The mechanism of direct electricity trading has faced a prolonged delay for over half a decade, and the 8th Power Development Plan, which has been pending for nearly half a year, is yet to be issued. This is concerning, given the continuous warnings about the risk of power shortages.
A Delayed Mechanism for Over Half a Decade
During a recent meeting regarding the mechanism of direct electricity trading between renewable energy power providers and large electricity consumers (DDPA), Deputy Prime Minister Tran Hong Ha instructed the Ministry of Industry and Trade to review and clarify certain jurisdictional matters. He urged this ministry to expedite the necessary procedures to submit a report on the finalization of this mechanism to the Prime Minister before October 25.
According to the Deputy Prime Minister, the issuance of the DDPA mechanism is an urgent task related to the effectiveness of the electricity development investment plan, ensuring national energy security. In reality, many countries have implemented this mechanism, aligning with the practical development requirements in Vietnam, the resolution of the Party Central Committee, the Electricity Law, and regulations on the operating principles of the competitive wholesale electricity market.
Furthermore, in a state of urgency, the People’s Committee of Ho Chi Minh City recently submitted a proposal to the Prime Minister for the early establishment of a mechanism for trading surplus electricity from rooftop solar systems. This aims to encourage the development of rooftop solar investments in Ho Chi Minh City. Since the end of 2020, almost three years after Decision 13 on encouraging the development of solar power expired, a new mechanism for this type of power source has still not been issued. This means that for nearly three years, rooftop solar systems have not been connected to the power grid, resulting in significant wastage.
In practice, since 2017, the project to research and develop the mechanism of direct electricity trading between renewable energy power providers and large electricity consumers has been relatively straightforward. This involves direct transactions between the seller and the buyer, with prices being negotiated by both parties. Additionally, consumers are required to pay for transmission, distribution, operation, and management services for the electricity system. However, through multiple revisions, the method of purchasing electricity has become more complex. Specifically, consumers now buy electricity from the power company at retail prices, while simultaneously entering contracts with the power provider, agreeing on prices and quantities through mutual consent.
Most recently, the report from the Ministry of Industry and Trade on September 15 proposed two models for DDPA. The first scenario involves power providers with renewable energy projects engaging in direct transactions with large customers through independently invested dedicated lines. The second scenario involves renewable energy and customers engaging in electricity trading through the national power grid. For the second scenario, several legal provisions must be adjusted, including guidelines for calculating electricity distribution prices, operating costs, and auxiliary services.
Reflecting on history, the mechanism of direct electricity trading was first developed six years ago. Despite the 8th Power Development Plan being delayed for three years before its issuance, it still cannot be implemented. Moreover, even the need to sell electricity to neighbors in small residential areas has been hindered due to a lack of guidance. Meanwhile, both the National Assembly’s Supervisory Committee and the electricity sector have warned of a shortage of electricity in the next two years, which may be prolonged if the implementation of the 8th Power Development Plan and related mechanisms is delayed.
Delayed Mechanisms Hinder Investment in the Electricity Sector
Expert Dao Nhat Dinh analyzed, “This mechanism has been repeatedly adjusted because the transmission costs are unclear. If buying electricity directly from wind power, for example, additional costs such as support service fees must be considered. When not in use, in addition to the grid electricity price, similar to current industrial electricity rates, additional support service fees must be added. If it is sold directly through negotiated prices, the electricity sector will face heavy losses during periods of non-use. Countries that have established mechanisms for direct trading of renewable energy have all incorporated this cost. It is not difficult for Vietnam to follow global practices. The advantage of direct electricity trading is streamlining processes, reducing operational costs, and stimulating various economic entities to participate in investment.”
Mr. Dinh also expressed impatience, stating that if this mechanism were to be promptly enacted, efforts to attract investment in the electricity sector would be accelerated.
Prof. Dr. Tran Dinh Long, Head of the Vietnam Power Institute, fully supports the early establishment of the mechanism for direct electricity trading. He believes this is a crucial step towards developing a competitive electricity market.
“The Government should return the draft of the direct electricity trading mechanism to refine it to the best possible level. The practical implementation of the direct electricity trading mechanism is simpler if legal provisions are adjusted promptly, despite amendments to the Electricity Law or through additional regulations in guiding circulars. Direct trading allows renewable energy project developers to directly negotiate with electricity consumers, mutually agreeing on purchases and sales. If the grid is not available, EVN (Vietnam Electricity Group) can be hired to generate and sell electricity to consumers. Pricing must be determined in advance, based on factors such as distance and capacity. When will this mechanism be finalized? In my opinion, the Electricity Regulatory Authority should intervene and push for the early issuance of this mechanism by the Government. Compared to the roadmap, the implementation of the retail electricity market has been excessively slow,” Professor Long remarked.
“In the immediate term, the simplest approach should be undertaken. The separation of direct electricity purchasing, colloquially understood as ‘selling electricity to neighbors,’ entails party A selling to party B with a corresponding demand. Following this, a framework for electricity transactions involving large-scale projects that feed power into the grid should be introduced,” expert Dao Nhat Dinh noted.