The Future of Electricity Pricing: A Market-Driven Approach

According to the Ministry of Industry and Trade, one of the highlights of the amended Law on Electricity is the regulations related to the development and investment policy in the electricity industry, encouraging all economic sectors to invest in power generation construction. However, to ensure national energy security, the State monopolizes the dispatch of the national power system and invests in the construction and operation of nuclear power plants, multi-purpose strategic hydropower plants, and important transmission grids from 220 kV voltage levels and above as decided by the Prime Minister.

To develop power sources, the State will prioritize budgeting and mobilizing domestic and foreign resources for investment in power source and grid development, rural electrification, and areas inhabited by ethnic minorities, mountainous, border, and island regions, as well as regions with particularly difficult socio-economic conditions. Domestic and foreign organizations and individuals constructing power sources and grids and supplying electricity to households in these areas will be entitled to investment and financial incentives, along with other support policies.

An important feature of the amended Law on Electricity is that electricity prices will be determined by market mechanisms, and cross-subsidies in electricity prices will be phased out. These issues have always been of particular concern to businesses and people. While these provisions are not new and have been stipulated before, they have not been fully implemented. According to the regulations, electricity prices and electricity-related service prices will reflect the reasonable and legitimate operating costs of power companies, creating favorable conditions for economic sectors to invest in power development with reasonable profits. As such, electricity prices will be market-based with state regulation corresponding to the level of electricity market competition. Electricity prices will also encourage efficient and economical electricity use.

The Law on Electricity also stipulates the implementation of a reasonable electricity retail price structure, gradually reducing and eventually eliminating cross-subsidies among customer groups. It ensures the right to self-determine electricity purchase and sale prices, which must not exceed the price framework and electricity retail price structure set by the State. This issue was raised by many National Assembly deputies when contributing opinions to the amended Law on Electricity. For poor households and social policy beneficiaries, the State will continue to support electricity costs for household purposes according to criteria and mechanisms decided by the Prime Minister.

Promoting the Development of Renewable Energy

An important new feature of the amended Law on Electricity is the promotion of renewable energy development, with a particular focus on policies encouraging investment in solar and wind power and other renewable energy sources. It also encourages fossil fuel power plants to transition to low-emission fuels and install carbon capture equipment and systems to reduce emissions.

Regarding the policy on nuclear power development, the Law states that nuclear power planning must be closely linked, synchronized, and consistent with power development planning to ensure energy supply security. The investment, construction, operation, termination of activities, and safety assurance of nuclear power plants must comply with the Law on Atomic Energy and other relevant legal documents.

An aspect that has attracted businesses’ attention in the amended Law on Electricity is the restructuring, renovation, and improvement of state-owned enterprises’ performance according to the levels of the electricity market competition. Specifically, there will be a separation between the functions of production, business, and service provision and the function of state management. Along with this, independent service-providing units will be established, forming multiple power generation units, multiple wholesale electricity units, and multiple retail electricity units to enhance performance, create competition in the electricity market.

Sharing with Tien Phong Newspaper about the impact of the amended Law on Electricity, Assoc. Prof. Dr. Ngo Tri Long, former Director of the Market and Price Research Institute (Ministry of Finance), said that this law has addressed some critical bottlenecks in Vietnam’s power development over the past time, helping the power sector operate more efficiently and sustainably.

According to Dr. Long, in the immediate future, the Ministry of Industry and Trade needs to promptly complete the decrees and circulars guiding the implementation of the Law on Electricity’s provisions related to electricity pricing mechanisms, the process of licensing power projects, and the rights and obligations of related parties.

The Ministry of Industry and Trade should also coordinate closely with ministries, sectors, and local authorities to harmonize policies and implement reasonable support measures during the law’s implementation. It is also necessary to evaluate the law’s execution timely and make adjustments and amendments if required. Prioritizing the implementation of electricity prices operating under market mechanisms and eliminating cross-subsidies in electricity prices is essential.