Retail electricity prices not keeping pace with market developments: parliament

Vietnam’s current retail electricity price mechanisms do not reflect fuel costs, supply and demand in a timely manner, according to a National Assembly committee report.

Electricity prices are currently adjusted under annual and half-year mechanisms according to the Prime Minister’s Decision 24/2017. The annual mechanism is based on objective turbulences of input parameters at all stages including electricity generation, transmission, distribution-retail, operation, industry management and power system support services.

Half-year electricity price adjustments might be made when there are input turbulences at the power generation stage.

When input parameters drive the average retail electricity price up by 3% or more compared to the current level, the price will be considered for upward adjustment and vice versa in every six months. Power price adjustment decisions must be reported to the Prime Minister for consideration, according to Decision 24.

Electricity prices were kept stable by state utility Vietnam Electricity (EVN) during the Covid-19 period (2020-2022).

It increased by 3% in May 4, 2023, the lowest level under Decision 24, to over VND1,920 ($0.08) per kWh, in a move that sought to balance impacts on the economy and partly solve financial and cash flow difficulties for EVN.

Last year, the state utility recorded a loss of nearly VND20.7 trillion ($874.5 million) due to rising fuel production prices, which increased its electricity purchase costs. And in the first half of this year, the losses rose to more than VND35.4 trillion ($1.46 billion), according to a report by the Ministry of Planning and Investment.

After examining the above-mentioned issues, the parliamentary committees reported that the current retail electricity price mechanisms are not synchronized with actual market developments.

The legal framework for stakeholders to join the Vietnam Wholesale Electricity Market (VWEM) is still incomplete, it says, adding that renewable power plants built to enjoy the preferential feed-in-tariffs (FiTs) are facing many risks when participating in this market.

The 20-year preferential FiTs are 9.35 U.S. cents per kWh (Decision 11/2017) and 7.09-8.38 U.S. cents per kWh (Decision 13/2020) for solar power projects that became operational by December 31, 2020; and 8.35-9.8 U.S. cents per kWh (Decision 39/2018) for wind power projects that became operational by November 1, 2021.

The report proposes that electricity price adjustment mechanisms are adjusted to match reality. Price adjustments must ensure transparent management and not cause major, sudden and negative impacts on production and people's lives, it adds.

Earlier the Ministry of Industry and Trade (MoIT) submitted to the Prime Minister a draft decision amending Decision 24/2017, proposing that exchange rate differences and production and business losses at EVN be included in average retail electricity prices.

According to the ministry, the draft includes regulations on the authority to reduce and increase electricity prices. The price adjustment period will be shortened from the current six months to once every three months, which means there can be four price changes per year. Electricity prices will be updated quarterly based on electricity generation costs and other expenditures.

The report says implementation of necessary solutions must be speeded up to ensure electricity supply in the dry season in late 2023. The progress of ongoing power and grid projects must also be accelerated to make them operational at the earliest.

“The government needs to introduce a mechanism soon to encourage the development of rooftop solar power at homes, offices and company headquarters,” it says.

In May, the Prime Minister approved the new National Power Development Plan until 2030 with a vision extended to 2050 (PDP VIII), but there are yet to have schemes to realize it, the report notes.