Since the beginning of 2022, due to the global fuel price fluctuations of coal, oil, gas, etc., the cost of electricity generation and purchase of EVN has increased sharply. According to the Ministry of Industry and Trade, EVN's production and business performance results in 2022 may suffer a financial loss of up to VND 64,805 billion.
Right from the beginning of the year, EVN has been drastically doing cost cutting. According to calculations, the total cost-cutting amount as a result of EVN’s exertions to reduce losses is about VND 33,445 billion, and thus EVN’s production costs have been reduced, in addition, the costs of power transmission, distribution and support services in 2022 is only 92.8% against 2021.
Low electricity prices will hardly motivate investment
However, experts view that if EVN keeps on facing financial difficulties as it is now, there will be many more complications in 2022 and the following years. According to experts, low electricity price not only puts EVN into difficulties but also leads to a lack of investor appetite, investment drop, power shortage, and energy insecurity.
Analysis, expert Ha Dang Son, Director of the Center for Energy Research and Green Growth, said that Vietnam is under great pressure when aiming to bring emissions to zero by 2050. To this end, the huge investment will be needed in energy infrastructure, including electricity infrastructure, transmission lines, etc.
To increase investment, an attractive and reasonable electricity price should be in place to attract investors. Some investors even wish to have greater comfort with the FIT scheme being maintained for a certain period of time.
"Investment needs capital and from whom does the capital come? It's an extremely difficult question because if the electricity price is maintained at the current level, there will not be any motivations for any investors to engage", said Mr. Son.
Mr. Son also emphasized that electricity is one of the specific investment areas, which requires a large capital amount and a long investment period. Some projects that are not of private sector appetite will be undertaken by enterprises like EVN. However, keeping electricity prices low for so long poses a very high risk of losing financial credibility to EVN. It will be difficult for EVN to mobilize funds to invest in large-scale energy projects.
Thus, State-owned enterprises face difficulties to implement large projects, while private enterprises do not have an appetite due to insufficient profit for developing power sources, emphasized Mr. Son, which could lead to the electricity shortage in the future, and put energy security at risk.
"The most important thing is to have unanimity and understanding of the competent authorities about the circumstance why we have to increase electricity price, with certain disadvantages and what advantages can be gained. We have to balance between different options to select the most suitable one, acceptable to consumers, but also to help EVN survive", Mr. Son highlighted.
Below-cost electricity prices can cause many consequences
Sharing the same view, Dr. Le Dang Doanh, former Director of the Central Institute of Economic Management, said that if electricity price is below-cost, it will pose many threats to the economy.
Citing an example of the 1980s, when the State priced rice below the production cost, leading to the situation that farmers were not interested in growing rice, thereby lacking rice on a large scale, Dr. Le Dang Doanh said, it was an important lesson in managing prices of essential commodities such as electricity, gasoline and oil today. After that, the State recognized and raised the rice price, and Vietnam quickly became a rice exporter in the early years of renovation.
Dr. Le Dang Doanh stated that in administrating prices of electricity, gasoline, and oil, the Government should harmonize the interests of businesses, the country and consumers, avoiding charging prices below actual costs which can affect supply. The lesson of petrol shortage in the South and the North recently is also obvious.
"Electricity price has been maintained stable at a low level for too long. When prices of input fuels for power generation increase, Vietnam Electricity (EVN) may lose tens of trillions of dong. Hence the Government may have to make up for these losses", he said.
However, in the current difficult budget situation, a subsidy for such losses is impractical. Therefore, electricity price adjustment is the most suitable solution.
According to Dr. Le Dang Doanh, the price increase helps ensure market principles, electricity production costs must be calculated correctly and fully into the price. In addition, keeping electricity prices not at a very low level would help to encourage economical, sustainable, reasonable use of electricity and avoid waste. In addition, raising electricity prices also helps businesses reinvest in production and business, especially in clean energy sources such as wind and solar, etc.
He emphasized the need to apply principles of the market economy in a reasonable and timely manner in the face of a very complicated world situation. Geopolitical and economic developments can greatly affect supply and demand in the world, so appropriate price adjustment measures should be introduced to prevent electricity shortages as the recent petrol shortage.