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.
Coping with the fear of lack of resources
“The reality of electricity supply in recent times shows that continuing to assign the Vietnam Electricity Group (EVN) - a State-owned enterprise (SOE) - the task of ensuring sufficient electricity supply for the economy is no longer appropriate. The above mechanism has reached its limit; if it continues to be maintained, it will not only weaken EVN, but also cause more shortages and instability in electricity supply for the economy.”
That was what Dr. Nguyen Dinh Cung, former Director of the Central Institute for Economic Management, concluded when presenting at a workshop organized by the Supervisory Delegation of the National Assembly Standing Committee in June.
Mr. Cung's opinion at that time was still "out of place", because EVN's guarantee of electricity supply has been considered a constant for decades.
But now, Mr. Cung's above viewpoint makes many people ponder. That is because the Government has decided to separate the National Power System Control Center (A0) from EVN and place it under the Ministry of Industry and Trade. When A0 is an independent unit from EVN, the group's responsibility in power generation will be limited to about 38% of the installed capacity, when required to mobilize. Responsibility for power shortages, if any, will belong to the Ministry of Industry and Trade because A0 is the agency that regulates the system and operates the electricity market.
The current problem is how to invest in more power sources to meet the demand of 10% growth each year. Will state-owned enterprises such as EVN, PVN, and TKV take on this responsibility or will the private sector rise to take the leading role?
EVN's view is that in addition to encouraging economic sectors, it is necessary to consider continuing to assign state-owned economic groups to invest in key power source and grid projects and ensure maintaining appropriate power source ratios in planning stages.
Meanwhile, many energy experts are calling for private investment. As coal-fired thermal power is gradually being phased out, LNG, wind, offshore wind, etc. are expected to attract more domestic and foreign private investors.
Since 2019, Enterprize Energy Group has proposed to the Prime Minister to deploy 3,400 MW of offshore wind power in Binh Thuan, with a total investment of 11.9 billion USD. By the end of this year, the group is expected to submit an application for investment approval. This enterprise wants to build a transmission line from the project to Binh Duong - Dong Nai.
“We do not care about preferential prices (FiT) or no FiT, but the price must be acceptable to the interests of investors, the State and the people. But there is an immutable principle that after the first projects, the price of offshore wind power will decrease,” the group representative shared and proposed that the Government choose a pilot project and negotiate the price.
According to Professor Dr. Le Chi Hiep, Ho Chi Minh City University of Technology, in the next 5 years, if the implementation is not done properly, a lack of resources may occur.
“We have a conflict that we have to cut down on coal power and deploy LNG power, but the truth is how to organize the implementation to get results. If we implement well, we can ensure that there is no shortage of resources, but the risk of shortage of resources can still occur,” said Prof. Dr. Le Chi Hiep.
Both state-owned and private enterprises need to be removed from policies and prices.
Over the years, the revised Power Plan VII has not been seriously implemented. Many power source projects, both by state-owned enterprises and private investors in the form of BOT or independent power plants (IPP), are behind schedule. While state-owned enterprises are stuck with procedures and capital, the private sector lacks experience, capital, and is "stuck" in negotiating electricity prices... causing many projects to remain on paper.
To accelerate power source projects in the coming period, the above-mentioned bottlenecks need to be resolved. EVN recommends increasing decentralization for state-owned enterprises, including giving the Board of Directors of economic groups with 100% state-owned charter capital the right to decide on capital mobilization plans, investment, project implementation, construction, purchase and sale of fixed assets, investment projects outside the enterprise, etc.
Meanwhile, PVN also recommended organizing the dissemination and guidance of legal regulations on energy to ensure timely handling of shortcomings and improve the enforcement of the legal system in the energy sector.
In particular, while waiting for a common law for all types of renewable energy, the Government is considering prioritizing the construction of a separate legal corridor for offshore wind power to realize the offshore wind power goals stated in Power Plan VIII.
On the private side and state-owned enterprises outside EVN, price factors and ensuring investment profits are very important. Many foreign-invested projects have been unable to start construction for many years due to problems in negotiating power purchase agreements (PPA).
For example, the $4 billion Bac Lieu LNG power project of Delta Offshore Energy Company. Granted an investment license in 2020, but after 3 years, this project still cannot and does not know when it will start construction. The main reason is that the investor requested in the PPA to commit to many terms that exceed the framework of Vietnamese law and are unprecedented.
Gas-fired power projects such as LNG Nhon Trach 3 & 4 of PV Power (under PVN), after many years of launching, are still struggling to negotiate power purchase contracts. The main problem is that the investor wants EVN to commit to the total annual electricity output to ensure the project's revenue and ensure project efficiency. This is something that EVN finds very difficult to commit to.
Expert Nguyen Anh Tuan (Vietnam Energy Association) said: To effectively implement the VIII Power Plan, it is necessary to have strict supervision from the Government and the Ministry of Industry and Trade for important national power source projects, to avoid prolonged delays.
“The investment capital for power projects is large, so it is necessary to mobilize domestic and foreign capital sources by considering government guarantees for some priority and important projects; adjusting mechanisms to avoid risks for BOT investors who have been negotiating contracts. For LNG projects, the BOT model may no longer be applied, so it is necessary to have a suitable electricity purchase mechanism to avoid risks for investors, especially foreign investors,” Mr. Anh Tuan recommended.
Experts say that electricity price is still the most important factor in promoting investment in power sources. State-owned enterprises and private investors all want to make a profit. However, if the input electricity price is market-based while the output is controlled by the State, it will easily lead to a situation of "buying high and selling low".
According to an energy expert, international experience shows that the cost reduction effect from introducing competition into the investment phase of new sources is much greater than that from introducing competition into the operation phase of already invested and built power plants, which is even more important for a country with a high load growth rate like Vietnam.
Therefore, as long as EVN still plays the role of the sole buyer and the electricity market is still incomplete, the Government needs to give priority to applying competitive forms of selecting new source investment with the criterion of lowest electricity price.
At the same time, newly signed electricity purchase contracts need to have flexible terms, avoiding as much as possible the offtake provisions, which put pressure on retail electricity prices and reduce transparency and competition in the electricity market.
Next article: Changing the electricity price management mechanism: Urgent requirement when A0 leaves EVN
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