Market Regulated Electricity Pricing: A Stride forward

 

Electricity prices of the new power sources are currently from seven to eight cents; even wind electricity prices increase up to 12 cents per kWh. Meanwhile, the retail electricity price in Vietnam in 2010 was 5.3 cents per KWh, which the price is just over 4 cents per KWh in the current exchange rate. The electricity prices are cheap because the current policy has subsidised prices for all classes of people and foreign businesses. This has limited the attraction of investment into the electricity sector, and led to prolonged power shortages. In addition, it also discourages enterprises from power-saving technological innovations; some enterprises even import backward technology consuming more energy and causing environmental pollution into Vietnam.

 

Thus, changing the electricity operation mechanism is an urgent matter now. According to Mr Hoang Quoc Vuong, Vice Minister of Industry and Trade, the operation of the electricity price under the market mechanism aims to set electricity prices toward reasonable levels to attract investment in electricity projects, to supply the increasing demand for electricity of the society, to ensure national energy security. This is also the basis for conducting electricity industry restructuring, and gradually implementing a competitive power generation market in the next steps. Taking over responsibility for stabilisation, market regulation and supporting the economy, for many years EVN still has had to trade electricity under the condition that input costs depend on market prices, but output price is subsidised on a ceiling price framework prescribed by the Government. Even when electricity prices rose on average by 15.2 percent from March 1st, 2011, EVN Group still continued to bear additional losses of VND3,366 billion, which brings the total suspended debt after increasing the electricity prices is VND41,851 billion. That is why, since 2003, Vietnam has not had large BOT projects of foreign investment in the electricity sector. So, it is time to consider electricity prices the same way as the price of other goods.

 

Mr Dinh Quang Chi, Vice General Director of EVN Group said, “If electricity prices are adjusted according to the market mechanism, it will attract more investors to create new power supplies sufficient for socio-economic development, thus the benefits are much greater than prescribing low prices but facing electricity shortage. In addition, it is necessary to raise people’s and enterprises’ awareness of economical and efficient electricity use. So, I think the electricity generation at present must follow the movement and become the responsibility of investors and self-consumer.”

 

Deciding to operate the electricity prices based on the market mechanism is regarded as removing a "knot" on electricity prices. However, its removal is not immediate but requires specific and clear development stages. According to Vice Minister Hoang Quoc Vuong, reaching a truly competitive power market must be done over a long period with three phases: the first phase (2011-2014) is developing a competitive electricity market; the second stage (2015-2022) is a competitive wholesale market; and the third phase (after 2022) is a competitive retail market.

 

Currently, preparatory work for the development of competitive electricity markets is the heavy responsibility of management agencies as well as the EVN Group. The Ministry of Industry and Trade has assigned Electricity Regulatory Agency (ERAV) to set electricity prices, regulatory implementation and monitor closely the activities of competitive electricity market, and to adjust mechanisms so that the market operates clearly and fairly. Also, there will be detailed regulations and operating procedures to direct the units participating in the market (power plants, unique wholesale units or electricity system operating units and electricity market, service providers) in the construction of infrastructure to meet the requirements of joining the market, personnel training and market operation.

 

Vice Minister Hoang Quoc Vuong said that before June 30th, 2011 the system of necessary regulations for the operation of competitive electricity markets will have been completed to ensure coherence, clearance and appropriateness. EVN Group and other units involved in the electricity market must urgently invest in information technology; carry out training programs and training courses about running electricity market on the basis of giving the priority to stability and safety to meet fully the requirements of the competitive electricity market in all phases. The immediate task is checking and upgrading the existing calculating software to meet the minimum conditions for the operation of pilot competitive electricity market. In addition, EVN completes the transmission network connected to the power plants participating in the market to serve the minimum requirements in operating the pilot electricity market, especially bidding in the market.

 

For power plants not having optic transmission lines, it is essential to consider methods to use the internet to make a bid, offer and receive information about operation of electricity market.

 

According to Mr Dinh Quang Chi, EVN Group is also directing the related units to complete the separation of existing electricity-purchasing contracts of thermal power plants having one component price into two component price: fixed and variable so as to be able to use the components of this temporary electricity price for the calculation and operation of the electricity market. Being a state enterprise, EVN Group is still subject to State control and is responsible for ensuring social benefits. The State will calculate most reasonably to benefit society, the people and the country. “We must always ensure the association between electricity price increase and social security,” said Mr Vuong.