VIETNAM ELECTRICITY INDUSTRY Q2/2021: HIGH PRICE REMAINED DURING HEAT PEAKS

The electricity industry recently encountered a situation while supply exceeded demand, but electricity price remained, even higher than before. What factors led to this situation?

Supply and demand of the electricity industry

The demand for electricity has increased sharply in recent years

Recently, the prolonged hot weather has caused electricity consumption nationwide to continuously set new record peaks. Many heatwaves appeared in many places, especially in the North made the common temperature ranged from 35-37°C in many places. A huge increase in the electricity consumption of cooling households such as air conditioners and fans was recorded during this time. Because of the excessive use of appliances, electricity consumption continuously reached new heights. Typically, on June 18, it reached 41,709 MW and 42,146 MW on June 21. The Northern provinces and Hanoi also reached a new peak with 18,700 MW in the North and 4,700 MW in Hanoi.

electricity market

Source: VIRAC, EVN

The electricity industry supply has a strong growth

However, in H1/2021, the amount of electricity produced showed signs of oversupply. This was resulted from the significant growth of renewable energy electricity output compared to the same period last year. EVN was trying to be more proactive in the power supply when the level of imported electricity in the quarter fell sharply. More specifically, according to the report of EVN in May 2021:

    • Hydroelectricity reached 24.01 billion kWh, an increase of 52.7% YoY, accounting for 22.9% of the total electricity output of the whole system.
    • Coal thermal power reached 54.13 billion kWh, decreased 6.8% YoY, accounting for 51.7% of the total electricity production of the whole system.
    • Gas turbines reached 13.28 billion kWh, decreased 16.8% YoY, accounting for 12.7% of the total electricity production of the whole system.
    • Renewable energy (wind power, solar power, biomass power) reached 12.35 billion kWh, an increase of 159.5% over YoY, accounting for 11.8% of the total power output of the whole system (solar power alone achieved 11.48 billion kWh, an increase of nearly 3 times YoY).
    • Oil thermal power is insignificant, reaching 2 million kWh.
    • Imported electricity reached 556 million kWh, decreased 67% YoY, accounting for 0.5% of the total electricity production of the whole system.

electricity market

Source: VIRAC, MOIT, EVN

Renewable electric energy, especially solar energy (including rooftop solar power and large farm solar power) is becoming a significant source to the country’s total electricity production, contributing to the balance of the backup power sources. Without electricity from renewable energy, the Southern provinces and especially the Northern provinces will face the risk of power shortages. However, this renewable power source inadvertently causes the total electricity output to exceed the market demand.

Electricity industry forecast for the second half of 2021

Profits reported by power companies in the last quarter increased sharply

By the end of Q1/2021, many companies have announced large profits. Data from VietstockFinance about 47 enterprises in the electricity industry showed that the total net revenue reached 32,700 billion VND, down 14% compared to  Q1/2020. However, the net profit that these enterprises brought in reached 2,900 billion VND, up 191% over the same period last year.

Some typical enterprises can be mentioned such as PetroVietnam Power Corporation (PV Power) with a net profit of 508 billion VND, up 14% YoY. Or Power Generation Corporation 3 (Genco 3) with a net profit of 786 billion VND, while in the same period last year this enterprise lost 379 billion VND.

Will such high profit and abundant power output make electricity price fall?

The answer is probably not. EVN currently maintains an average retail electricity price of 1,864 VND/kWh excluding value-added tax applied under Decision 648/QD-BCT.

Electricity market

Source: VIRAC, MOIT

Currently, in the electricity price structure, the electricity purchase price accounts for 75-80%. EVN’s electricity production costs tend to decrease gradually. However, cheap electricity sources such as hydropower have a decreasing proportion to priority other sources, especially renewable energy (with high cost) such as solar power, wind power, gas power, etc. so the cost of buying electricity is increasing day by day.

Currently, solar power is still quite expensive compared to other types of electricity. Solar power costs from 1,644 to 2,100 VND/kWh excluding transmission fees, while the average price of hydroelectricity and thermal power is much lower. Not to mention, in order to be able to load the amount of solar power produced, EVN is forced to reduce the capacity of other power plants such as coal, gas, and hydroelectricity to ensure the safety of power lines, making power plants have to continuously start or change capacity. This will affect the limited water level and power supply security at the end of the dry season.

According to Mr. Vo Quang Lam, deputy general director of the Electricity of Vietnam (EVN), EVN only holds 23% of the power source in the whole system. Therefore, the cost structure of the whole system depends on many different sources of electricity production, depending on each investment project, time, and investment opportunity. Although the cost of transmission, distribution and ancillary services of EVN has decreased because the production source structure accounts for a high proportion, it is difficult to compensate to reduce costs in general, when the proportion of high-priced sources increases. This makes electricity price reduction options difficult to implement in the second half of 2021.

Potentials of renewable energy development in the electricity industry

According to Mr. Pham Nguyen Hung – Deputy Director of the Department of Electricity and Renewable Energy, the development of renewable electricity will be the main goal soon because hydropower has almost reached its full potential, while coal-fired power will face challenges of regulation against climate change. Resolution 55 of Politburo has also focused on developing renewable power sources. However, Vietnam’s electricity industry needs to improve the infrastructure to ensure power line safety, avoid being overloaded.