Vietnam Electricity and the conundrum of establishing a competitive market

Vietnam has been making policy changes to open up the electricity industry to private investors, but still remains far from creating a competitive market.

Until 2006 state-owned Vietnam Electricity (EVN) owned all power plants in the country, but its monopoly has been reducing since, and it now only accounts directly or indirectly for around 37.6% of the country’s installed capacity of 80,000 megawatts.

This means it has to pay for the remaining 62% of power supplied, mainly to gas and oil giant Petrovietnam, coal mining company Vinacomin and a number of private companies.

The dilution of EVN’s ownership came about as private companies began to invest large amounts in power generation, especially in the last five years thanks to the boom in renewable energy.

Private players now own 42% of installed capacity.

But EVN retains a monopoly in electricity transmission, and owns and operates all transmission lines and substations.

Though changes in the laws last year allow private companies to invest in transmission, so far only one company has done so, connecting its solar plant with the national grid.

Analysts say land acquisition problems, low profit margins and red tape deter private companies from entering the transmission business.

« The monopoly in transmission is a natural monopoly of the state » and not of EVN, Nguyen Minh Duc, a member of the Vietnam Federation of Commerce and Industry’s legal department, said.

The government needs to retain a monopoly over transmission to ensure national energy security and prevent private companies from taking over and raising prices, he said.

Evidently, EVN is also the sole buyer of electricity from private power plants.

This means that the state, not EVN, actually has a monopoly in selling and transmitting electricity, Tran Van Binh of the School of Economics and Management at the Hanoi University of Science and Technology said.

This explains why EVN has to suffer losses: Retail prices are not determined by it but by the government.

Last year, the Ministry of Industry and Trade reviewed EVN’s operations and found that the cost of electricity production had actually by increased more than 9% since 2021, but the government eventually approved a retail price hike of only 3%, leaving EVN selling power at a loss of VND112 per kilowatt-hour.

Competitive market: pros and cons

The government has been making policy changes for over 10 years now to create a competitive energy market, but has yet to complete the task.

EVN remains the only buyer of electricity.

This means that when suppliers increase prices due to higher costs, EVN will have to absorb them since it does not have the authority to increase retail tariffs.

In the event, last year it reported a loss of VND26 trillion.

Nguyen Dinh Cung, former head of the Central Institute for Economic Management, said production costs are set to increase considerably in the coming years, and if the same model remains in place EVN would continue to make big losses.

If EVN is not financially healthy, it will not be able to invest in new power plants or ensure transmission stability.

At US$0.08 per kilowatt-hour, Vietnam’s electricity prices are lower than those of several other countries in the region like Indonesia, Thailand, the Philippines, and Singapore, according to Global Petrol Prices.

Yet the public often criticizes authorities when prices are raised, Cung said.

Bui Xuan Hoi, principal of the Northern Electricity College, said Vietnam could « not dream » of having a competitive electricity market if the government keeps making the final call on retail prices.

Binh of the Hanoi University of Science and Technology said: « In many countries, retail prices go up when a competitive electricity market is established. The same thing will definitely happen to Vietnam. »

The cost of producing electricity is rising as fossil fuels like coal, oil and gas are running out while hydropower generation has reached maximum capacity.

Duc said another downside to having a competitive market is that underdeveloped areas, such as mountainous regions, would not attract private companies who prefer investing in big cities where profits are high.

This means the government will still need to intervene, either directly or indirectly, to provide electricity to such places.

By Hoai Thu & Ngoc Ha – VnExpress.net – September 12, 2023