How far will Vietnam’s government go to make a competitive electricity market? (Sep 2014)

15 Sep

By: B&Company Vietnam

Reports & Publications

Comments: No Comments.


How far will Vietnam’s government go to make a competitive electricity market?
(Sep 2014)

Vietnam is promoting the development of electric power industry by increasing the competitiveness of this market.

In 2012, there were 124 power plants generating the total capacity of 26.926 MW. In details, hydropower volume accounted for nearly half, electric power generated from renewable energy sources was 0.2% of the total capacity, and the remaining half was thermal power. In 2013, the average retail price of electricity was 7 cents/kWh, this price was not high, compared with electricity prices in countries such as China (7.5-10.7 cents/kwh), Cambodia (21 cents/kWh), the Philippines (36.13 cents/kWh). According to the Power Plan VII by the government, the price of electricity is expected to increase to 9 cents/kWh by 2020. The amount of electric power transmission and distribution increases by 9% per year, reaching approximately 60 billion kWh in the first half of 2014.
3 state enterprises which are led by Vietnam Electricity EVN, are producing over 80% of electricity volume. In 2014, EVN produced over 60%, transmitted 100% and distributed 90% of electricity, which threated the competitiveness in this market. In order to eliminate the monopoly in the electricity market, the Government began to urge Vietnam competitive generation market (hereinafter referred as to VCGM) in the entire value chain from generation to distribution in July 2012. This process is divided into 3 stages. Stage 1: competitive generation market, stage 2: competitive wholesale market, stage 3: competitive retail market. At present, the VCGM is at the end of Stage 1.
To develop competitive generation market, the government is gradually opening the market for foreign investors. Indeed, the number of power plants applied the PPP (public-private partnership) model funded by foreign investors such as Japan is increasing. From 2001 to 2011, 7 power plants had been operating by the BOT method. And, there are about 10 approved foreign invested projects by the BOT with many countries such as the United States, China, Japan. At present, Japanese companies with the supports from Japan Bank for International Cooperation (JBIC) is negotiating to sign BOT contracts of coal thermal projects. Clearly, PPP is the key solution, since such a huge budget of about USD 6.2 billion per year between 2011 and 2030 is estimated for power plants and accompanied infrastructure construction.
However, there are two major problems. Firstly, Vietnam signed the long-term power purchase agreement in 2005 with China due to power shortage, in which agree to purchase a certain annual amount of electricity volume from 2009 to 2015. Therefore, Vietnam imported 4% of the total domestic electricity generation capacity, although it still met domestic electricity demand with low price domestic, which power plants only operated with 70%-80% capacity in 2012. Similar situation has occurred over the next years until 2015.
Secondly, all power plants in Vietnam, including those of EVN, which produce over 60% of electricity as mentioned above, must sell electricity to EVN. Therefore, it is crucial to detach from EVN in order to promote fair competition in market.
Solving the above problems and possibility of making the open market for electricity infrastructure, the foundation of industrial development, are attracting the attention of both domestic and foreign companies from various sectors. 

B&Company Vietnam