Vietnam’s Electricity Tariff Debate: The 2015 Consultation

EVN workshop on improving the retail electricity tariff structure — Ho Chi Minh City, 30 September 2015.

Principles behind the proposed tariff

EVN said the proposed restructuring would neither increase the average electricity price nor raise the electricity sector’s revenue. These principles underpinned the proposed residential tariff for 2016–2017. The Ho Chi Minh City workshop was the third consultation, following earlier events in Hanoi and Da Nang.

Nguyen Tien Thoa, then Secretary General of the Vietnam Valuation Association and a representative of the tariff consultancy, said Vietnam still relied heavily on fossil fuels such as oil and gas and had relatively limited renewable energy . He argued that supply did not meet demand, with electricity still being imported, so consumption needed to be managed efficiently to avoid waste.

Thoa said the tariff structure would be rearranged without increasing average prices or sector revenue. The residential average would remain VND 1,747/kWh, while the overall retail average across residential, manufacturing, public-administration and service-business customers would remain VND 1,622/kWh.

He explained that the proposed change aimed to reduce cross-subsidies and disruption between customer groups while balancing the interests of the state, generators and consumers. The principle was that lower consumption should produce a smaller bill and higher consumption a larger one, while ensuring electricity access for people at all income levels.

Why should each additional unit become more expensive at higher consumption levels? Thoa contrasted electricity with goods sold at a discount when supply exceeds demand. Vietnam’s electricity supply was constrained, and generation relied on resources at risk of depletion. He therefore advocated a tariff encouraging efficient use, drawing on international experience.

EVN reported that residential use represented 29% of national electricity consumption. The article also cited household shares of 11% using less than 50 kWh and 2% using more than 400 kWh per month. These historical figures are reproduced as reported; their reporting basis was not specified.

At the workshop, Duong Van Nhan of the Ho Chi Minh City Farmers’ Association said electricity prices attracted farmers’ attention but were difficult to understand, particularly because of the number of tariff bands. He proposed including households using less than 100 kWh in the first band, rather than the existing threshold of 50 kWh per month. He also suggested free electricity for households using less than 50 kWh and higher prices for consumption above 200–300 kWh to offset the cost .

EVN’s statement about prices through June 2016

Dinh Quang Tri, then EVN Deputy General Director, said national installed capacity was approximately 35,000 MW. Supply in the north was relatively stable, while the south remained under pressure. Maximum available capacity had to be mobilised when 21 million customers used electricity simultaneously during the 9–11 a.m. and 5–8 p.m. peak periods.

Tri said many people had initially favoured a single tariff, but subsequent consultation also revealed support for retaining progressive bands to encourage savings. He considered three or four bands suitable for lower-, middle-, higher- and very-high-income customers. He stated at that 2015 workshop that prices would not rise during the remainder of 2015 or the first six months of 2016.

Lower fuel costs and exchange-rate pressures

Asked whether falling generation-fuel costs would reduce consumer prices, Tri said gas prices had fallen with fuel-oil prices, but the reduction did not offset exchange-rate effects. He noted that foreign loans accounted for 85% of EVN’s borrowing for thermal-power-plant construction, excluding projects owned by other sectors.

Tri also described investment pressures, including a target to reduce electricity losses from 8% to 5% by 2020. Although 98% of rural households reportedly had grid access, about VND 33 trillion was still needed to supply the remaining 2%. EVN’s annual investment needs for generation and networks were stated at USD 5 billion, with much larger future requirements anticipated.

Electricity consumption was increasing by 12–13% a year, creating substantial investment and pricing pressures. The explanation at the workshop was that annual audits would inform price review; EVN would report a proposed adjustment when high purchased-power costs or rising generation costs created losses that could not be balanced financially.

The generation mix at that time was approximately 35–40% hydropower, 30% gas-fired power and 30% coal-fired power. Coal and gas input prices were linked to international markets and had recently been falling.

EVN identified four pricing factors: the generation mix dispatched, fuel prices, purchased-power costs and exchange rates. The historical report described a six-month review period and a 7% threshold in discussing potential price increases. This statement describes the consultation at that time, not the current price-adjustment rules.

Preference for scenario five under option three

The three proposed tariff options were summarised as follows:

Option one retained the existing six progressive bands. Option two applied a single price of VND 1,747/kWh, equal to the average residential tariff at the time. Option three reduced the six bands to three or four, with five alternative scenarios, while maintaining the residential average at VND 1,747/kWh.

EVN’s figures for 2014 showed 21.79% of households using no more than 50 kWh per month, 25.02% using 51–100 kWh, 20.82% using 100–150 kWh, 12.81% using 150–200 kWh and nearly 11% using 200–300 kWh.

Households using 300 kWh or more accounted for only about 9%.

Consultation produced both support and criticism for the single-price option. It would be easier to apply, but moving from six bands to one price would raise bills for low-use households by around 14%. Households using at least 300 kWh would pay less, with reductions reaching 33% for those using more than 500 kWh.

Option three reduced the six bands to four under five scenarios. Drawing on household surveys from 2013 and 2014, it aimed to address most of the weaknesses of the first two options.

Thoa said no option could satisfy every expectation, even if ten alternatives were proposed. He considered option one to have significant weaknesses and argued that a single tariff made it difficult to preserve the average price while addressing supply constraints and subsidies for poorer households. He therefore viewed scenario five under option three as more promising.

EVN said that, for the 2015 volume of commercial electricity, its revenue would remain unchanged regardless of the option selected.

After considering consultation feedback, EVN planned to submit the residential tariff restructuring proposal to the Ministry of Industry and Trade and the Prime Minister in October 2015, with implementation envisaged from 2016.

Source: collected historical report.