Power price hike to benefit energy firms, hurt heavy industries: brokerages

A recent increase in Vietnam’s retail electricity prices will have mixed effects on local firms, with energy generators likely to be the biggest gainers and energy-intensive producers the largest losers, securities analysts have said.

Vietnam Electricity (EVN), the state utility with the monopoly on electricity distribution, raised its average power retail price by 4.5% to VND2,006.79 ($0.08) a kWh on November 8, exclusive of value added tax. This was the second increase this year, leading to an accumulative rise of 7.5% year to date.

Positive effects on energy producers

Analysts at Hanoi-based MB Securities (MBS) said that higher retail prices will help a number of stock exchange-listed energy producers improve their Cash Flow from Operating Activities (CFO) and financial efficiency.

The beneficiaries include PetroVietnam Power Corporation (HoSE: POW), Power Generation Joint Stock Corporation 3 or Genco3 (HoSE: PGV), PetroVietnam Power Nhon Trach 2 JSC (HoSE: NT2), Quang Ninh Thermal Power (UPCoM: QTP), and Hai Phong Thermal Power (UPCoM: HND).

MBS analysts pointed out that these firms had experienced financial constraints with receivables rising since 2022 when input costs started to rise and EVN, which bought their electricity, faced financial issues.

Therefore, a pickup in retail electricity prices is poised to help ease financial pressure on EVN, which incurred a net loss of VND29 trillion ($1.2 billion) in the first half of 2023.

The analysts noted that higher power prices will create room to mobilize costlier generation sources such as coal and gas, and help fossil-fueled power plants increase production.

In addition, the power price hike will also benefit power installers, which have been under hardships since 2022 due to almost no installation contracts with EVN, a delay in a new pricing mechanism for renewables, and disrupted cash flows from ongoing projects, according to MBS.

Production cost inflation

On the other side, the power price hike will result in higher production costs for a number of sectors, said Mirae Asset Securities analysts.

According to their calculations, power costs account for 9-10% of the cost of goods sold of steelmaking and chemical firms. The ratio ranges from 9% to 15% for cement producers using different technologies.

Assuming that those producers cannot transfer higher power costs to consumer, Mirae Asset Securities analysts estimated that the power price increase could eat up 23% of steelmakers’ profits and 21% of cement producers’ profits. The loss would be 2% for paper producers and 1% for chemicals ones.

Similarly, BIDV Securities analysts said the electricity price hike could deal a blow to power-intensive firms in industries such as chemicals, cement, fertilizer, plastics, and steel.