Nguyen Dinh Cung, former director of the Central Institute for Economic Management

In the interview with SGGP Newspaper’s reporter, Dr. Nguyen Dinh Cung said that in particular, this price management system will seriously impair the ability to mobilize investment capital for electricity generation and transmission for the economy.

According to Dr. Nguyen Dinh Cung, the root cause of the current shortage of electricity lies in the lack of new power plants in the North for many years. Power transmission from the South and Central to the North is limit ed in capacity. Added to this is the stagnation of renewable energy projects in the North, mainly due to the inappropriate price mechanism.

Meanwhile, the demand for investment in the development of the electricity industry is very large. According to VIET.SE (Vietnam Energy Transformation Initiative), the investment demand for power sources in the 2021-2030 period is US$120 billion, an average of $12 billion per year, and the need for investment in the transmission grid is about $15 billion. However, the electricity market failed to fully convince the investors, given its slow implementation and the problematic price mechanism. Therefore, the power shortage is forecast to persist.

In particular, although the current electricity price management mechanism is relatively stable and can ensure massive access to electricity, the cost of electricity production and business, including electricity generation, transmission, wholesale and retail distribution and other electrical system ancillary services usually induces controversy.

To be more specific, the current electricity is not fairly priced, with some being priced below the market level, and over the past 10 years there has been a common cross-off in the retail electricity price among groups of electricity consumers, and within each group.

For example, within the household electricity group, the group that consumes more electricity offsets the lower cost incurred in the group that consumes less electricity. When it comes to the cross-price compensation among groups, the consumer group and the business group pay a higher price than the group of manufacturing industries. Given the lack of accuracy of the current electricity price mechanism, together with the policy of cross compensation, the retail price of electricity becomes distorted and unreliable.

To resolve this problem, according to Mr. Cung, firstly, relevant authorities should objectively reflect the existing pros and cons of the development of the electricity industry, the operation of the power system, the requirements for renewal of the electricity industry, as well as the possible increase in electricity prices. Secondly, the average retail electricity price bracket should be widened.

Thirdly, cross-compensation on retail electricity prices is to be curbed and eventually eliminated; there should be one standard retail price applied for all forms of household consumption, and another for production and business, except for some special cases prescribed by the Government.

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In addition, solar and wind power should be harnessed to the fullest, ensuring mutual benefits among investors, electricity distributors, the State and electricity consumers. Moreover, the construction of new power plants is to be boosted, especially those already in the Power Plan VII that have been behind schedule; quickly and effectively implement Power Planning VIII.

Finally, the risk of power shortage can be solved by accelerating and soon operating the competitive wholesale and retail electricity market.