Electricity price hike and the long-term energy dilemma

DNHN - With EVN's third price hike since 2023, rising electricity costs burden households and industries. Experts warn that sustained losses threaten future power projects, urging reforms to boost investment and ensure energy security.

On October 11, 2024, Vietnam Electricity (EVN) raised its retail electricity prices, following Decision No. 2699/QĐ-BCT from the Ministry of Industry and Trade. The average price per kilowatt-hour (kWh) was adjusted from 2,006.79 VND to 2,103.11 VND (excluding VAT), marking a 4.8% increase. This adjustment represents the third price hike since 2023, with previous increases of 3% in May 2023 and 4.5% in November 2023. 

The rise in electricity prices will directly impact households and businesses alike, as companies are forced to incorporate higher electricity costs into their production expenses, ultimately affecting market prices. In specific industries, electricity expenses account for approximately 9-10% of production costs in the steel sector and 14-15% in cement production.

Prior to this latest adjustment, the Ministry of Industry and Trade had disclosed EVN's financial struggles, revealing a loss of nearly VND 22 trillion in 2023 alone, with cumulative losses reaching VND 34 trillion from core electricity operations. 

Experts have raised concerns that prolonged losses in the electricity sector could jeopardize future power development. "Costs almost fail to create incentives for investment and attracting private capital," assessed Dr. Ha Dang Son, Director of the Center for Energy and Green Growth Research. Moreover, experts warn that continued losses by EVN will damage its financial reputation in securing international loans, as the company's credit rating could be downgraded, making it difficult to arrange or access capital with preferential interest rates. This scenario would complicate the implementation of medium- and long-term power development plans.

Prof. Dr. Bui Xuan Hoi, Principal of the Northern College of Electricity, expressed concern that the lack of profitability would compromise EVN's capacity to reinvest and maintain cash flow. If EVN’s losses continue, it could endanger affiliated power suppliers. He noted that the ambitious goals of Vietnam’s Eighth Power Development Plan would become unrealistic under the current pricing structure, risking future power shortages.

The electricity crisis experienced during the summer of 2023 serves as a stark reminder of the potential repercussions. Power cuts affected millions of households and businesses, including foreign investors, prompting calls for a more robust strategy. Dr. Ha Dang Son argued, "While price increases may lead to negative reactions, there is no green transition or renewable energy development without a pricing structure that incentivizes investment."

Vietnam is gradually building a competitive electricity market to foster transparency and open access. The country's shift toward a green economy is bolstered by its vast renewable energy potential, yet resources like wind and solar power remain underutilized, constraining the development of a sustainable, clean energy future. Allowing multiple electricity providers could drive competition, diversify supply sources, and, ultimately, help stabilize electricity prices while accelerating the shift toward sustainable energy.

The draft of the revised Electricity Law, passed at the eighth session of the 15th National Assembly, includes in Clause 4, Article 5 (state policies on electricity development) a commitment to "eliminate all monopolies and unreasonable barriers, and maximize socialization in investment, exploitation, and utilization of national power transmission facilities, ensuring national defense and security. It encourages all economic sectors to invest in building power plants, grids, power development planning, power distribution, wholesale and retail electricity. Non-state economic entities are permitted to operate grids they have built according to legal regulations."

Furthermore, Article 5 states that the state will retain monopoly control over grid regulation, nuclear power investment, multi-purpose hydropower projects, critical power sources, emergency power grids, and main transmission lines of 220 kV and above. The state will also monopolize the operation of transmission grids, except for grids invested in and built by private economic sectors.

This revision raises essential questions: Will this amendment effectively dismantle monopolies? To what extent will the state monopoly be limited, and how will investment responsibilities be shared among other economic sectors? When will the monopoly mechanisms in the power sector be relaxed to allow greater investor participation, benefiting both the public and the economy?

These are not only long-term energy challenges but also pivotal to Vietnam's sustainable development in the coming years.

Bach Anh