Competitive Power Market: Independence and Price Reduction

2:15:47 PM | 7/21/2015

Vietnam can hardly form and develop a competitive electricity market if the Electricity of Vietnam (EVN) hangs on to its current ways and holds so many roles: Working as a market regulator, a distributor and a retailer to consumers, said Dr Nguyen Dinh Cung, Director of the Central Institute for Economic Management (CIEM) at a recent workshop on the “Building institutions for competitive energy market in Vietnam” in Hanoi.
 
Power of electricity sector necessarily restricted
According to many experts, the development of a competitive power market has been guided for implementation by the Government since July 2012. However, according to studies, although this programme has produced positive results, they are still short of expectations. Specifically, according to the Vietnam competitive power market plan, there will be three phases of development: Competitive power generation (2005-2014), competitive wholesaling (2015-2022) and competitive retail (after 2022). Vietnam is currently in the final steps of the competitive electricity generation market and preparing for the competitive wholesaling stage.
 
But, many experts expressed their concerns that, to turn the Vietnam competitive power generation market (VCGM) into a really exciting, competitive "playground" that draws the participation of all power plants, many challenges ahead need to be overcome. So far, over 50 units have joined VCGM, accounting for 43 percent of the system-wide power capacity. Furthermore, Vietnam’s potential renewable electricity sectors, including solar power and wind power, are unattractive to investors because of low wholesaling prices in the face of high investment rates.
 
According to CIEM, 43 percent of the system’s output capacity is not actually high while the VCGM admission expansion is rather puzzled. This will imperceptibly reduce the competitiveness and transparency of Vietnamese electricity market.
 
Dr Nguyen Dinh Cung said if Vietnam fails to resolve conflicts of interest in power administration, it can hardly build up a competitive electricity market in the true sense, let alone attract businesses to invest in this sensitive field.
 
To make it clearer, he added that Vietnam needs to quickly separate electricity regulatory agencies from the system of State management agencies such as the Ministry of Industry and Trade, building electricity regulatory agencies to establish an independent power regulatory agency. Then, the power sector will have a serious monitoring mechanism and have basic changes to attract investment, he noted.
 
Learning from other countries experience
Sharing experience in Australia, Mr Julian Scarff, a specialist from Australia Aid, said, the Australian Energy Market Operator (AEMO) operates the electricity market with a centralised regulatory process which assembles all power concerns. Currently in Australia, only power transmission and distribution stages are "naturally monopolistic" while electricity purchasing from power plants and distribution to retailers and consumers is "marketised". However, Australian Energy Regulator (AER) still administers the electricity market to prevent monopolistic pricing and AER fixes ceiling price/ceiling revenue. It performs reassessment every five years to stimulate a stable investment environment.
 
Mr Julian Scarff added that AER is an independent regulatory agency assigned to regulate the wholesale electricity and gas market to ensure that suppliers abide by the law and exercise law enforcement in case of necessity. AER also evaluates the use of transmission network and supports the Australian Competition and Consumer Commission (ACCC) to settle electricity-related issues. In addition, the national electricity market (NEM) is the Australian wholesale electricity market where power generators sell electricity to retailers which will retail to consumers. Over 100 generators and retailers in Australia have joined NEM; thus, the market is very competitive and prices are very competitive on the wholesale market. NEM power market prices in Australia are calculated in two ways: Spot market price and market price with hedging contracts.
 
He added that if Vietnam builds an independent electricity regulatory agency with real authority, it will be able to ensure maximum benefits for consumers. For that reason, the most important issue for Vietnam is to build an independent electricity regulator.
 
Mr Rainer Brohm, an energy specialist from Germany, said that Vietnam has huge conditions and potential for developing renewable energies on small and medium scales. The central region is proven to be very convenient for solar energy development while the Mekong Delta is favourable for wind energy development. Citing Germany’s experience, he said that many smallholding farms in Germany operate small electrical generators to meet their own demand. When they produce more energy (wind, solar or biomass) than they need, they will sell to the German electricity regulatory agency which is responsible for purchasing power and distributing to the market. For the case of Vietnam, Vietnamese authorities should learn from the experience of other countries if they find it hard to manage prices and operations of power production plants, added Rainer Brohm.
 
Mr Nguyen Van Vinh, Deputy Director of the Development Strategy Institute under the Ministry of Planning and Investment, said that restructuring EVN and the electricity sector is very huge and controversial. To draw a conclusion on this, competent authorities should study successful cases of experienced countries like Australia, Germany and China.
Anh Phuong