Regarding the difficulties in the electricity price mechanism for renewable energy projects in Vietnam, Lao Dong Newspaper had an interview with Dr. Nguyen Xuan Quang, an expert at the Institute of Energy Technology, Hanoi University of Science and Technology.
Sir, could you please tell us what bottlenecks Vietnam's renewable energy development process is facing?
- Renewable energy (NLTT) is a pillar of Vietnam's sustainable development strategy, towards the goal of net zero emissions (Net-zero) by 2050. However, determining renewable electricity prices is a complex problem, requiring a balance of benefits between the government, electricity investors from the workforce, traditional electricity investors, electricity consumers and people. Challenges related to policies, finance, infrastructure and especially pressure to reduce emissions as well as fluctuations in labor relations affecting traditional power sources are hindering this process.
In your opinion, what are the biggest barriers related to the current electricity price mechanism for renewable energy projects in Vietnam?
- Currently, the legal framework is still not synchronous and transparency is a major barrier. The Government has issued policies such as Decision 39/2018/QD-TTg (wind power price: 8.5UScent/kWh on land, 9.8UScent/kWh offshore) and Decision 08/2020/QD-TTg (biomass power price), but these mechanisms are often short-term.
The FIT price mechanism has promoted NLTT, but at the end of 2021, many transition projects (4,736.16MW, including 8 solar power projects and 77 wind power projects) do not meet the conditions, causing investment stagnation. Switching to electric bidding mechanism requires transparency, but currently, these regulations have not been completed, making it difficult for investors of the NLTT in financial planning. The overlap between the Land Law, the Law on Sea and the Planning Law also increases the project costs, affecting electricity prices.
The government faces pressure to both promote labor and keep electricity prices low to support social security and attract industrial investment. This causes difficulties in designing a suitable price mechanism, especially when considering the benefits of traditional electricity investors, who are concerned about losing market share due to the development of labor relations.
The initial investment cost for IT, especially offshore wind power and biomass power, is 2-3 times higher than coal or gas power. Domestic IT investors have difficulty mobilizing capital due to large requirements for collateral from banks, while foreign borrowers (including ODA) face complicated procedures. The price of IT equipment such as wind turbines or storage batteries is still expensive and the import tax incentive policy is ineffective due to the lack of a separate tax table for high-performance equipment, pushing up investment costs and electricity prices.
In particular, Vietnam's power transmission system has not kept up with the pace of IT development. The "hot" development of solar power and wind power in the Central and Southern regions (accounting for 24.3% of total capacity, 44% of consumption capacity) causes overload of the power grid, leading to capacity cuts. The unstable characteristics of PV (soluble power depends on light, wind power depends on wind speed) require investment in storage batteries or pumped-storage hydropower, but Vietnam has almost no such infrastructure, increasing electricity prices.
Electricity system operators face technical and financial challenges when the number of employees increases: Unstable calculation and difficulty in real-time regulation; increased storage and reserve costs; unsynchronized power source and grid infrastructure; financial risks if the electricity purchase price is higher than the average retail price.
Do you have any proposals on an electricity price mechanism model that is consistent with the reality of renewable energy development in Vietnam?
- First, it is necessary to perfect the legal framework, build a transparent bidding mechanism and expand DPPA to make it easier for businesses to access renewable electricity. Upgrading the power grid, developing an energy storage and renewable hydropower system to reduce pressure on traditional power sources. Financial support by increasing credit incentives and reducing taxes for IT investors and consumer enterprises, technical support to meet "green" standards. Especially the marketization of electricity prices, there are separate support policies for low-income people.
Thank you!
