Vietnam Electricity Group (EVN) has just announced an increase in the average retail electricity price (electricity price) from VND 2,006.79 to VND 2,103.11 per kWh (excluding VAT), equivalent to a 4.8% increase.
This decision has been approved in principle by the Government and the Ministry of Industry and Trade . According to Decision 05, on the mechanism for adjusting the average retail electricity price, effective from March 26th, electricity prices will be adjusted when the average retail electricity price increases by 3% or more compared to the current level.
The first reason for adjusting electricity prices is that the actual average selling price has fluctuated by more than 3%, the level subject to this adjustment decision.
Annually, the Ministry of Industry and Trade establishes a team to inspect EVN's electricity production and business costs as a basis for calculating and proposing adjustments to retail electricity prices. According to the 2023 inspection results, the average retail electricity price was 1,953.57 VND per kWh, an increase of 3.76% compared to 2022.
In reality, both previous and current regulations have mechanisms to adjust electricity prices every 3 or 6 months if costs increase by 3% or more. However, implementation has not followed this pattern. For example, from 2017 to the present, electricity prices have been adjusted four times: in 2017 (a 6.08% increase), and in 2019 (an 8.36% increase). These prices remained unchanged for four years, only increasing by 3% and 4.5% respectively in May and November 2023.
The Ministry of Industry and Trade has previously stated that the actual average electricity price adjustments in recent years have often been lower than the proposed plan by EVN and the results of reviews by competent state agencies. This leads to accumulated costs because the adjustment level is insufficient to recover the incurred costs that have not been included or have not been fully included in the electricity price.
The next reason for the electricity price increase is to solve the financial balance problem for EVN. With the electricity selling price in 2023, the corporation is selling below the production cost of 135.33 VND per kWh, equivalent to 6.92%, according to the Ministry of Industry and Trade.
Regarding input costs, EVN Deputy General Director Nguyen Xuan Nam stated that from 2023, the price index for coal and gas increased significantly compared to 2021. By 2024, due to the Russia-Ukraine conflict, the coal and gas markets, as well as exchange rates, increased.
Specifically, according to EVN's report, coal prices in 2023 increased by 22-74%, and crude oil prices were 39-47% higher than the average of 2020-2021. Similarly, the exchange rate also increased by 1.9% compared to 2022. This increased the cost of purchasing electricity or fuel under contracts denominated in foreign currency (USD), such as at gas-fired or coal-fired power plants, or from imports from Laos and renewable energy plants.
Furthermore, due to the impact of climate change and the El Nino phenomenon, EVN has had to maximize the use of thermal and oil-fired power plants, instead of hydropower, to ensure sufficient electricity supply. The proportion of low-cost sources (hydropower) decreased from 38% to 30.5%, while expensive sources (coal and gas thermal power) increased from 35.5% to 43.8%.
In total, last year, EVN incurred a loss of over 34,245 billion VND from electricity production and business. If other financial income is excluded, the loss reduces to 21,822 billion VND. In 2022, the electricity giant also lost nearly 36,300 billion VND from this activity. If we include the loss due to exchange rate differences outstanding since 2029 (over 18,000 billion VND), EVN's total loss over two years exceeds 76,000 billion VND (approximately 3 billion USD).
"This is a situation of buying high and selling low. That is, inputs are based on market prices, but outputs are not determined to fully reflect the costs that have been correctly, adequately, reasonably, and legitimately calculated in the process of electricity production and business," commented Nguyen Tien Thoa, former Director of the Price Management Department. According to Mr. Thoa, this leads to many shortcomings and negative consequences for electricity production and business, for industries that use electricity, and for the entire economy .
Specifically, Mr. Phan Duc Hieu, a member of the National Assembly 's Economic Committee, argued that the fact that electricity prices are lower than production and distribution costs causes losses to these entities. "This is unfair because the price benefits one group but becomes a loss for others," he said.
Experts believe that prolonged losses in the electricity sector pose a risk to future power generation development. "The costs are almost nonexistent, failing to incentivize investment and attract capital from private enterprises," assessed Dr. Ha Dang Son, Director of the Center for Energy and Green Growth Research. Meanwhile, according to experts, EVN's prolonged losses will affect its financial credibility when borrowing internationally. This is because the company's credit rating will be lowered, making it difficult to arrange or access preferential interest rate loans. This will hinder the implementation of medium- and long-term power development plans.
In fact, according to the Power Development Plan VIII, the power system capacity will reach 59,318 MW by 2025, an increase of more than 10,000 MW compared to the present. This capacity will increase to 90,512 MW by 2030. Of this, onshore wind power capacity will be approximately 21,880 MW, rooftop solar power (self-produced and self-consumed) will increase by 2,600 MW, and hydropower will reach 29,346 MW... Vietnam will need nearly 135 billion USD to develop power sources and transmission grids by 2030. The capital requirement for power source and grid development will increase to 399-523 billion USD by 2050, with over 90% allocated to the construction of new power sources and the remainder to the transmission grid.
In this respect, according to Associate Professor Bui Xuan Hoi, Rector of the Northern Power College, the lack of profit will not guarantee capital and cash flow for reinvestment. Furthermore, he believes that if EVN incurs excessive losses and becomes insolvent, it could negatively impact other businesses that sell electricity to the corporation. "The Power Development Plan VIII is very ambitious and ambitious, but if we continue to manage prices as we do now, its implementation will be very far-fetched," he said, adding that this could lead to electricity shortages in the future.
According to Dr. Ha Dang Son, viewing electricity prices as lower than production costs can lead to a lack of incentive for businesses to use energy efficiently and change technology. "Some businesses say their solutions are short-term and the amount of electricity saved is not significant; for them to invest in longer-term solutions with higher efficiency, it would take 7-10 years," he said, arguing that this does not create motivation for green growth and sustainable development.
This assessment was previously made by Mr. Nguyen Xuan Thanh, Lecturer at the Fulbright School of Public Policy and Management in Vietnam, at the Vietnam Economic Forum late last year. According to Mr. Thanh, more and more new energy sources are entering the power system, and these are more expensive than the average cost and current electricity prices. It is estimated that if the cost of renewable energy is 5-7 cents per kWh, plus transmission costs, the retail price needs to increase to 10-12 cents per kWh (including retail and distribution costs). Meanwhile, the average retail electricity price is approximately 8 cents.
In other words, electricity prices need to be updated, fully accounting for new and emerging production costs. "Of course, increasing electricity prices will lead to negative reactions in society, but there will be no green transition or renewable energy development without a roadmap for increasing electricity prices at a level attractive enough for investment," he said.
Vietnam is orienting itself towards a green economy, so according to lecturer Fulbright, one of the main policy priorities is to resolutely implement the roadmap for increasing electricity prices and other energy prices in a way that fully reflects economic and social costs. This aims to limit, or at least not provide preferential treatment to, energy-intensive industries and force businesses to innovate technical and technological solutions in production, increasing energy efficiency.
Furthermore, experts believe that electricity prices are burdened with "multi-purpose tasks". This includes cost compensation, investment incentives, social security guarantees, energy security, and inflation control. In addition, the long-standing issue of cross-subsidization between different electricity consumption groups (high- and low-tier), between residential and industrial use, and between regions remains unresolved.
"There are conflicting goals that are difficult to reconcile. The regulatory agency needs to recalculate to ensure that electricity prices play their proper role," Mr. Thoa said, adding that without a clear roadmap for addressing these issues when amending the law, it will be difficult to encourage economic entities to invest in the electricity sector.
Sharing the same viewpoint, Mr. Phan Duc Hieu suggested that in the long term, electricity pricing should be separated into different policy groups, instead of just relying on electricity prices, in order to harmonize the interests of all parties involved, including consumers, producers, and the State. He cited examples of policies to increase competition in electricity distribution, social welfare policies, and specific subsidies for the poor. Or, to encourage green production and consumption, authorities must have policies on taxation, promoting the application of science and technology, and the circular economy. At the same time, the electricity pricing structure must be designed rationally to encourage people to consume electricity economically, rationally, and efficiently.
From the perspective of the regulatory agency, Mr. Tran Viet Hoa, Director of the Electricity Regulatory Authority (Ministry of Industry and Trade), stated that electricity price adjustments are based on political, legal, and practical grounds. Specifically, Resolution 55 clearly outlines the direction towards market-based energy pricing. "Therefore, in recent times, state management agencies have reviewed policies, such as Decision 28 on the structure of average retail electricity prices, and studied the application of a two-component electricity pricing system," he said. Mr. Hoa added that Decision 28 has been submitted to the Prime Minister. The research project on the two-component electricity pricing mechanism has been completed and is expected to be piloted in several provinces and cities by the end of 2024.
TH (according to VnExpress)Source: https://baohaiduong.vn/vi-sao-tang-gia-dien-395460.html
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