MoIT to counteract rising electricity costs

November 23, 2023 | 12:04
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The Ministry of Industry and Trade has suggested a three-month adjustment to the average price of electricity, instead of every six months as currently.

The ministry (MoIT) in early November suggested that prices be changed as outlined in the draft decision to replace Decision No.24/2017/QD-TTg on the mechanism to change the average retail electricity prices.

MoIT to counteract rising electricity costs
MoIT to counteract rising electricity costs, Photo: Le Toan

The aim is to alter the projected cost of electricity generation, which is approximately 8.6 cents per kWh and greater than the average retail price of electricity by about 0.7 cents per kWh.

The average retail price of electricity is ascertained for each category of electricity customer based on the electricity selling price ascertained using the average reasonable profit for 1 kWh of commercial electricity in each period and the principle of calculating total production and business costs.

The MoIT believes that the revised mandate does a good job of covering all the important parts of trading electricity in the competitive wholesale market. It also sets the parameters that determine the average retail price of electricity and creates a way for prices to be changed easily.

The formula for figuring out the average retail price of electricity is broadly the same as it was before. However, extra costs are included, like the price of getting electricity from facilities that offer other services and the difference in unallocated revaluation exchange rates.

According to the MoIT, the annual average electricity price adjustment principle is changed at every stage based on changes in objective input parameters. The authority to make adjustments to price increases will essentially remain unchanged.

Vietnam Electricity (EVN) makes its own determinations when modifying to decrease or increase by less than 5 per cent. The MoIT has authorised EVN to implement adjustments of increases by less than 10 per cent in writing. A viewpoint on a minimum increase of 10 per cent or one that affects the macroeconomy is held by the prime minister.

The average cost of electricity has quadrupled in the past six years since Decision 24 was implemented. However, rising electricity costs are insufficient to assist EVN in reversing its significant losses.

EVN estimated in a report submitted to the MoIT in January 2023 that the accumulated loss for 2022-2023 would exceed $3.8 billion, with 2023 accounting for over $2.67 billion of that loss, assuming no increase in the average retail electricity price.

Chief of the Finance and Accounting Department at EVN, Nguyen Dinh Phuoc, said on November 9 that a revenue increase of $132 million was the result of a 4.5 per cent adjustment to the average electricity price. However, this price adjustment only partially alleviates their financial difficulties, as the estimated cost of electricity production in 2023 is 8.6 cents per kWh, which is approximately 0.7 cents per kWh higher than the average retail price of electricity.

The estimated actual generation output of all categories of power sources for the entire year of 2023 is different from the MoIT-approved 2023 plan.

Power generation facilities in Vietnam continue to rely on expensive imported fuels, including coal, blended coal, gas, and oil. The NewC Index projects that imported coal prices will rise by approximately 186 per cent in 2023, in comparison to 2020, and by 25 per cent in 2021. It is anticipated that the price of Brent crude oil will rise by 86 per cent in comparison to its mean value in 2020 and by an additional 13 per cent in comparison to 2021.

Prof. Tran Dinh Long, vice president of the Vietnam Electrical Engineering Association, said that total supply and demand will be in equilibrium and the economy will not be disrupted if annual increases in electricity prices are consistent.

“At present, the power balance is maintained through augmentation of power sources and regulation of electricity consumption. An excessive focus on supply has resulted in shoddy aggregate demand projections that deviate significantly from real-time developments,” Long said.

Electricity prices will not decrease, according to Professor Long, when the cost of labour, basic materials, and exchange rates all increase.

Four components comprise the price of electricity: generation cost, transmission cost, distribution cost, and ancillary service charge. Currently, electricity generation costs comprise around 65 per cent of these four components, and this upward trend is anticipated to continue. Long said that competent individuals must rely on calculations regarding petroleum price fluctuations and foreign exchange rates when increasing electricity rates.

This price increase will exert significant economic pressure when all price factors are constrained. Former director of the Central Institute for Economic Management, Dr. Nguyen Dinh Cung, said that electricity prices ought to have been regulated annually in accordance with market forces or with state assistance.

“Rising electricity prices is essential, but whether to increase and when to raise them must be determined to an appropriate level so that businesses can forecast production and business plans,” said Cung.

He wrote that the existing electricity pricing policy is “no longer suitable” for the subsequent phase of development.

“It is imperative that the government broaden the range of average retail electricity prices so that the MoIT and EVN can be more proactive in flexibly adjusting prices to reflect market fluctuations, encourage investment and mobilise maximum power sources, communicate the possibility of electricity price increases to the public, and establish a single retail price for domestic consumers and production,” Cung said.

The establishment and operation of a competitive electricity market is crucial, he added.

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