Vietnam’s wholesale electricity market can provide potential savings in electricity procurement

Introduction

The landscape of electricity market in Vietnam is up for a change with the introduction of wholesale electricity market for large industrial customers on 1^st January 2016 as scheduled.

Prior to the launch of wholesale electricity market, all the electricity generating companies were obliged to sell the generated electricity to Electricity of Vietnam (EVN). EVN then supplied electricity through its five subsidiary distribution companies (Northern Power Corporation, Southern Power Corporation, Central Power Corporation, Hanoi Power Corporation and Ho Chi Minh City Power Corporation). This partial liberalization leads to fall in the monopoly of EVN in transmission and distribution sector. This also increases competition among the utility players in Vietnam market and encourages efficiency.

Important features of wholesale electricity market are:

1. All the generating companies with more than 30MW capacity can sell it to any one of the five distribution companies. This reduces the monopoly of EVN on the electricity market in Vietnam
2. 54 percent of national power systems installed capacity have a potential to participate in the competitive market
3. The big industrial players can connect directly to substation of the electricity supplier

Transition of Vietnam Electricity Market

Scenario till the end of 2015

Vietnam electricity market is open to private electricity generators. Prior to 1st January 2016 all the private generators are required to sell electricity only to EVN who then distributes electricity through its 5 subsidiary distribution companies. This gave monopoly to EVN on Vietnam’s electricity transmission and distribution market. EVN who generates electricity regulated the price of electricity to all sectors in the country.

Ministry of Trade on 25^th March 2015 announced about the wholesale electricity market that has come into effect on 1^st January 2016.    

Current scenario and road map

The future road map for the liberalization of Vietnam Electricity market is shown in figure 1. On 1^st January 2016, the pilot phase for wholesale electricity market has kick started. This pilot phase will go on till 2018. During this period, EVN will test the market and develop efficient systems and regulations. Once the regulations are approved by the Ministry of industry and Trade (MOIT), the wholesale electricity market is planned to start by 2019.

The key features of wholesale electricity market in the pilot phase are:

1. The daughter companies of EVN will be able to buy electricity from private electricity generators on the wholesale electricity market.
2. Any generator with a capacity of more than 30MW is eligible to sell electricity in the wholesale market.
3. Large consumers exceeding demand of 110kV procure electricity from daughter companies of EVN and can get a direct connection to 220kV sub stations.

The key feature of wholesale market after the pilot phase (Phase 1) is that industrial players with more than 110kV demand can procure electricity from the wholesale market from 2019. The below diagrams show the changes in the Vietnam market structure after liberalization.

Conclusion

Vietnam’s competitive generation market currently has 59 power plants contributing about 40 percent of total installed capacity. The power plants that were not eligible to participate in the competitive generation market can participate in the wholesale market by improving their capacity. This could lead to:

• Increase in quality of the network: Market liberalization is expected to encourage a competitive environment in Vietnam electricity market. This will lead to an increase in both quantitative and qualitative efficiency of the network.
• Reduction in the supply demand gap due to expected private investment in generation sector.
• Reduction in supply risk due to reduction in the supply demand gap and also increase in the efficiency of the network.

With all the above advantages which were observed in wholesale markets around the globe, Vietnam government and the regulatory authorities can encourage private players by forming proper regulatory framework which ensures improvement in infrastructure and ease of entering the market.

Opportunities for large consumers

In 2015, EVN bought electricity at an average price of about VND 1100 per kWh, whereas the average end user price is about VND 1600 per kWh. With the opening of wholesale electricity market, large consumers of electricity can directly buy from the generators and have the potential to realize savings in the range of 20-25 percent.