Electricity prices are about to increase after 2 years of 'staying still'?

Deputy Prime Minister Vuong Dinh Hue has assigned the Ministry of Industry and Trade to direct the Vietnam Electricity Group (EVN) to calculate options for adjusting electricity prices. EVN said that electricity prices depend largely on the price of coal sold by the Vietnam National Coal-Mineral Industries Group (TKV) to EVN's thermal power plants.

Electricity prices anxiously await coal prices

Deputy Prime Minister Vuong Dinh Hue has requested the Ministry of Industry and Trade to preside over, direct and guide the Vietnam Electricity Group (EVN) and coordinate with relevant agencies to propose a scenario for electricity price management in 2017 (on the roadmap and adjustment levels), ensuring macroeconomic stability.

Electricity prices may be adjusted for the first time after two years of stagnation.

Regarding electricity prices, the options for building electricity prices will follow scenarios, coal prices, gas prices adjusted or not adjusted according to market prices...

In another recent directive, Deputy Prime Minister Vuong Dinh Hue requested to adjust the average retail electricity price for the years 2016 - 2020 towards an average of at least once every 6 months.

Thus, since the last increase in March 2015 with a 7.5% increase, electricity prices may soon undergo a new adjustment.

A representative of the Vietnam Electricity Group said that the plan to adjust the electricity price will depend on the price of coal for electricity. Currently, the Government has assigned the Ministry of Finance to negotiate the price of coal sold by the Vietnam National Coal and Mineral Industries Group to the Electricity Group. The deadline for reporting the results of the negotiation is March 30.

At the conference to summarize the work of 2016 and deploy the tasks of 2017 of Vietnam Electricity Group (EVN), Mr. Dang Hoang An, General Director of EVN said: Some input costs of electricity production (especially coal prices) have increased continuously since 2015, but have not been balanced in electricity prices. The coal price for electricity alone increased by 7% from December 24, 2016, which will increase the cost of electricity production by more than VND4,692 billion.

Dr. Nguyen Ngoc Hung, Institute of Energy, said: Electricity consumption demand and fuel prices will affect electricity prices this year. However, it is necessary to know the exact input parameters in EVN's calculations to know the level of impact of the factors on electricity production costs.

According to Mr. Hung, the increase in electricity prices is due to the increase in the economy's annual electricity consumption demand. Currently, electricity consumption demand increases by about 11-12% per year. More and more coal-fired and gas-fired thermal power plants are put into operation, while hydroelectric plants - cheap electricity sources - have developed to their limits.

Therefore, the increase in electricity prices in the coming time is inevitable. In particular, recently Vietnam has been gradually increasing the proportion of renewable electricity such as wind power and solar power in the power source structure to achieve the goals in the Renewable Energy Development Strategy.

For example, the purchase price of electricity for a wind power project is 7.8 cents/kwh according to current regulations, which is almost equal to EVN's current selling price of about 8 cents. Therefore, when the demand for electricity increases, the cost must increase accordingly because the electricity industry must mobilize new sources of electricity, so the electricity price must increase accordingly.

"The current issue is how much the electricity price increase is reasonable given the rate of increase in fuel prices and the rate of increase in investment costs for power source development," said Mr. Hung.

EVN is calculating electricity price options.

How much does electricity price increase?

Coal prices greatly affect electricity prices because coal-fired thermal power accounts for the largest proportion of electricity sources. Vietnam Electricity Group said that the structure of electricity purchased from power plants in the fourth quarter of 2016 included hydropower at 25.94%, coal-fired thermal power at 40.04%, gas-fired thermal power at 30.7%...

An expert in the electricity industry said: For coal-fired thermal power plants, the input price of coal fuel accounts for 30-40% of the cost of electricity production, depending on the production technology of each plant. For gas-fired thermal power plants, the input fuel cost is higher, accounting for 60-70% of the cost of electricity production. In the near future, imported coal will be mainly supplied to southern thermal power plants because TKV's mining output cannot meet domestic coal demand.

Dr. Nguyen Ngoc Hung said: Coal and natural gas are the main input fuels of domestic thermal power plants. According to calculations, if the price of coal increases by 10%, the cost of electricity generation increases by about 3-4%. For gas-fired thermal power, the cost is lower, if the price of gas increases by 10%, this cost increases by about 2%.

According to this expert, the percentage increase in electricity price needs to be calculated based on the detailed balance sheet and input parameters of EVN in the electricity price scenario. However, according to a study by the World Bank (WB), to ensure a healthy financial situation for EVN in the current conditions, the retail electricity price must increase by 8-10%/year to ensure EVN's long-term investments.

The increase in electricity prices is inevitable as there was no adjustment in 2016. However, electricity prices are an input factor for all economic sectors, so according to experts, adjusting electricity prices needs to be calculated carefully, especially when inflation is showing many signs of rising, affecting the goals of macroeconomic stability and inflation control set by the National Assembly and the Government.

According to VNN