Increasing electricity production cost has caused EVN to face many difficulties

Input fuel prices for electricity generation such as coal, oil, and gas have been soaring; the power generation mix has changed in an unfavorable direction, dispatching less cheap sources and more expensive sources; despite drastic cost-saving solutions, Vietnam Electricity has been encountering various difficulties in financial balance.

Increasing electricity production cost 

In 2023, due to the El Nino phenomenon’s impacts, heat and droughts, water inflows to hydropower reservoirs were remarkably low in the Northern region. Worth mentioning, at the end of the dry season (from mid-May to mid-June), most large hydropower reservoirs in the North reached their minimum operating levels, including Lai Chau, Son La, Tuyen Quang, Ban Chat, Hua Na, Thac Ba. In addition, some large thermal power units (such as S6 - Pha Lai 2, S1 - Vung Ang 1, S1 - Cam Pha, S1 - Nghi Son 2, etc.) suffered prolonged failures.

To meet the increased load demand in the context of widespread and prolonged hot weather, EVN had to maximize the dispatching of thermal power plants including oil-fired ones.

It is estimated that for the entire year of 2023, hydropower output will drop by about 13.9 billion kWh compared to the plan approved by the Ministry of Industry and Trade and 22.5 billion kWh lower than 2022; Coal-fired thermal power output will grow by about 9.3 billion kWh over the plan and 28.2 billion kWh compared to 2022; Oil-fired thermal power output will rise by about 1.2 billion kWh over the plan and 1.2 billion kWh against 2022; Renewable energy output will increase by 1.3 billion kWh over the plan and 2.8 billion kWh compared to 2022.

Coal fuel price for electricity generation has increased, causing a lot of difficulties for EVN

While the dispatching rate of coal and oil thermal power plants is high, the prices of these fuels over the past months of 2023 although lower than in 2022 are still higher than the period 2020-2021. Particularly, the price of imported coal gbNewC has increased 2.97 times compared to 2020, 1.30 times against 2021; HSFO oil price has escalated 1.86 times compared to 2020 and 1.13 times against 2021.

Input parameters for power plants using imported coal, mixed coal, or gas turbines such as gbNewC, ICI3, HSFO oil, and Brent oil remain high compared to previous years. Specifically, in 2023, NewC Index is projected to soar by 186% over 2020 and 25% over 2021; the average price of Vinacomin’s mixed coal is projected to grow from 29.6% to 46.0% against 2021; The average price of Dong Bac Corporation’s mixed coal increases by from 40.6% to 49.8% compared to 2021; Brent crude oil price is expected to soar by 86% against 2020 and 13% compared to 2021.

Currently, due to a sharp reduction in Nam Con Son gas output, gas thermal power plants (Phu My 1, Phu My 2.1, Phu My 2.1 extension, Phu My 4, Nhon Trach 1&2 and Ba Ria) had to use gas from Hai Thach - Moc Tinh, Sao Vang - Dai Nguyet, Dai Hung and Thien Ung reserves with high prices, especially Thien Ung and Sao Vang - Dai Nguyet.

Along with that, foreign exchange rates in 2023 have soared up, expectedly by 4% in comparison with 2021.

Production cost is higher than tariff 

Currently, in the electricity production cost structure, the electricity generation cost accounts for 82.8%. Worth mentioning, the energy mix changes in an unfavorable direction with less cheap sources and more expensive sources being dispatched, leading to a further upsurge in EVN's electricity production and purchasing cost (in 2023, coal and gas thermal power plants will account for up to 55% of the total power generation output of the entire system).

In the context of a difficult financial situation, from 2022 until now, EVN has drastically implemented cost-saving and cost-reduction solutions. Specifically, EVN has saved at least 10% of regular costs according to the standard plan; Cutting down 20-30% of overhaul costs in all EVN member units, etc. In the first 9 months of 2023 alone, the Group has saved more than VND 4,300 billion.

Despite drastic cost-saving solutions, due to increased input factors, the electricity production cost in 2023 is estimated at 2098 VND/kWh, higher than the average retail tariff of about 178 VND/kWh.

In April 2023, the retail electricity tariff has been adjusted to increase by 3% from May 4, 2023, helping to raise EVN's revenue by about VND 8,000 billion. However, this adjustment has only solved a part of the financial difficulties, as this adjustment level could not cover input costs.

Electricity prices need to be driven by the market mechanism

It can be said that regulating prices in general and electricity prices in particular based on the market mechanism is a policy of the Party and the State. Resolution No. 55-NQ/TW dated February 11, 2020, of the Politburo on the orientation of Vietnam's National Energy Development Strategy to 2030, with a vision to 2045 clearly states that "Eliminating all barriers to ensure energy prices to be transparent and driven by the market. In Article 3, Decision No. 24/2017/QD-TTg dated June 30, 2017, regulating the mechanism for adjusting the average retail electricity tariff stipulates that: During the year, the average electricity tariff will be considered for adjustment when basic input parameters in power generation vary against the ones used to determine the current average tariff. When the input parameters according to this regulation fluctuate, causing the average electricity tariff to increase by 3% or more compared to the current average tariff, it is permitted to adjust the electricity tariff in an upward direction.

According to Dr. Nguyen Tien Thoa, correctness and completeness are mandatory requirements in production when moving towards the market mechanism. A consistent principle of the Price Law is to ensure actual, reasonable, and profitable cost compensation; and timely adjustment when price-forming factors change. And every industry must follow this principle. However, over the past time, due to multiple task execution, electricity price adjustment has not been implemented. It's time for us to reach out to market principles to account for and calculate electricity prices in accordance with the principles we have set forth.

Associate Professor, Dr. Tran Dinh Thien also said that this time is a ripe opportunity to have a market-based electricity pricing policy. It is time to seriously and realistically consider and discuss the electricity pricing scheme because we are moving towards an internationally competitive, market economy.

In the current context, experts and managers also believe that it is time to adjust electricity prices based on input costs while ensuring macroeconomic stability in accordance with the Party and Government’s policies.

  • 01/11/2023 03:00
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