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ECONOMYINDUSTRY

Vietnam addresses power market reforms: Firm commitment to investors

Updated at Wednesday, 23 Jan 2019, 14:10
The Hanoitimes - In 2005, Vietnam introduced an electricity market to ensure the sustainability of the power sector for investors.
The Vietnamese Ministry of Industry and Trade (MOIT) will fully open of the wholesale electricity market in 2019, as part of its commitment to the power sector’s reforms aimed to attract foreign capital inflows.  
 
Photo: EVNCPC
Photo: EVNCPC
The ministry will continue completing the legal framework, training manpower, and upgrading infrastructure, including supervisory control and data acquisition (SCADA)/energy management system (EMS) for good operations of the market.

Three-stage reforms 

The Vietnam Wholesale Electricity Market (VWEM) is part of a three-stage liberalization of the Vietnamese power sector as mandated in the 2005 Electricity Law. The three stages include the Vietnam Competitive Generation Market (VCGM), VWEM, and the Vietnam Competitive Retail Power Market (VCRM).

 
Market stages. Photo: Asianenergy
Market stages. Photo: Asianenergy
(i) Generation market: VCGM was launched in 2012 with the unbundling of the country’s sole power distributor Electricity of Vietnam (EVN)’s generation function into three power generation corporations.

It is designed as a mandatory cost-based pool market with day-ahead bidding to develop a competitive electricity market in a phased and sustainable manner, operating largely according to the market rules. 

(ii) Wholesale market: VWEM enables the power corporations to purchase electricity from EVN at assigned transfer prices called bulk supply tariffs before selling the electricity to end users at nationally regulated retail tariffs that are assessed to be below the cost of supply. Under this stage, the power corporations will also become network service providers, and to ensure open and nondiscriminatory access to the distribution network by all network users.

It is designed to boost transparency in the selling power market with an aim to attract new investors to the power sector. 

According to the World Bank, the National Load Dispatch Center (NLDC) will be transformed into the system and market operator (SMO) to make load forecast, day-ahead and hour-ahead scheduling, and calculation of water value for the hydropower plants, which is the basis of the bid price of the hydropower plants. The reliability and transparency of the SMO is critical to boost confidence to attract new investors into the market.
 
Wholesale market. Photo: Asianenergy
Wholesale market for participants. Photo: Asianenergy
(iii) Retail market: This stage is expected to reduce the state’s investment and subsidies in the power sector.
Near future model for Vietnam's power market structure. Photo: Asianenergy
Near future model for Vietnam's power market structure. Photo: Asianenergy
Changes for better 

In 2005, the government of Vietnam began an effort to introduce an electricity market to ensure the sustainability of the power sector. 

The government does not directly subsidize EVN but supports it indirectly through provision of fuel at submarket prices and low-interest loans. 

To ensure the sustainability of the sector, the government enacted the Electricity Law in 2005 and embarked on power sector reform starting with the establishment of the MOIT’s Electricity Regulatory Authority of Vietnam (ERAV) as the regulator. In 2006, a road map to establish the electricity market was approved, which stipulates the market’s gradual development in three aforementioned phases.

In short, the operations of three stages indicate the Vietnamese government’s efforts to reform the power sector, aiming at improving the efficiency of the market, ensuring a stable and reliable supply of electricity, and reducing the pressure of increasing electricity tariff.

Foreign support

Dozens of foreign countries and organizations have given support to the government’s reforms, regardless of financial or technical assistance by the World Bank, the Asian Development Bank, the Japan International Cooperation Agency (JICA), the Agence Française de Développement, and the US Department of State, among others.  

The World Bank said that the impetus for power sector reform was the need to put the electricity sector on a sustainable footing to be able to meet fast-growing demand driven by industrial expansion and increased household access.

Vietnam’s huge expansion in access to electricity was revealed through following figures, from 50% in 1995 to about 93% by 2004.

 
 
Vietnam's system-wide electricity sales and annual growth rate in 1990-2014. Photo: World Bank

Vietnam is projected to be one the fastest growing electricity markets in Southeast Asia, as the electricity demand in the next three years is forecast to grow 10% on an annual basis, higher than the regional average of 7.3%, stated the National Power Development Plan 7 for the period of 2016 - 2030.  
Linh Pham
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