corresponding to each component of tariff in accordance with risk sharing mechanism as specified in Table 2, Annex 1 of this Regulation.

Article 4: Connection Obligations

Article 5: Risk Sharing Mechanism

Article 6:  Tariff setting

1. Avoided cost tariff schedule is set and announced annually for each next period of 5 years.
2. The national load dispatch unit is responsible for calculation of avoided cost tariff yearly according to the methodology specified in Annex 2, submit it to the ERAV for reviewing and promulgation.

CHAPTER III

IMPLEMENTATION OF THE TARIFF

Article 7:   Standardized Power Purchase Agreement

1. Use of SPPA is compulsory in selling and buying electricity with application of avoided cost tariff between eligible power plants and Buyer.
2. The power purchase agreement which has been signed before the time of application of SPPA shall continue to be in effect to the expiry time as specified in the agreement. Seller and Buyer may agree on shifting to application of avoided cost tariff and SPPA as replacement of signed power purchase agreement.
3. The power plant eligible for application of avoided cost tariff and standardized purchase agreement are those meet the following conditions:

Article 8:  Applicable Conditions for the Seller            

a) Installed capacity of the power plant shall be less than or equal to 30MW. In case the seller has many cascade hydropower plants on the same river, total installed capacity of these power plants shall be less than or equal to 60MW;

b) Whole electricity amount is produced from renewable energy.

1. One power plant which has enough conditions can apply the avoided cost tariff. When carrying out the economic and financial analyses of the project, the regulation of electricity price framework “Temporary regulation on contents of calculation of economic, financial analyses and electricity tariff frame work for power generation plants” promulgated along with the Decision No. 2014/QD-BCN dated 13 June 2007 by Ministry of Industry and Trade and other documents replacing that Regulation has not to be complied with.
2. Procedures for preparation of the annual avoided cost tariff are as follows: 

Article 9: Procedures for preparation and application of the avoided cost tariff

a) The national load dispatching unit is responsible for updating database serving calculation of the avoided cost tariff;

b) Prior 31^st August every year, national load dispatching unit shall prepare draft avoided cost tariff for the next year then submit it to ERAV for reviewing and promulgating;

c) Prior 01 December every year, ERAV shall review and approve the avoided cost tariff which is prepared by the national load dispatching unit.

1. ERAV is responsible for announcing avoided cost tariff for the next year at the website of ERAV and website of MOIT at the latest two days from the date of new tariff promulgation.
2. In case the avoided cost tariff has been not announced on time, the avoided cost tariff of the previous year is still temporarily applied. The new avoided cost tariff shall be applied for the whole year after being announced. The parties shall reimburse each other the difference of payment between the old tariff and new tariff at the first payment to be made since new tariff is applied.

CHAPTER IV:

ORGANISATION OF IMPLEMENTATION

Article 10: Obligations of the ERAV

1. Development, revision, supplementation of the methodology for preparing avoided cost tariff and submitting it to the Minister of Industry and Trade for promulgation.
2. Directing the national load dispatching unit to preparation of annual avoided cost tariff in order to ensure publishing tariff on time.
3. Reviewing and promulgating avoided cost tariff which has been prepared by the national load dispatching unit.
4. Keeping confidentiality of information related to the costs of power plants, which have been used for calculation of the avoided cost tariff.

Article 11: Obligations of the Seller

1. Seller is responsible for selling whole electricity from the busbar of the power plant to the Buyer, when avoided cost tariff and SPPA are applied. For the purposes of supplying electricity to the un-electrified villages, communes in vicinity of the power plant on the request of the local authority, the seller can sell a portion of electricity production at the electricity price agreed by writing, in accordance with laws, to the local power distribution units at the agreement of the Buyer in advance.
2. The seller is responsible for sending one copy of signed SPPA to ERAV at the latest 30 days from the date of its signature.
3. Buyer is responsible for agreement, signing SPPA with the Seller and complying with the avoided cost tariff if Seller satisfies requirements stipulated in Article 8 of this Decision and stipulations in other related legal documents.
4. The Buyer is responsible for buying whole electricity generated to the power grid by the Seller, except the electricity portion sold to the local power distribution unit according to the stipulations in Paragraph 1 Article 11 of this Regulation.
5. The national load dispatching unit is responsible for preparation of annual avoided cost tariff and keeps confidentiality of information related to costs of the power plants which are used for calculation of tariff.
6. The thermal power plants which are assigned by ERAV are responsible for providing necessary data to the National Load Dispatching Unit serving calculation of avoided cost tariff.

Article 12: Obligations of the Buyer

Article 13:  Obligations of Power Sector Entities