The price mechanism is the "key" to attract investment capital in the electricity industry

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Assoc. Dr. Bui Xuan Hoi

How do you evaluate the importance of determining electricity prices in attracting investment capital in the electricity industry?

Currently, for the electricity industry, Vietnam has a competitive electricity generation market, but the electricity price for final consumers is still regulated by the state. Vietnam Electricity (EVN) is currently the largest retailer, buying electricity fluctuating at market prices and selling electricity at prices regulated by the state.

Obviously, if the Government and the Ministry of Industry and Trade do not have a timely and appropriate price adjustment mechanism, first of all, EVN will face many difficulties in maintaining a stable power supply. Besides, if prices continue to be unadjusted, it will not be able to attract investment in the electricity industry, and it will be difficult to ensure the security of the electricity supply.

It must also be added that the electricity tariff mechanism of Vietnam since 2014 has not been adjusted. The last adjusted average retail price was in 2019. Vietnam maintains such a price level, but input prices are always fluctuating. Currently, the price of oil has many fluctuations, which means that the price of other fuels will fluctuate, of which there are two sources of coal and gas. If the input continues to remain high, according to the leaders of EVN, EVN's profit next year may be zero. That also puts pressure on investors to invest in the power industry.

Vietnam is a rapidly developing country with a huge demand for electricity. At that time, investment in the electricity industry in one way or another must be high. Thus, in general, to attract investment, there is no other way than to have a mechanism to adjust electricity prices. The role of electricity prices is the most important in attracting investment capital into the electricity industry. For investors, even state investment or private investment to attract investment is that the benefit aspect must still be mentioned. For the State is the overall benefit but also the use of state capital; with private investment is profit.

The investor's revenue will be equal to the sales volume multiplied by the selling price. The role of the state regulatory agency in calculating the electricity price adjustment mechanism is very important because the electricity price is an intermediary, the cost of this economic unit is the benefit of the other economic units.

Vietnam already has a competitive electricity generation market, gradually piloting and perfecting the competitive wholesale electricity market. In your opinion, when will Vietnam be able to have a fully competitive retail electricity market?

Because it is very complicated in the supply process and is an essential and lifeline product for the development of economies, from the beginning, the electricity industry has a vertical monopolistic structure. Up to now, the electricity price applied to final consumers is still regulated and adjusted by the State. That's because the economic structure has many components. At different times, it is possible to prioritize the development of this economic sector and not really give much priority to economic development. Through the price instrument, the State does such a task.

In the current context, if there is an expectation of a competitive retail electricity market, one should not expect too much or for a long time. Because, if it is called a competitive retail market, it means that all buyers will have to be fair. For example, according to the principle of power supply, the cost of supplying electricity to Lao Cai is much higher than the cost of supplying electricity to Hanoi. Are people in Lao Cai willing to pay the right price according to the cost?

In the current context, what is the solution that balances the factors to both attract investment capital in the electricity industry through the price mechanism and ensure the resilience of the economy and households before the price adjustment?

Currently, in terms of industry organization, Vietnam has a competitive electricity generation market. Vietnam is trying its best to make the power part organized in a competitive form. Of course, there is a rule, the current renewable energy alone is still in principle to generate as much as EVN buys, and as much as it generates, it still applies the fixed-price mechanism (FIT).

Where is the middle point in electricity prices? That point is the Government's price adjustment mechanism is how to balance the finances of EVN as well as the resilience of the economy and households before electricity bills. Consumers can still accept the price.

Vietnam has a mechanism, the current principle is to adjust electricity prices once a year, but in reality, the adjustment is very difficult. Any data to see is that a price adjustment is calculated according to the forecast. I think that in the future, the price adjustment between the state price on the one hand and the market price on the other side needs to be seriously studied to build a mechanism for how it can still be adjusted.