The proposal to increase power purchase agreement for the small HPPs in Vietnam

According to VEA's proposal: In recent years, with the Government's development promotion mechanisms, especially Decision 18/2008/QD-BCT dated 18/7/2008, Circular No. 32/2014 /TT-BCT dated October 9, 2014, Circular No. 29/2019/TT-BCT dated November 15, 2019 of the Ministry of Industry and Trade on promulgating Regulations on avoidable cost tariff and the model Power Purchase Agreement (PPA) for the small hydropower plants using renewable energy has encouraged the investors to actively participate in investing in the small hydropower plants in accordance with the Government's policy on socialization of investment in power sources.

Up to now, the total capacity of the small hydropower plants connected to the power system is about 4,698 MW, contributing an annual average as 17 billion kWh to the national power system (accounting for about 8% of the whole system's electricity output in 2021).

The small hydropower plants played an important role in covering the peak hours of the Vietnam national power system. The small hydropower plants are renewable, green, clean energy sources with flexible operation, contributing to ensuring energy security and reducing electricity costs, with a cheaper power purchase prices than other power sources (wind, solar and thermal power projects).

In addition, the small hydropower plants have contributed to economic development, created jobs, ensured social security, prevented floods, contributed to state budget revenue, and created good conditions for economic development of the mountainous provinces.

In the recent 13 years, since the application of the Avoided Cost Tariff (from 2009 to the end of 2022), the index CPI has increased by 99.9%, leading to increase investment rate in the small hydropower projects, the EVN average sale electricity selling prices also increased by 98.5% (from VND 948.5 to VND 1882.73), while the EVN bought from the small hydropower plants with an average electricity prices in increase by 37% (from 810 VND) VND 1,110 VND).

According to the EVN calculation results, based on the price list of the Avoidable Costs regulated in Circular 32/2014/TT-BCT, the power purchase prices of small hydropower plants have increased over the years. Specifically, in 2021, an increase of 13.6% compared to 2020, in 2022, an increase of 23.6% compared to 2021, in 2023 with an increase of more than 40% compared to 2022. But in fact, the Avoidable Costs applied to the small and medium-sized hydropower plants every year, were not increased but decreased (in 2020 decreased in comparison with 2019), the prices in 2021 and 2022 were remain the same in comparison with 2020. Especially in the context of fuel prices (coal, gas) increased dramatically, the production, financial costs (bank interest rates, dollar slippage in prices) increased significantly.

The failure to increase electricity prices is causing many difficulties for production and business activities of the medium and small hydropower enterprises in repaying bank loans, calculating payback time, investment rates, as well as not ensuring fairness, rights and interests of the small and medium hydropower investors.

Therefore, the VEA proposes to the Government, the Ministry of Industry and Trade, the Electricity Regulatory Authority and EVN to consider and approve the increase in power purchase agreement for the small and medium-sized hydropower plants in accordance with the provisions of the Avoidable Costs (in the Circular 32/2014/TT-BCT dated October 9, 2014 and the Circular No. 29/2019/TT-BCT dated November 15, 2019 of the Ministry of Industry and Trade), in order to ensure stability and consistency in the application of the promulgated State investment laws and policies.