Despite looming concerns over a shortage of electricity this summer, many completed wind and solar power projects have yet to be connected to the national grid, given protracted pricing problems.
Multibillion-dong investments remain on hold amid soaring electricity demand. As electricity producers are unable to benefit from their investments and consumers face potential power undersupply, the energy industry seems to be in a dilemma about how to get out of the woods.
Electricity consumption is on the rise
According to EVN’s subsidiary HCMC Power Corporation (EVN-HCMC), the city used 94.8 million kWh of power on May 6, the highest daily electricity consumption level ever. It was over 400,000kWh more than the previous record established only the day before, May 5, at 94.4 million kWh.
This was the fourth time this year that HCMC had set a new record for the daily consumption of electricity. On April 21 and 25, data hit record highs of 93.5 million kWh and 93.6 million kWh, respectively.
In Hanoi, the power consumption has also increased due to soaring temperatures. The city’s peak electricity use was 72 million kWh in April, but it jumped to 78.2 million kWh on May 5.
Elsewhere in Vietnam, hot weather has led to a spike in the demand for power. Total electricity usage reached 1.6 billion kWh between May 1 and 7, an increase of 3.43% weekly, as reported by Northern Power Corporation, the EVN electric power supplier of 26 northern provinces and cities, excluding Hanoi. The highest data was reported on May 6, reaching 282.1 million kWh.
According to weather experts, Vietnam is expected to have more heat waves in the summer. The northern and central regions are likely to experience heat from May through August, peaking between June and July.
According to EVN-HCMC, the soaring demand for air conditioning and cooling equipment could overload the electricity grid and cause power outages in certain areas. During the hottest summer days, the company recommended using energy efficiently and being aware of fire risks.
A shortage of electricity
In a recent report to the Ministry of Industry and Trade, EVN warned of an emergency given the potential shortage of electricity supply, especially in northern Vietnam.
As a result of the El Nino phenomenon, water levels of reservoirs in northern Vietnam were 70-90% of the average during the first four months of the year. Overall, the remaining capacity of reservoirs to generate electricity is 4.5 billion kWh, which is 4.1 billion kWh less than the same period in 2022.
Meanwhile, growing material prices have hindered the operations of local coal and gas-fueled thermal power plants. Since April 17, the National Load Dispatch Center, an EVN subsidiary, has been generating electricity from diesel-fueled turbines, with the highest output of 2,498MW set on April 21.
EVN said from May through July, power use could increase by 15% annually, and the northern region may experience a power shortage of up to 1,600-4,900MW. The firm has thus planned to pursue a twofold strategy, which aims to maximize the local hydroelectric power plants’ capability and enhance power transmission from the central region to the North.
In addition, EVN will start negotiations with its partners in China and Laos to increase electricity imports. Vietnam’s largest power company has sought to make deals with the Thai Binh 2 Thermal Power Plant and other power facilities to boost the electricity supply in the coming months.
Obstacles in operating renewable power projects
According to Decision No. 13 in 2020 of the prime minister on the incentive mechanism for solar power projects, EVN was responsible for purchasing the entire electricity produced from solar power projects with the 20-year preferential feed-in tariff scheme.
However, due to the impacts of Covid-19 and difficulties in the investment process, many investors were unable to sell energy under the preferential pricing policy because their commercial operation date was after the deadline of December 31, 2020.
In addition, hundreds of additional wind and solar projects have been completed since the relevant regulations expired. The projects’ investors are now waiting for the new electricity pricing framework to operate their facilities.
However, given the obstacles in pricing negotiations, nearly 5,000MW designed output of the 85 so-called transitional wind and solar power projects, which include those waiting for electricity prices and the unfinished projects, have yet to be connected to the national grid.
In late April, 23 solar and wind power project developers proposed the Government seek help negotiating power prices with the Electric Power Trading Company (EVN-EPTC), another EVN subsidiary. Although investors have filed the documents required for electricity pricing negotiations with the firm, the talks have made little progress due to a lack of legal documents detailing electricity pricing negotiations.
According to an EVN proposal dated April 26, the maximum purchase price was suggested at VND592.45 per kWh for ground-mounted solar plants, VND754.13 per kWh for floating solar farms, VND793.56 per kWh for inland wind power plants and VND907.97 per kWh for offshore wind farms.
Yet, investors questioned whether the price was sufficient to cover operational spending and the opportunity cost of waiting, not to mention interest and depreciation costs. In addition, doubts have been raised over potential legal and financial inefficiencies, leaving huge investments at risk of loss and investors prone to bankruptcy.
Therefore, investors proposed that the prime minister direct the Ministry of Industry and Trade to issue guidelines for the negotiations between the buyer (EVN) and the seller (investors) to avoid the wastage of resources caused by a lengthy negotiation process.
For now, it is less likely that the huge power output generated from transitional wind and solar power projects will be able to help with energy needs this summer. Investments totaling thousands of billions of Vietnam dong will remain on hold as providing a sufficient legal framework that harmonizes the interests of relevant stakeholders does not seem to happen overnight.
More importantly, protracted pricing negotiations, in the long run, could hinder the growth pace of Vietnam’s renewable power projects, impacting energy security and the Government’s strategy to achieve the net-zero commitment by 2050.
According to experts, it is critical to remove the current regulatory constraints while encouraging investment in the energy production industry. While negotiations between investors and the relevant authorities continue, the aim is to ensure that the suggested price is sufficient for firms to keep their facilities running smoothly.
For example, EVN might consider connecting eligible projects to the national grid and seeking approval for a price of 50% of the ceiling set by the Ministry of Industry and Trade. At the very least, the effort would support local investors in paying operational costs and preventing equipment from becoming a huge waste.
The investors proposed using one of the three following options during the provisional mobilization of electricity from their projects.
Firstly, EVN pays the investors an amount equal to 90% of the ceiling price of the electricity price framework pursuant to Decision 21 until the relevant parties mutually reach an agreement on electricity prices without a retroactive effect. This means the agreed-upon prices would be applied from the date of mutual agreement by the two parties rather than from the commencement date of the provisional mobilization of electricity.
Secondly, EVN pays the investors an amount equal to 50% of the ceiling price of the electricity price framework pursuant to Decision 21 until the relevant parties mutually reach an agreement on the electricity prices, with a retroactive effect. This means the agreed-upon prices would be applied from the commencement date of the provisional mobilization of electricity.
Secondly, EVN pays the investors an amount equal to 50% of the ceiling price of the electricity price framework pursuant to Decision 21 until the relevant parties mutually reach an agreement on the electricity prices, with a retroactive effect. This means the agreed-upon prices would be applied from the commencement date of the provisional mobilization of electricity.
Thirdly, if the price for temporary mobilization accounts for half of the ceiling price of the electricity price framework pursuant to Decision 21, the provisional period would not be included in the 20-year contract term officially agreed between EVN and the investors.
