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|Power plan revised to render market more competitive. Source: freepik.com|
The first step in the improvement of the power sector was the initiation of a competitive power generation market in 2012. The Ministry of Industry and Trade (MoIT), in a report to the National Assembly Standing Committee in 2020, said that the competitive electricity market has been implemented according to the approved roadmap, contributing to improving the operational efficiency of the electricity industry and helping the system to operate safely and stably.
Nearly a decade ago, only 32 power plants with total generation capacity of 9,200MW participated in the competitive power generation market. By March 2020, there were 98 power plants directly competing in the market with a total capacity of 26,895MW.
At that time, the competitive power generation market was not open, and prices were depending heavily on the fixed prices of power purchase agreements. According to the data of Viet Capital Securities JSC, by the end of 2017, there were 80 power plants directly participating in the market with a total installed capacity of 22,432MW, accounting for 52.8 per cent of the installed capacity of the entire system.
Following the experiences taken from the competitive power generation market, the competitive wholesale electricity market officially came into operation in early 2019. Electricity of Vietnam (EVN) was no longer the sole power buyer and shared the market with five more corporations.
However, Assoc. Prof. Dr. Nguyen Minh Due, chairman of the Scientific Council of the Vietnam Energy Association, judged that two factors limiting the number of established power plants were “a lack of time and incomplete content in the planning.” These factors also led to a lack of organisation when power producers were participating in direct biddings in the market. According to Due, only a truly competitive power generation market could attract domestic and foreign investors for the development of power generation projects.
The formation and development of a competitive electricity market is the long-term development strategy of Vietnam’s power sector as stipulated in the Law on Electricity 2004 and the revised Law on Electricity 2013, which were both concretised in the prime ministerial Decision No.26/2006/QD-TTg issued 15 years ago. According to this decision, Vietnam’s electricity market is supposed to form and develop at three levels, competitive power generation, competitive wholesale, and competitive retail.
After nearly 20 years of study and trial implementation, the competitive electricity market still lacks an operational model according to the principles of a competitive market, that is efficient, healthy, and equal competition without discriminating between stakeholders.
“The implementation of a competitive power market is also affected by the incomplete restructuring of EVN,” commented Prof. Tran Dinh Long, vice chairman of the Vietnam Energy Association. “The ultimate goal of a competitive power market is for many players to compete with each other, but so far everything was still depending on EVN.”
Up to now, EVN manages and operates most of the core infrastructure of the power sector, including the grid system for transmission and distribution, metering systems, and IT systems for services.
Meanwhile, the Law on Electricity stipulates that there must be a unit that is operating market transactions, responsible for regulating and coordinating electricity purchases and sales as well as ancillary services.
The legal framework is thus another factor affecting the implementation of the competitive electricity market. According to Long, the legal framework has not yet been completed, and it remains unknown when it will be completed so that a variety of players can enter the competitive wholesale electricity market.
As Vietnam has not yet implemented a competitive retail market, the growth rate of power generation is slowing down significantly. The report on the balance of electricity supply and demand of the MoIT showed that the average growth rate of electricity supply in the past four years has decreased to 8 per cent per year, far behind the 13 per cent of the 2011-2015 period.
According to the latest forecast of the Institute of Energy, in the base scenario, the commercial electricity demand will maintain an increase of about 8 per cent in the next 10 years and is expected to reach about 337.5 billion kWh in 2025 and 478.1 billion kWh in 2030. The fact that many large power facilities are behind schedule means that there are many potential risks to the power supply in the next five years.
From 2016 onwards, 10 major power projects were expected to be put into operation, which were all delayed, with a total capacity of about 7,000MW. These projects include Song Hau 1 (1,200MW), Thai Binh 2 (1,200MW), and Long Phu 1 (1,200MW), among others.
The removal of the power sector’s monopoly cannot happen overnight, although according to the law, there are stages that are gradually separated to operate according to the market mechanism.
The MoIT in August 2020 issued a decision approving the design project of a competitive electricity retail market.
The scheme proposes a competitive retail electricity market model with three phases. Phase 1 (until the end of 2021) is the preparation phase; phase 2 (2022-2024) will allow end-users to buy electricity on the market; and phase 3 (from 2024) will allow end-users to choose electricity retailers.
“The Power Development Plan VIII should give priority to speeding up the competitive electricity market to ensure a fair participation of investors and attract social resources for energy development,” said Due from the Vietnam Energy Association.
According to him, the development of a competitive electricity market aims to renew the economic management mechanism in the sector, transforming from an outdated and inefficient monopoly mechanism to a modern competitive market mechanism. “With the current situation of the power sector though, if there is no definitive solution, the consequences of the monopoly mechanism may continue to cause damage to the entire economy,” said Due.
Deputy Prime Minister Le Van Thanh in May asked the MoIT to study and consult ministries and branches to complete further contents to add to the PDP8 to be submitted to the government before June 15.
“The PDP8 must ensure the sustainable development of the power sector and improve the country’s energy self-reliance. In which, determining the appropriate scale of development of the power system over each period must be associated with reasonable costs and sale offers,” the deputy prime minister stated in a guidance document.
According to this document, the ministry must review and evaluate more carefully the current state of the capacity of the national power system, as well as consider the scale of resource development and structure compared with the country’s forecast electricity demand, especially up to 2030. Moreover, the ministry shall allocate space for the development of power sources, especially liquefied natural gas.
The MoIT must also review the regulations on developing the bidding mechanism to select investors and clarify the connection between power facilities and grid development in the PDP8. DPM Thanh also noted that planning and deployment of the scheme should ensure publicity and transparency.
The PDP8 was submitted to the government at the end of March after the Appraisal Council unanimously approved its content. However, due to the important nature of this plan, the prime minister at that time did not approve it.
Plan for a competitive electricity market by 2026
The prime minister last December approved a competitive energy market development plan until 2030 with a vision towards 2045 which determines to consolidate and complete the competitive wholesale electricity market, as well as develop and expand the scope of the competitive retail market from 2026.
To accomplish the goal, the power sector will be restructured according to prime ministerial Decision No. 168/QD-TTg dated February 7, 2017 on restructuring the electricity sector to ensure the transparent, fair, and efficient operation of the wholesale electricity market. At the same time, the mechanism and support for the operation of the spot electricity market and the IT infrastructure system serving the market will also be completed, ensuring that everything operates in accordance with the approved design.
The plan aims to restructure the power sector and adjust the legal regulations on retail price mechanisms, ensuring transparent electricity prices based on market principles following Resolution No.55/2020 of the Politburo.
The MoIT is responsible for managing and directing the construction and development of a competitive energy market by 2030. The ministry must also review conditions on infrastructure and restructuring of the energy sector, as well as implement necessary solutions to build and develop the market according to the roadmap approved by the prime minister.