Electricity prices must be market-based to promote investment in energy sector: experts

Monday, Nov 06, 2023 08:14

A worker of Việt Nam Electricity. Electricity prices should be enough to make up for the product costs while the Government’s subsidy must be separated from the pricing. — Photo baochinhphu.vn

Electricity prices must be market-based to encourage power savings and new investments in the energy sector, experts have said.

The Government’s subsidy for electricity is no longer appropriate given that the country is anticipated to continue facing a power shortage for socio-economic development.

According to economist Trần Đình Thiên electricity prices in Việt Nam are subsidized by the Government to maintain a low level with the aim of supporting the disadvantaged in society, despite rising input costs. The subsidised electricity prices have caused a market imbalance, where power producers such as Việt Nam Electricity suffer heavy losses and the market experiences a supply shortage.

"High electricity prices are not as big a problem as power cuts," Thiên added, emphasising that market-based pricing should become dominant and lead the development of the electricity industry.

Thiên further noted that electricity prices should be sufficient to cover product costs, while the Government’s subsidy must be separated from the pricing. “Electricity prices must ensure a balance between generation and consumption.”

Nguyễn Tiến Thoả, former Director of Price Management under the Ministry of Finance, said that electricity prices were reviewed for adjustments every six months under Prime Minister Decision 24/2017/QĐ-TTg, in effect from August 15, 2017, on the mechanism for adjusting the average electricity retail price.

Over the past six years, electricity prices had been adjusted only three times, which did not accurately reflect market fluctuations, he stated.

Last year, input costs increased by 9.27 per cent, but electricity prices were raised by only 3 per cent.

"While low electricity prices are believed to be beneficial for production and daily life, they pose a significant problem for electricity producers as they might struggle to secure capital for reinvestment. This also creates difficulties in attracting new capital for electricity generation, transmission, and distribution, which could lead to severe power shortages," Thoả explained.

“It’s time to apply a market-based principle to electricity pricing,” Thoả asserted.

Hà Đăng Sơn, an energy expert, mentioned that if electricity prices remained low, it would be challenging to encourage power saving and promote a green transition.

Low electricity prices created unfairness between enterprises striving to switch to green energy and those using energy-consuming technologies, Sơn pointed out.

According to Thoả, major sources of electricity supply include hydroelectricity, thermoelectricity, and gas-fired power, with hydroelectricity accounting for around 28 per cent of output and having the lowest product cost.

He noted that the product cost for oil-fired electricity was VNĐ5,000 per kWh, and VNĐ2,500-2,800 for coal-fired.

The current average electricity retail price is VNĐ1,920.3732 per kWh, following an increase of 3 per cent on May 4. — VNS

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