EVN squeezes small hydropower plants: Buy cheap, sell expensive

With their generating capacity limited and having to sell electricity to EVN at dirt-cheap prices, a series of small hydropower plants are crying tears of loss. Meanwhile, EVN buys electricity at high prices from China and is allowed to continuously increase its retail price.

Eat bitter fruit with low price

Currently, EVN buys from China and coal and gas thermal power plants at an average price of 1,300 VND/kWh, and from large hydropower plants at 900 VND/kWh. Due to increased input costs, EVN has increased the retail electricity price by 57% in the past four years. In 2011 alone, the total increase in retail electricity prices was 20.28%. On average, EVN has increased the retail electricity price by 14% each year. However, during that same period, small hydropower plants have had almost no opportunity to increase their selling prices to EVN.

A representative of Hung Hai Group, a small hydropower investor, explained: "In the years 2006-2008, many hydropower plants signed electricity purchase contracts with EVN with a selling price of only 600-700 VND/kWh, with a fixed contract term of several decades. Since July 2008, the Ministry of Industry and Trade has decided to issue an avoided cost price list for small hydropower plants, so the selling price of these plants has increased to an average of 916 VND/kWh, during peak hours in the dry season, the selling price has increased to 954.52 VND/kWh. However, that is only in theory. Since then, no small hydropower plant has sold to EVN at this average price."

According to Hung Hai Group, in the low season, which is the rainy season, the selling price to EVN is only about 500 - 550 VND/kWh while 65-70% of the output of small hydropower plants is concentrated in this period. With such a structure, the average price of hydropower sold to EVN is always dirt cheap.

Compared to the retail price of VND1,506/kWh including VAT applied from July 1 and compared to the price of purchasing electricity from China, the price that EVN buys from small hydropower plants in the country is only 1/3 to 1/2.

Small hydropower plants are forced to lower prices

Mr. Tran Viet Ngai, Chairman of the Energy Association, shared: "In the past, to get a construction permit, investors signed large power purchase contracts with EVN at very low prices, only 400-500 VND/kWh. Now the price of hydropower in general is 800-900 VND/kWh, EVN's retail price has increased but these small hydropower plants are still slow to adjust." "Electricity prices increase steadily based on input. But in reality, EVN enjoys all of this price increase," commented Mr. Hoang Minh Tuan, Chairman of the Board of Directors of Nam Tien Joint Stock Company.

Mr. Do Van An, from the International Relations Investment and Development Joint Stock Company, also lamented: "EVN buys very cheaply, but retails very expensively. Our electricity purchase price is kept low, while the retail price is increased by 5% at a time according to the roadmap. When increasing electricity prices, "the room for increase should also be reserved for power plants."

To make a profit, the only way for these investors is to compete and negotiate with EVN's power trading company. However, this is not easy! Talking about this, Mr. Hoang Minh Tuan, Chairman of the Board of Directors of Nam Tien Joint Stock Company, expressed his frustration: "Everyone knows that negotiating to buy and sell electricity is extremely difficult. Between EVN on one side and small hydropower on the other, with such a position, how can we negotiate? Where is the market and fair competition here?"

Many small hydropower enterprises expressed their wish that EVN should be more fair, increase the electricity purchase price for power generators by 80% of the average commercial electricity price and adjust it annually according to the electricity price issued by the Ministry of Industry and Trade.

Small hydropower is being left out

The investment cost for a small hydropower project is not low, up to 25-30 billion VND/kWh. However, the fate of these plants is increasingly bleak. Not only are they forced to lower their prices, small hydropower plants are also forced to limit their generating capacity, or even after construction, EVN cannot buy them because of... lack of transmission grid.

Hung Hai Group pointed out a paradox: 12 northern provinces currently use electricity purchased from China. When Vietnam does not consume all of the electricity according to the signed contract, the electricity flows back to China at more than 5% of the signed capacity, EVN is fined. This is also a reason why during peak hours in recent times, the power dispatchers of Ha Giang and Lao Cai provinces forced small hydropower plants to reduce their capacity during peak hours. In other words, while small hydropower plants are forced to limit their capacity, EVN seems to prioritize buying electricity from China.

The North has many medium and small hydroelectric plants, yet 12 northern provinces still use electricity purchased from China.
In the photo is Na Hang Hydropower Plant (Tuyen Quang).

Mr. Ha Si Dinh, Deputy General Director of Son Vu Energy Development Company, said bitterly: "In the past few years, how many small hydropower plants have been mobilized? Up to now, how many still owe the bank? In Lao Cai, that number is very large and we don't know how many years it will take to recover the capital!"

Speaking about this, the chairman of the Vietnam Energy Association, Mr. Tran Viet Ngai, said that the time of selling electricity to EVN is also a decisive factor in the profit and loss of hydropower plants. If the plants were mobilized to generate electricity for 6,300 hours, 1,000 hours, or 500 hours in a year, it would be different. However, all of these factors are completely dependent on EVN's regulation.

The situation of hydroelectric plants being completed but unable to connect to the national grid is also due to a lack of transmission lines.

According to Mr. Tran Viet Ngai, when signing the contract, the small hydropower investors did not have a clear agreement on which side would invest in the grid. As a result, when the project was completed, EVN thought that this was the hydropower plant's job.

Mr. Ha Sy Dinh shook his head and said: "To build a 25km long 110kV line connected to the national grid, we have to spend 40 billion VND. At the same time, the company also has to worry about management and operation according to strict regulations on electrical safety and especially, if we want to manage transmission lines and power stations, we must have enough functions to be allowed to do so. In the end, we were forced to choose 2 options, either accept increased investment costs, almost double the cost of building a factory, or hire EVN's unit at a very high price.

In 2011 alone, Mr. Dinh’s company had to spend 900 million VND just for the management and operation of this transmission system. With such a difficult situation, not only Mr. Dinh but also most of the small hydropower investors suffered heavy losses.

In the future, small hydropower plants will be left out from the State's policies. Mr. Tran Viet Ngai said that in the competitive electricity market, only plants over 30MW are allowed to participate in the market. Hundreds of popular small hydropower plants, most of which have a capacity of around 10MW, are now stuck.

"If they don't participate in the market and don't sell to EVN, who will they sell electricity to? At that time, the only way left is to sell to local power companies, but now, there are no instructions on what price they can sell at," Mr. Ngai said indignantly.

In the opinion of this expert, any clean energy source is very valuable in the current climate change. Private investment in small and medium hydropower is also encouraged, creating a large amount of electricity to help EVN ease capacity difficulties.

Mr. Ngai suggested that the criteria for market participation should be lowered, with 10MW plants allowed to participate in the market, and if under 10MW, there must be a mechanism to work with local power companies.

However, looking at it objectively, Dr. Le Truong Thuy, Mai Chau Hydropower Joint Stock Company frankly criticized: "Participating in the electricity sector, many investors know almost nothing about electricity. Even consultants just sit at their desks, are lazy to go to actual construction sites, and no one has much experience. For example, the investors of the two power plants in Thanh Hoa are only good at real estate and bricks and tiles. There are construction specialists like Vinaconex who also jumped into hydropower, but then had to give up everything."

Therefore, many hydropower plants are now half-finished. Some people have invested 10 billion VND in the project, but now they cannot borrow capital and do not know how to manage. They do not have professional capacity or financial capacity, so now they are both crying and laughing.

"With investors like that and consultants like that, how can we have better hydropower plants?" Mr. Thuy said.

According to hydropower enterprises and experts, the Government needs to have a more transparent and fair mechanism for these plants in each electricity price adjustment period. At the same time, the roadmap to eliminate EVN's monopoly must be shortened soon to have a healthy electricity market.

Up to now, Vietnam has invested, built and operated nearly 30 large hydropower projects with a capacity of over 100MW, over 200 medium and small hydropower projects with a total capacity of all hydropower sources of nearly 10,000MW, and a total electricity output of over 40 billion kWh.

According to Vietnamnet-M