The pricing mechanism for transitional RE projects is in line with reality
Answering opinions of a number of National Assembly’s members in the discussion session on socio-economic issues, thrift practices, and anti-wastefulness, related to the Industry and Trade sector on renewable energy development, the Minister of Industry and Trade said: it should be affirmed that the recent strong development of wind power and solar power in our country over the past few years has been driven by the rapid increase in electricity demand, quite attractive incentive mechanisms, and policies of the Government.
Vietnam is considered a country with great potential for wind and solar power development. However, paradoxically, areas with large potential for solar and wind energy are having low loads. Therefore, in order to tap into renewable energy sources, a large investment is required to be made in transmission grids or energy storage systems.
On the other hand, in order to safely operate the power system and efficiently exploit renewable energy, stable baseload power sources are needed, which can continuously generate electricity 24/24 to compensate for sudden shortfalls of generation due to the intermittency of solar and wind energy. In Vietnam, coal, oil, gas-fired thermal power, biomass, and hydropower are considered as baseload power sources (in other countries, baseload sources include nuclear power if available). Despite high costs and higher emissions, since no alternative sources or solutions are available in the short term, coal, oil, and gas-fired thermal power must be maintained and dispatched to ensure the power system's safety - emphasized the Minister of Industry and Trade.
Minister Nguyen Hong Dien giving explanatory speech at National Assembly hall on afternoon of June 1 - Photo: Industry and Trade Newspaper
Coal, oil, and gas are primary energy sources, their prices are determined by the world market. In the past few years, due to supply disruptions, the soaring coal and oil prices have led to higher production costs of thermal power than other power sources.
Costs of wind power and solar power depend on the prices of technology and equipment. With the rapid technological development in the world, prices of equipment and technology have been reduced every year, by an average of 6 to 8%, making production costs of renewable energy excluding transmission and storage fees decrease over time. In the long run, renewables could be the cheapest energy source – excluding transmission and storage fees.
Regarding the pricing mechanism for renewable energy, based on such legal basis as the Electricity Law, the Law on Prices, and the Government's decrees, the Ministry of Industry and Trade has developed a price bracket that is determined on statistical data of 102 solar and 109 wind power plants have signed power purchase agreements.
The process of calculating and appraising the price bracket, benchmarking with the International Energy Agency’s data has been executed in compliance with legal regulations regarding collecting opinions from the Ministry of Finance, the Commission for the Management of State Capital at Enterprises, and the Advisory Council on price bracket appraisal results.
According to investment monitoring data of the International Renewable Energy Agency (IRENA), the investment rate of grid-connected solar power projects in the period 2018 from 2021 has decreased by 11%/year; the investment rate of grid-connected onshore wind power projects has decreased by 6.3%/year.
In Vietnam, the feed-in tariff for solar power issued by the Government in 2020 (FIT 2) has decreased by 8% against FIT1 issued in 2017. The electricity generation price bracket according to Decision 21 issued by the Ministry of Industry and Trade in January 2023 is about 7.3% lower than FIT 2.
The reduction of investment rates of solar and wind power plants has been calculated and consulted with experts from the advisory council. Therefore, it can be affirmed that the current pricing mechanism for transitional renewable energy projects is consistent with world prices and the domestic situation.
The National Assembly and the Government are kindly requested to promptly introduce policies and mechanisms to resolve the problem
Regarding 85 renewable energy projects that are not eligible for FIT, the Minister of Industry and Trade said that it is undeniably wasteful if dozens of invested solar and wind power projects are not being exploited. However, with the aim of not wasting, but also not legitimizing illegal acts, it is necessary to have the acceptance of the competent authority, the efforts of the investors, and the consistent participation of functional bodies and local authorities to deal with the problem.
Most renewable energy project investors had been racing against time, so they probably skipped or omitted steps or procedures prescribed by legal regulations, and even violated the laws. The deadline for the FIT pricing scheme is reflected in the Prime Minister's decision, not an abrupt stop. Therefore, it is not possible to apply FIT to projects not meeting the deadline, but obeying the Law on Prices, the Electricity Law, and relevant Decrees.
The price negotiation should be conducted to harmonize interests among the State, people, and businesses. Currently, there are 85 power plants in the country that have signed power purchase agreements but are not eligible to enjoy FIT, with a total capacity of 4,736 MW. In order for the projects not to be wasted, based on the Law on Prices, the Electricity Law, and related Decrees, the Government has directed the Ministry of Industry and Trade to issue Circular 15/2022/TT-BCT dated October 3, 2022, Decision No. 21/QD-BCT dated January 07, 2023, stipulating the pricing method and price bracket applied to transitional renewable energy projects. The Ministry has issued many documents urging investors to complete procedures and directed EVN to promptly coordinate with investors to agree on electricity prices to urgently put these projects into operation.
However, by March 30, 2023, 2 months after the effectiveness of Decision 21/QD-BCT, only one investor made a submission. With many efforts of the Ministry of Industry and Trade and EVN via meetings and dialogues with investors, and stakeholders, and issuing guiding documents, by May 31, 2023, 59/85 power plants with a total capacity of 3,389 MW - accounting for 71.6% of projects - have submitted dossiers to EVN, of which 50 projects are being proposed for a temporary price equal to 50% of the price bracket to continue completing the procedures.
We have known that investors those have not submitted dossiers do not want to negotiate with EVN within the price bracket issued by the Ministry of Industry and Trade, because the price is low or legal procedures may not be completed, or power plants in difficult locations for power transmission.
The Ministry of Industry and Trade respectfully requests the National Assembly and the Government to shortly introduce a troubleshooting mechanism so that the Ministry of Industry and Trade, agencies, and local authorities have a basis to absolutely resolve the above problems, avoiding waste of resources and the society’s frustration.
Electricity import is a long-term strategy
Vietnam's policy of electricity trading with foreign countries is stipulated in the Electricity Law and related decrees. The electricity import is a long-term strategy based on Vietnam's political and security relations with neighboring countries, in order to ensure national energy security in all situations and has been defined in the master plans for national power development in each period.
Since 2015, Vietnam has imported energy fuels such as coal, oil for power generation and will soon import LNG. The import of electricity has been done for many years, from China since 2010 and from Laos since 2016. The electricity import from Laos is specified through the Agreement on Cooperation Development of Energy and Mines, Memorandum of Understanding between the Governments of the two countries to strengthen the comprehensive relationship. Electricity import from Laos is not only an economic relationship but also a political and diplomatic relationship to ensure the national defense and security goals.
However, the rate of electricity import is still very small, only 572MW, accounting for 0.73% of the installed capacity of the system in 2022, and only for border areas. The electricity import in the past time was only to supply electricity to the border areas, so it is cheaper than the domestic renewable energy electricity price (if transmission cost and power losses on transmission lines from the Central, the South to the North are added, the price of domestic renewable energy sources will be very high).
Electricity import, grid interconnection, and electricity trading with countries in the region are necessary to diversify power sources, especially baseload ones so that in the future we can exploit and develop renewable energy while there have no alternative baseload power sources yet.