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 No. 55-NQ/TW of 2020 issued by the Politburo on the orientation of the energy development strategy of Vietnam by 2030, with a vision to 2045. It also legalizes the regulation of electricity prices by converting the provisions on the mechanism for adjusting the average electricity selling price from a “Decision of the Prime Minister”, as stipulated in the current Power Law, to a “Decree of the Government”.

The amended Power Law stipulates that retail electricity prices should be adjusted promptly to reflect the actual fluctuations in input parameters, covering reasonable and legitimate costs, along with a reasonable profit margin to preserve and develop the business capital of enterprises. These adjustments should also align with the socio-economic conditions of each period and the level of competition in the electricity market. The Government is entrusted with the responsibility of issuing detailed guidelines to ensure flexibility in implementation.

By entrusting the Government with this task, the amended Law strikes a balance between closely following market fluctuations and maintaining unity in macroeconomic management (as electricity prices are a factor that influences macroeconomic stability) while considering other economic and social balances.

Furthermore, the Government’s Decree will provide more specific regulations on certain aspects, such as reasonable profit margins and the timeline for electricity price adjustments, thereby establishing a solid legal foundation for practical implementation.

Many people have long been concerned about electricity prices only increasing and never 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 be determined based on a market mechanism with state regulation, aligning with the level of development of the electricity market and the mechanism for adjusting the average electricity selling price, as detailed in Decision No. 05/2024/QD-TTg issued by the Prime Minister (replacing Decision No. 24/2017/QD-TTg).

Electricity price adjustments are considered based on objective fluctuations in input parameters across the 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).

Accordingly, 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%, EVN can adjust the price after obtaining an opinion from the Ministry of Industry and Trade. For increases of 10% or more or those impacting the macroeconomic stability, the Ministry of Industry and Trade reports to the Prime Minister for consideration and guidance.

Under the current regulations, electricity prices can increase or decrease, depending on the fluctuations in input parameters. However, electricity price management is just one link in the broader context of the Government’s and Prime Minister’s macroeconomic management. Therefore, at certain times, to ensure macroeconomic stability and other balances, the Prime Minister has directed to maintain stable electricity prices, 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 reinforce the principle of adjusting retail electricity prices in a timely manner to reflect actual fluctuations in input parameters, thus aligning electricity price management more closely with market dynamics.

In the future, the Government will issue a decree to replace Decision No. 05/2024/QD-TTg regarding the mechanism for adjusting the average electricity selling price to enhance the practicality of electricity price management. This decree will ensure that fluctuations in input parameters, such as fuel prices, electricity output structure, and foreign exchange rates, will influence the increase or decrease of the average electricity selling price.

Mr. Hòa, to regulate electricity prices based on market mechanisms, it is necessary to accelerate the development of a competitive retail electricity market. What are your thoughts on this?

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

According to Decision No. 63/2013/QD-TTg, as Vietnam meets the necessary conditions, it has been gradually implementing the electricity market competition 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 fulfilling essential prerequisites.

Although the competitive electricity generation and wholesale market has been operating for over 12 years, the level of competition remains limited. To advance to the competitive retail electricity market stage, it is crucial to address core and critical issues, including 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 potentially facing an imbalance between electricity supply and demand in the coming years, it is necessary to review and adjust the roadmap for developing a competitive electricity market, including the retail segment, 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 agreements (DPPA) between renewable energy generators and large power consumers. However, in reality, many customers are still unable to purchase electricity directly. Can you explain this discrepancy, Mr. Hòa?

– Allowing large power consumers to enter into direct power purchase agreements with renewable energy generators is a novel and significant initiative in Vietnam.

The DPPA mechanism has garnered significant interest and has been eagerly anticipated by many organizations and individuals. However, its implementation still faces several challenges, including the need for adaptation to a new concept, agreement on terms and conditions, and financial constraints. Additionally, the supply of renewable energy may not always meet the demand.

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 other relevant units to expeditiously finalize and announce related matters. These include the costs associated with DPPA participation (such as system service charges and settlement of imbalances), revisions to business processes and internal regulations, and the development of a governance framework for registration, confirmation, data reconciliation, and calculation of settlements 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, enterprises, and the public.