Editor's note: The recent power shortage during the heat wave caused billions of dollars in damage and will remain a threat for the next few years. The increasingly deep participation of the private sector in power investment is raising important issues regarding investment attraction policies. Meanwhile, the mechanism for adjusting electricity prices still lacks market-based characteristics.
The series of articles "The Future of the Electricity Industry" analyzes existing bottlenecks, aiming to further promote investment in new power sources and necessary changes in electricity price policies.
PV. VietNamNet talked with energy expert Ha Dang Son, Director of the Center for Energy and Green Growth Research, about the mechanism for Vietnam's electricity industry.
Huge investment but not very effective use
- What do you think about the power shortage last summer?
Mr. Ha Dang Son: The issue of power shortage is not something we have just mentioned, we have been warned about it for 2-3 years. The forecasts, analysis and assessment of the Power Planning Project VIII approved in Decision 500 all mention the great risks in power supply to the North in 2023 and 2024.
The reason is that we have almost no new power supply in the North. The Thai Binh 2 Thermal Power Plant that has been in operation recently was built 10 years ago. This project has many problems, but under the strong direction of the Government, the Ministry of Industry and Trade, and the Vietnam Oil and Gas Group, it has reached the finish line and successfully connected to the grid.
That means, almost no new active sources are added, while for hydropower, for the past 3-4 years we have been repeating the saying "all the big hydropower plants have been built".
In 2019, when attending the energy seminar, we discussed a lot about what mechanism to promote investment in renewable energy in the Northern region. At that time, the preferential price (FiT2) for solar power had not been issued.
In a draft proposed by the Ministry of Industry and Trade, the issue of zoning was also raised, meaning that there should be different price incentives between regions. Regions with good radiation but transmission congestion should limit the use of the FiT price mechanism or reduce the FiT price and give priority to the Northern region, which does not have good radiation conditions, with a higher FiT price. But then, for some unknown reason, those analyses and recommendations were not accepted. We have an equal FiT2 price between the North and the remaining regions.
Obviously, investing in solar power in the North is much more difficult, the sun is very poor. When investors see such a FiT price, they will continue to focus on Binh Thuan, Ninh Thuan or the Central Highlands, where there are problems with the transmission grid. We have a huge amount of investment but it is not used very effectively. This is also not very suitable in issuing policies on renewable energy investment.
We talk a lot about energy transition, instead of relying on fossil sources to using renewable energy. But with rooftop solar power, after the FiT price mechanism ended in December 2020, businesses also considered investing but encountered many problems with construction permits and fire prevention.
Prime Minister's Decision 500 approving the VIII Power Plan mentions creating maximum conditions and no restrictions for self-consumed rooftop solar power, but to date there has been no policy mechanism to support the implementation of this orientation.
- So how do you evaluate the ability to supply electricity in the coming years?
Clearly, Vietnam is facing a very difficult choice. That is, in the next few years, how will we invest in power sources, especially in the North, appropriately?
Because, investing in LNG or hydrogen electricity is still quite far away, takes a lot of time, investment costs as well as electricity prices are still challenges in the context of EVN suffering huge losses. It will take another 3-5 years for an LNG power plant system to come into operation. That means our risk of power shortage is still very high.
Good policy mechanism, investors will pour money
- To have enough electricity, we need large, stable power sources. So how can we attract investment from private investors in such large projects, sir?
I would like to start with the Feed-in-Tariff (FiT) for wind and solar power. We have recently talked a lot about the JETP statement in which developed countries committed 15 billion USD to support Vietnam to accelerate the process of reducing carbon in the electricity sector.
Let's look back at how much money the recent FiT mechanism has attracted. With 20,000MW of wind and solar power invested, roughly calculating the unit price of 800 thousand USD for 1MW, the investment amount alone has exceeded the 15 billion USD that developed countries promised us.
This means that to mobilize investment capital for power sources and grids, investors only need to create the best conditions and they will put money in. When mechanisms cause difficulties, the investment trend for renewable energy naturally stops.
I talked to many renewable energy investors, they said they hardly see opportunities but only see too many risks. Therefore, no matter how much renewable energy is praised, no matter what policies are in place, if they do not clarify and remove barriers in terms of paperwork and procedures, they will not invest money, whether they are domestic or foreign investors.
Power Plan VIII sets investment targets for each type of power source, but without appropriate mechanisms and policies, especially if those policies are not stable, clear, and predictable, investors will find it difficult to see that their investments will ensure profitability and avoid any legal risks.
Investors have been really worried about legal risks lately.
Therefore, we should build the most open and flexible policy mechanisms for investors in the energy sector. We have achieved many successes in the process of innovation, opening up the economy, attracting investment, but recently I see that we seem to be tightening and making it difficult for private investors.
On the one hand, we say we must attract private capital, increase competitiveness, socialize, and break EVN's monopoly, but on the other hand, policy mechanisms do not create conditions for investors to support the Government in that matter.
A World Bank study shows that of all investments for green growth and carbon reduction in many areas, public investment capital only meets 20%, the remaining 80% comes from the private sector.
Without a mechanism to promote private investment, planning without specific policies, plans, and content is just planning on paper and is not feasible.
- Many recent opinions say that if we just remove EVN's monopoly and build a more market mechanism for the electricity industry, there will be enough electricity and the electricity price will be low. What do you think about this?
It is really difficult to supply electricity in the coming years. We have used up everything that can be used.
I read many comments on groups that if we reform prices, let the market decide, promote socialization, and abolish the electricity monopoly, then there will be enough electricity and low prices. But there is a principle that anything clean is never cheap. That is obvious in a market economy.
The second principle is that when supply is insufficient, prices will be high. But when prices are held down, it will naturally create a signal for the market to reduce supply.
The problem is that we are limited in power supply, so it is difficult to say that private investment will provide enough power and low prices. Because private investment also needs time, they also have to deal with procedures and paperwork.
EVN may have some advantages in terms of procedural documents because it is a state-owned enterprise, but they face disadvantages such as costs that do not fully reflect market factors.
For the private sector, the investment process of renewable energy projects shows that they are willing to spend money to compensate for land clearance, so that the project can be completed as quickly as possible. But EVN cannot do that.
In return, if the private sector builds the transmission line, I guarantee that it will be much more difficult for the private sector than EVN. Because compensation for site clearance in this case is much more complicated because it is not only within the scope of one district or province but several provinces.
Thank you!
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