Electricity industry: towards market-oriented mechanism

“Establishing and putting into operation a competitive electricity generation market will help create a healthy environment for power companies involved in electricity generation, transmission and distribution. This is also a major reform in the electricity industry, directing it to better development,” said Mr Do Huu Hao, Deputy Minister of Industry and Trade at the seminar “Vietnam Competitive Generation Market” which recently took place in Hanoi.

Electricity price will change periodically

According to the roadmap announced by Electricity Regulatory Authority of Vietnam (ERAV) under the Ministry of Industry and Trade (MoIT), the competitive electricity market will be divided according to three grades: Grade 1: 2005 – 2014 is the formation period for the competitive electricity market model; grade 2: in 2015 – 2022 period, the competitive wholesale market will be established and grade 3: the competitive retail selling is planned to be set up after 2022. The ERAV assessment shows that the average electricity price of Vietnam falls around 5.3 cents/kWh, much lower than that of other regional countries.

In addition, Vietnam currently has only one retail price rate, being unable to analyze the specific cost of transmission and distribution in the rate and therefore, fails to distinguish each stage to attract investment. As such, according to Circular 18/2010/TT- BCT recently issued by the MoIT, all the factories with capacity exceeding 30 MW have to participate in the competitive electricity generation market. When this market operates, power generating factories will have to compete against each other, quoting the price in a frame. The factory with lowest price quoted will be prioritized. The Systems and Market Operator is responsible for identifying and announcing a floor price and ceiling price of power generation of each type of power and forecasting additional charges. The price regulating mechanism is also proposed to be changed.

Power price will be considered and adjusted according to fluctuations of factors forming price, guaranteeing accurate and timely reflection of input materials for power manufacturing and trading.

Specifically, the power selling price will be divided into four phases, including generation, transmission, distribution and supportive monitoring. Annually, the ERAV will establish a basic electricity price which ensures capital recovery for each phase. The price mechanism will be reviewed on a quarterly basis, according to changes in the price of input materials.

However, so as to limit continual changes to electricity price, the ERAV proposes that when the price difference is below a regulated level, change will not be made to the price on quarterly basis. “When the competitive market is operated, power price will be changed hourly or daily, but transmission and distribution price will depend on regulation mechanism. With the current price structure, the input price – price to generate power – accounts for 70 percentage of power price, so even a small change in input price will also lead to an increase in output price,” said Pham Manh Thang, Head of ERAV.

Restructuring EVN

In fact, in 2008, the MoIT submitted the electricity restructuring project to the Government and proposed separating electricity generation from EVN to establish some general electricity generation companies, and separate the Power Trading Company from EVN, leaving EVN only responsible for transmitting, distributing, buying, selling and running some hydroelectric plants of the State. However, at the moment, the Government has not received any instructions on this. “Restructuring EVN appropriately is of great importance and is not easy at all. If buyers, sellers and operators share the same ‘mother’ like now, the electricity industry will face difficulty,” maintains Mr Thang.

The ERAV proposes piloting the competitive power generation market around quarter II of 2010 before putting it into official operation at the end of 2011. So far, preparation for this market has been basically completed despite many obstacles. The biggest challenge, according to Deputy Minister of Trade and Industry, Mr Do Huu Hao, lies in the fact that the mobilized output capacity of the system is required to have a standby source of 20-30 percent, so that enterprises have to try to lower their price in case the mobilization is not successful. “Vietnam has not met this demand due to power shortage caused by drought and failure of plants. However, the total capacity of Vietnam’s electricity industry has nearly reached 20,000 MW while actual demand is 17,000 MW, which means an excess of 3,000 MW. The application of a competitive market is still feasible. As difficult as it is, endeavours still have to be made,” says Mr Hao. – VCCI

Tags: Vietnam electricity industry, Vietnam electricity market, Vietnam energy