The Power of Persuasion: Reforming Electricity Pricing

Reporter: The Amended Power Law, which will take effect on February 1, 2025, introduces new provisions on electricity pricing. Can you elaborate on these changes, Mr. Hòa?

– Mr. TRẦN VIỆT HÒA, Director of the Electricity Regulatory Authority of Vietnam – Ministry of Industry and Trade: The electricity pricing policy in the Amended Power Law has institutionalized Resolution 55-NQ/TW of 2020 by the Party Central Committee on the orientation of energy development towards 2030, with a vision towards 2045. It also legalizes the regulation of electricity prices by stipulating that the mechanism for adjusting average electricity selling prices will be changed from “Decision of the Prime Minister,” as stipulated in the current Power Law, to “Decree of the Government.”

The Amended Power Law stipulates that retail electricity prices will be adjusted promptly to reflect the actual fluctuations in input parameters. This will enable reasonable and legitimate cost recovery, including a reasonable profit to preserve and develop the business capital of electricity enterprises. The pricing will also take into account socio-economic conditions and the level of development of the competitive electricity market. The Government is entrusted with the task of issuing detailed guidelines to ensure flexibility in implementation.

By entrusting the Government with this task, the Amended Law aims to strike a balance between closely following market fluctuations and ensuring unity in macroeconomic management (as electricity prices are a critical factor in the macroeconomic landscape) and other socio-economic balances.

Furthermore, the Government’s Decree will provide more specific regulations on matters such as reasonable profits, electricity price adjustment timelines, etc., thereby establishing a solid legal foundation for practical implementation.

Many people have long been concerned about electricity prices only increasing and not decreasing. With the new pricing mechanism under the Amended Power Law, can electricity prices be reduced?

– The current Power Law stipulates that electricity prices should follow a market mechanism with state regulation, in line with the level of development of the power industry and the mechanism for adjusting average electricity selling prices, as detailed in Decision 05/2024/QD-TTg by the Prime Minister (replacing Decision 24/2017/QD-TTg).

According to this Decision, electricity price adjustments are considered based on objective fluctuations in input parameters across the electricity production and supply chain, other costs not yet included in electricity prices, and profits on owner’s equity directly serving the production and supply of electricity by the Vietnam Electricity Group (EVN).

Specifically, when the average electricity selling price decreases by 1% or more or increases by less than 5% compared to the current price, EVN is authorized to make the necessary adjustments. If the increase is between 5% and less than 10%, the Ministry of Industry and Trade will provide its opinion for EVN to adjust accordingly. For increases of 10% or more or those impacting the macroeconomic landscape, the Ministry of Industry and Trade will report to the Prime Minister for consideration and guidance.

Indeed, according to the current regulations, electricity prices can increase or decrease, depending on the fluctuations in input parameters. However, electricity price regulation is just one link in the Government and Prime Minister’s overall macroeconomic management chain. Therefore, at certain times, to ensure macroeconomic stability and other balances, the Prime Minister has directed that electricity prices remain stable, resulting in electricity prices not fully reflecting the fluctuations in costs (with a tendency to increase compared to the previous period).

The new provisions in the Amended Power Law emphasize that retail electricity prices will be adjusted promptly to reflect actual fluctuations in input parameters, reinforcing the commitment to gradually align electricity pricing with market dynamics.

In the future, the Government will issue a decree to replace Decision 05/2024/QD-TTg on the mechanism for adjusting average electricity selling prices to enhance the practicality of electricity price regulation. This decree will ensure that fluctuations in input parameters, such as fuel prices, electricity output structure, and foreign exchange rates, will impact the increase or decrease of average electricity selling prices.

Mr. Hòa, to regulate electricity prices according to market mechanisms, is it necessary to accelerate the development of a competitive retail electricity market?

– Building and developing a competitive electricity market, including a competitive retail electricity market, is one of the Party and Government’s critical policies.

According to Decision 63/2013/QD-TTg, once the necessary conditions are met, Vietnam has been gradually implementing the competitive electricity market at different levels. Currently, we are in the stage of a competitive wholesale electricity market. Transitioning to a competitive retail electricity market is a complex process that requires thorough preparation in various aspects and meeting essential prerequisites.

Although the competitive electricity generation and wholesale market has been operating for more than 12 years, the level of competition remains limited. To progress to the competitive retail electricity market stage, it is essential to address core issues such as restructuring the electricity industry, reforming retail electricity prices (eliminating cross-subsidization), separating the distribution and retail functions, and developing the necessary infrastructure to support market operations.

With the recent passage of the Amended Power Law and Vietnam’s potential challenges in balancing electricity supply and demand in the coming years, it is crucial to review and adjust the roadmap for developing a competitive electricity market, including the competitive retail electricity market, to ensure feasibility and effectiveness.

One step towards a competitive retail electricity market was the Government’s issuance of Decree 80 on the mechanism for direct power purchase between renewable energy generators and large electricity consumers. However, in reality, many customers are still unable to purchase electricity directly. Can you explain this situation, Mr. Hòa?

– Allowing large electricity consumers to enter into direct power purchase agreements (DPPA) with renewable energy generators is a novel and significant development in Vietnam.

The DPPA mechanism has garnered significant interest and has been eagerly anticipated by many organizations and individuals. However, its implementation still faces challenges such as the need for adaptation to a new concept, agreement terms and associated costs, insufficient supply to meet immediate demand, and financial constraints.

The Electricity Regulatory Authority of Vietnam has advised the Ministry of Industry and Trade to provide strong guidance to EVN, the National Load Dispatch Center, and Electricity and Renewable Energy Authority to promptly finalize and announce related matters. These include costs associated with DPPA participation (such as system service charges and settlement of imbalances), amendments and issuance of business processes and internal procedures, and the development of a management process for registration, confirmation, data reconciliation, and settlement calculations for electricity volumes traded under DPPA…

The Ministry of Industry and Trade will continue to review, refine, and promptly submit to the competent authorities other necessary regulations to enhance the efficiency of DPPA participation. The successful implementation of this mechanism requires close coordination between government agencies, businesses, and the public.