Electricity market revamp on cards

Electricity market revamp on cards

The Electricity Regulatory Authority of Vietnam (ERAV) is finalising its report to the prime minister about planned direct power purchase agreements (DPPA) – a mechanism to allow renewable energy producers to sell electricity directly to end-users, as Nguyen Anh Tuan, director of the authority said on January 18.

The DPPA mechanism, if implemented, will be the first step in the development of the electricity retail market, allowing renewable energy generators with a capacity greater than 30MW to sell to customers for industrial production purposes. Parties can negotiate and agree on purchase and sale prices through long-term contracts if the scale of their deal is not exceeding 1,000MW.

Since 2012, the electricity market has contributed to increasing transparency in mobilising power plants, creating a competitive environment, enhancing the initiative of market participants, and gradually abolishing the monopoly in the industry.

The success of the competitive power market and the initial official competitive wholesale electricity market was an important step in the development of Vietnam’s electricity industry to a market-based operating mechanism.

Electricity of Vietnam (EVN) is no longer the only unit that buys and sells electricity. Instead, there are now five more power corporations directly participating in the market. The Ministry of Industry and Trade is now coordinating with relevant agencies to transform the National Load Dispatch Centre into an independent electricity operator in the form of a one-member limited liability company under EVN and the direction of the government.

The operation of the competitive electricity market in 2012 was an important development step for Vietnam’s electricity industry, helping the system and market to operate safely and stably.

Powering the nation

According to EVN, in 2012 there were only 32 plants with a total capacity of 9,200MW participating in the competitive market. By the end of last year, there were 99 power plants directly competing in the market with a total capacity of about 27,000MW.

In 2021, the ERAV simultaneously operated a competitive wholesale electricity market and built a competitive retail market. The wholesale market scale expanded, with 104 power plants directly participating in the bidding, with a total installed capacity of over 28,000MW, accounting for over 40 per cent of the total capacity of the system and the six wholesalers of EVN and its subsidiaries.

The competitive electricity retail market is now planned to be implemented in four phases. The first phase already prepared the competitive retail market in 2020-2021. The next step from 2022 to 2023 will enable large electricity users to buy electricity from the spot market. Afterwards, the next two phases will allow large electricity users to choose retailers and further develop and expand the power retail market after 2025.

However, in phase 3, only eligible large groups can participate in buying electricity on the spot electricity market. At the same time, the plan will only allow some of these large users in some areas to choose and change retailers. The remaining users must continue to buy electricity from the power corporations according to the retail tariff set by the competent authority.

In the final phase, it is expected that the scope of the power market will be expanded, allowing more users nationwide to choose and change retailers. Customers who do not participate in the market continue to buy electricity from the default power corporations. Thus, it is not until 2025 that people who want to participate in the electricity retail market can choose a retailer on their own.

Lessons learned

While Vietnam is preparing the first steps of the retail electricity market, the DPPAs can only be a temporary solution, as the current Law on Electricity does not allow direct electricity trading.

Prof. Tran Dinh Long, vice president of the Vietnam Energy Association, said, “The policy framework is one of the important factors for a competitive retail electricity market. A truly competitive market would have to involve as many economic sectors as possible. Also, the question remains what regulations must be followed by other economic sectors that want to organise similar retail or wholesale activities.”

Long is a member of the drafting committee for the current Law on Electricity. He noted that when competitive retail is developed, daily transactions on electricity information will be much larger than today. He recommended that suitable IT facilities should be developed accordingly to cope with the number of transactions and data.

“Transparency is an indispensable element for a competitive electricity market at the retail stage. Vietnam needs a multi-functional electronic meter system, but this is a big problem for the electricity industry. Currently, even the larger meters on the grid will not be suitable for a fully competitive retail market,” Long argued.

Another important point according to Long is the supply to the retail market. “Currently, the power supply is not able to meet the demand. It will not be possible to realise a completely competitive market if the same distribution system is used,” he explained.

Vietnam’s electricity market was formed with a very different starting point from other countries in the world. Most countries’ electricity markets are derived from an oversupply of electricity, which requires a clearer competitive environment, thereby reducing purchasing costs and also reducing selling prices to consumers.

Nevertheless, Vietnam has become one of the countries with the highest growth rate of renewable energy sources in Asia.

“The country is moving towards its retail electricity market by learning lessons from other countries – a crucial step,” said Sven Ernedal, project manager of the GIZ Renewable Energy and Energy Efficiency Programme in Vietnam. “Retail market models have been evolving and offer many lessons, with advances including distributed energy, smart meters, and smart grid technology. Stakeholders need to be aware of these evolving trends and how the retail market is adapting to new challenges,” Ernedal said.