How is the tariff payments in the power purchase agreement signed between Jaks Hai Duong Power (JHDP) and Electricity Vietnam (EVN) structured ?

The purpose of this article is to explain the tariff payments with flow diagram for clearer illustration.  

This article will not touch on the computations of the tariff payments. If you are interested, you may visit my earlier articles for detail discussions on tariff computations.

This article will focus on the intended purposes of the 2 tiers tariff payments and how this structure contributed to the successful final investment decision on this project.

Jaks Hai Duong Power Plant (JHDP) will receive 2 types of payment from Vietnam EVN after commercial operation (COD).

1. Capacity Payment (Base on Capacity made available) 
2. Energy Payment (Base on Electricity output)  

Capacity payment 

Capacity payment is fixed, predetermined and compulsory as long as the power plant is in ready state for power generation. 

Capacity payment is predetermined to sufficiently cover the followings;

1. Return of equity capital
2. Repayment of bank borrowings 
3. Payment of loan Interest
4. Fixed overhead and maintenance costs
5. Investment returns

The predetermined stream of capacity payments which is fully guaranteed by the Vietnam government was the main contributing factor that helped secured bank loans for the project.

Capacity payment ensures a safe investment returns on investors' capital and bank borrowings as well as proper upkeep of the power plant.

Energy payment 

Energy payment is only invoiced when there is electricity production.

Energy payment is intended to cover production costs including;

1. Coal costs
2. Heavy fuel oil costs 
3. Variable overhead and maintenance costs

There will be energy profit if production achieved targeted efficiency.

Conclusion

This article clearly illustrates how JHDP structured its tariff payments to achieve minimum required investment returns on investment capital with capacity payment as well as recovering its production costs through energy payment. Energy payment provides further upside to investment returns with operating profit from cost savings achieved through better than agreed plant efficiency target.

Happy reading !

Please "like" this article if you find it helpful.

DK

Disclaimer : This article is purely for information and opinion sharing purposes. You should not make your decision based on the writing. You are strongly advised to seek independent verification and advice.