Electricity prices are not yet attractive to investors!

Delays in the implementation of power generation projects, especially large-scale projects in the Power Development Plan 8, pose a risk to long-term electricity security.

The Nhon Trach 3 and 4 gas-fired power plant project is racing against time to be put into operation by mid-2025 - Photo: Ngoc An

The fact that retail electricity prices have not been adjusted to fluctuations in input costs has caused concern among investors, as the Vietnam Electricity Group (EVN) struggles to secure funds to pay for electricity purchases, reducing its attractiveness to power generation investors.

This was acknowledged by a leader of the Ministry of Industry and Trade in an interview with Tuoi Tre newspaper, who also stated that the electricity pricing mechanism will be revised to ensure that retail electricity prices are adjusted appropriately according to fluctuations in input parameters.

We are buying raw materials on short-term contracts.

Speaking to Tuổi Trẻ newspaper, Mr. Lê Bá Quý, director of the Nhơn Trạch 3 and 4 power project management board, said that the project is closely monitoring its progress so that the first electricity will be supplied to the grid early next year.

Therefore, one of the biggest concerns for investors right now is the commitment to long-term contracted output (Qc), even though this project has already signed a power purchase agreement.

With a capacity of 1,624 MW, when officially commissioned, the Nhon Trach 3 and 4 gas-fired power plants will provide an additional 9-12 billion kWh. Due to the lack of clear long-term quality control commitments, the plants cannot proactively calculate and purchase or import input gas.

Meanwhile, the plant uses liquefied natural gas, and to secure a favorable supply at a competitive price, it needs to place long-term orders that take four months.

Without long-term contracts, gas purchase prices can be up to 30% higher. This is a disadvantage, driving up electricity costs, reducing competitiveness in the electricity market, and hindering power generation.

In addition, the minimum percentage of electricity generated through long-term power purchase agreements (electricity output mobilized - PV), stipulated by the Government at 70% and not exceeding seven years, could also pose risks for investors.

According to Mr. Quy, the current gas pricing and production off-take mechanisms are causing many difficulties for investors in proactively planning options for importing raw materials and operating their businesses.

This could also create obstacles for foreign investors when investing in gas-fired power projects.

A leader of the Vietnam National Petroleum Group (PVN) said that, according to common practice, the delivery of liquefied natural gas for the following year is planned by suppliers worldwide from July to October.

However, the Qc output for the following year of the new power plants has only been officially announced, and in the first eight months of this year, the Qc of the power plants will be recalculated monthly.

Therefore, there will be a delay between the power generation plan and the gas procurement plan, creating significant financial risks such as under-purchasing, over-purchasing, failure to meet operational requirements, and storage fees.

Furthermore, the lack of long-term Qc means that the electricity seller has no basis to commit to long-term NLG volume and can only purchase small volumes under contract, a minimum of 20-30% of the average electricity generation, with the remainder purchased on a spot basis.

"This drives up electricity prices, affects Vietnam's electricity market, and fails to guarantee electricity production when the system demands it."

According to calculations, if the number of trips purchased accounts for up to 80%, the electricity price increase could reach 173%, and if the number of trips purchased accounts for 40%, the price will increase by 131%," this person said.

Remove policy obstacles and accelerate project progress.

According to a leader of the Ministry of Industry and Trade, in the Power Development Plan 8, the total capacity of 23 gas-fired power projects to be invested in, built, and put into operation by 2030 is 30,424 MW.

Of these, the total capacity of power plants using domestically extracted gas is 7,900MW (10 projects) and the total capacity of gas-fired power plants using LNG is 22,524MW (13 projects).

However, the investment and construction situation still faces many challenges. Besides the O Mon I Thermal Power Plant (660MW), which has been operational since 2015, and the O Mon IV Thermal Power Plant (1,050MW), which is expected to begin commercial operation in Q2 2028, only the Nhon Trach 3 and Nhon Trach 4 gas-fired thermal power projects, with a capacity of 1,624MW using imported LNG, are currently under construction and are expected to be operational by mid-2025.

According to this source, the completion of the remaining projects before 2030 is unlikely without fundamental solutions to remove key bottlenecks in LNG power development, such as regulations on minimum production output and the transfer of gas prices to electricity prices.

Leaders of the Ministry of Industry and Trade also stated that they have worked with EVN and PVN to finalize the contents related to mechanisms and policies for developing gas-fired power plants in the draft Law on Electricity (amended).

Delays in the implementation of power generation projects, especially large-scale projects in the Power Development Plan 8, pose a risk to long-term electricity security and could lead to power shortages at certain times.

Along with policy mechanisms to promote power projects, the ministry will review the electricity price adjustment mechanism, addressing current shortcomings to attract investors.

According to this source, investors' concerns when deciding to invest in power plant projects in Vietnam may stem from the mechanism for adjusting retail electricity prices, which does not closely follow the fluctuations in electricity prices according to the retail electricity price adjustment mechanism.

The fact that retail electricity prices have not been adjusted to fluctuations in input costs also causes concern for investors, as EVN may have difficulty securing funds to pay for electricity purchases, thereby reducing the attractiveness of power generation for investors.

"Therefore, the electricity pricing mechanism must be revised to ensure a balance of factors, guaranteeing that investors in both power generation and transmission can recover their costs and make reasonable profits, while ensuring that EVN's retail electricity prices are adjusted appropriately according to fluctuations in input parameters," this person said.

Making electricity a key source of power supply.

On November 30th, the National Assembly passed the amended Electricity Law, with important provisions regarding prioritizing the development of gas-fired thermal power plants using domestic gas sources and liquefied natural gas.

The goal is to gradually make gas-fired power a significant source of electricity, supporting the regulation of the power system.

The law also includes a mechanism to maximize the mobilization of domestic natural gas-fired power projects based on gas supply capacity and fuel constraints, ensuring a balance of the nation's overall interests.

Simultaneously, there should be a mechanism for developing thermal power plants using liquefied natural gas, in accordance with the level of competitive electricity market and the interests of the State and the people, as well as the macroeconomic conditions of each period.

This includes the minimum long-term contracted electricity output and its application period, the principles for calculating electricity prices, guarantees for investment project implementation, and the duration of the policy for each case.

Source: https://tuoitre.vn/gia-dien-chua-hap-dan-nha-dau-tu-20241204085444348.htm