Topic: Developing electricity market in Vietnam: the current situation and the solutions Student: Instructor: Dr. Hoang Xuan Binh 1 CONTENT INTRODUCTION………………………………………………………………………………… CHAPTER 1……………………………………………………………………………………… SOME THEORETICAL BASIS AND PRACTICAL BASIS OF THE ELECTRICITY MARKET………………………………………………………………………………………… 1.1. T heoretical basis of electricity market…………………………………………………………. 1.1.1. Electricity and its role as commercial goods………………………………………………. 1.1.1.1. I ntroduction to electricity………………………………………………………………… 1.1.1.2. C haracteristics of electricity as commercial goods………………………………………… 1.1.2. Some determinants of electricity supply…………………………………………………… 1.1.2.1. N atural resources………………………………………………………………………… 1.1.2.2. C apital……………………………………………………………………………………… 1.1.2.3. T echnology………………………………………………………………………………… 1.1.3. Some determinants of electricity demand………………………………………………… 1.1.3.1. E conomic growth………………………………………………………………………… 1.1.3.2. B udget constraint………………………………………………………………………… 1.2. S ome practical basis of electricity market…………………………………………………… 1.2.1. Wholly competitive electricity market in Brazil…………………………………………… 1.2.2. Partly competitive electricity market in Italy……………………………………………… CHAPTER 2………………………………………………………………………………………. THE CURRENT SITUATION OF ELECTRICITY MARKET IN VIETNAM………………… 2.1. An overview of electricity market…………………………………………………………… 2.2. The current situation of electricity market…………………………………………………… 2 2.2.1. Market structure…………………………………………………………………………… 2.2.2. Supply of electricity…………………………………………………………………………. 2.2.2.1. The current status of electricity supply……………………………………………………. 2.2.2.2. The issue of energy resources…………………………………………………………… 2.2.2.3. The issue of capital……………………………………………………………………… 2.2.2.4. The issue of technology…………………………………………………………………… 2.2.3. Demand for electricity………………………………………………………………………. 2.2.3.1. The current status of demand for electricity………………………………………………. 2.2.3.1. The impact of economic growth………………………………………………………… 2.2.3.3. The impact of budget constraint………………………………………………………… 2.2.4. Some governmental regulations on electricity market………………………………………. 2.2.4.1. Regulations on electricity price…………………………………………………………… 2.2.4.2. Regulations on electricity supply………………………………………………………… 2.2.4.3. Regulations on electricity consumption………………………………………………… 2.3. An assessment on electricity market in Vietnam…………………………………………… 2.3.1. Some achievements………………………………………………………………………… 2.3.2. Some existing problems and their reasons………………………………………………… CHAPTER 3……………………………………………………………………………………… ORIENTATION AND SOLUTIONS TO DEVELOP ELECTRICITY MARKET IN VIETNAM 3.1. Government orientation to develop electricity market……………………………………… 3.1.1. Establishment of a competitive electricity market…………………………………………. 3.1.1.1. Three-phase path…………………………………………………………………………. 3.1.1.2. Plan to implementation…………………………………………………………………… 3.1.2. Orientation for electricity supply……………………………………………………………. 3 3.1.2.1. Increase supply capacity………………………………………………………………… 3.1.2.2. Encourage a wide range of energy sources……………………………………………… 3.1.2.3. Orientation to support renewable energy…………………………………………………. 3.1.2.4. Develop transmission system…………………………………………………………… 3.1.2.5. Financial support for electricity supply…………………………………………………… 3.1.3. Orientation for electricity demand………………………………………………………… 3.1.4. Orientation for price settlement…………………………………………………………… 3.2. Some specific solutions……………………………………………………………………… 3.2.1. For supply side………………………………………………………………………………. 3.2.1.1. Cooperate with private and foreign investors…………………………………………… 3.2.1.2. Reduce distribution losses………………………………………………………………… 3.2.1.3. Consider the option to settle price of electricity seasonally………………………………. 3.2.1.4. Widely publish information on three-price model………………………………………… 3.2.2. For demand side…………………………………………………………………………… 3.2.2.1. Rent energy audition services…………………………………………………………… 3.2.2.2. Adjust electricity consumption manner based on three-price model……………………… 3.2.2.3. Consume small-sized energy generation system for households and buildings………… 3.2.3. For government and competitive authorities……………………………………………… 3.2.3.1. Adjust tax levied on imported energy – saving equipments……………………………… 3.2.3.2. Support research and assessment on power potential of Vietnam………………………… 3.2.3.3. Fulfill legal framework to support the application oaf alternative energy equipment……. CONCLUSION……………………………………………………………………………………. BIBLIOGRAPHY………………………………………………………………………………… LIST OF GRAPH AND TABLES……………………………………………………………… 4 INTRODUCTION Electricity is one of the most important products in any national economy. In fact, it is the essential input of almost products and services that modern people consume nowadays. That is why even the smallest trouble in electricity provision system can cause many serious problems for the whole country. Shortage of electricity can limit the national development. Electricity cut- off can make huge losses for production, industrial factories, hospital, etc. and badly affect people’s work and life. Despite that great importance of electricity to the society and the economy, Vietnam is facing serious shortage of electricity and regular power cut-off especially in dry season. Lack of capital and technology, also skillful human resources to enlarge the size, also the number of conventional-energy power projects is one issue. Low ability to exploit alternative energy sources though they are estimated to be highly abandoned is another issue. There are not enough instructions and guidelines to support a new competitive electricity market which is being established; that is also a problem. Though in recent years, Vietnam has achieved significant success in electricity market, no one can deny that there are a lot of things to do in coming years. Due to the current situation of electricity market in Vietnam, this thesis is written for three purposes. The first one is to collect and present the most scientific information and widely- accepted opinions on a number of concepts, definitions, and models which are popular when considering electricity markets in general. The second one is to identify the current situation of Vietnam electricity market with up-to-date information. The third one is to propose some personal suggestions as solutions for government, electricity suppliers, and also electricity consumers to resolve existing issues and develop the efficiency of Vietnam electricity market. There are three chapters corresponding to these three goals as following: - Chapter 1: Some theoretical basis and practical ones of electricity market - Chapter 2: The current situation of electricity market in Vietnam 5 - Chapter 3: Some solutions to develop Vietnam electricity market Though a lot of time and efforts are put into this thesis, mistakes are still inevitable due to limited knowledge, skills, and available information. As a result, I do desire for and highly appreciate comments and assessment of readers for further fulfillment of this thesis. My last words, I would like to show my great thankfulness to my family to support me through hardness, to my lecturers in university for their inspiring lectures, and to Dr.Hoàng Xuân Bình for his help through the long progress in which I did this writing. 6 CHAPTER 1 SOME THEORETICAL BASIS AND PRACTICAL ONES OF ELECTRICITY MARKET 1.1. Some theoretical basis of electricity market This part is designed to present some primary concepts and definitions relating to electricity market, so that the readers can easily understand the nature of this market. These concepts and definitions include ones about electricity itself as the only product in the electricity market, supply of and demand for electricity and their determinants. About these determinants, please be noted that among many factors which may have direct or indirect influence on supply of electricity and demand for electricity, this thesis makes a selection of some factors only, due to the limit of time, available information, and analysis tools. 1.1.1. Electricity and its role as commercial goods 1.1.1.1. Introduction to electricity a. Definition By definition, electricity is defined as the power of an electric current. It is measured by Watt or 1 joule per second. (Ministry of Education and Training, 2012) b. Production of electricity Electricity can be converted from hydro power, thermal power, geo-thermal power, solar power, wind power, marine power, and nuclear power. Different ways of power conversion require different technologies; though there is only one principle of production: there is one generator, source power is input, and electricity is the output; productivity is always lower than 100 percent. In addition, geographical characteristics are also in need to be taken into consideration. 7 Graph 1: Hydro – energy: From water power to electricity Source: Internet Every hydropower plant has a lake for water reservation. Normally, this lake has higher location than the placement of turbines. When it needs to generate electricity, water from this lake moves to the lower place that helps storing energy. Water goes through turbines, and this stored energy is converted to electricity by these turbines. Then, power is transferred to national electricity grid and comes to consumers. (US Department of fthe Interior, 2005) Graph 2: Thermal energy: From coal, oil, and natural gas to electricity Source: Internet Coal and natural gas are used to heat a great volume of water. Then, water steam generated from this process makes some turbines work. In turn, these turbines activate a power generator and this machine produces electricity. (Centreforenergy.com, n.d) 8 Graph 3: Geo – thermal energy: From natural heat to electricity Source: Internet Rather than heating artificially by coal and natural gas like a thermal power plant, a geo – thermal power plant uses natural heat from the Earth to boil up its water, creates water steam, and do the remaining in a similar way to a thermal power. (Darvill.clara.net, n.d) Graph 4: Wind energy: From wind to electricity Source: Internet The movement of air or the wind itself stores a certain amount of energy. Wind makes wings of turbines in wind – farm rotate at a specific speed. It means turbines and the electricity generators inside are activated by wind. (Vinamain, 2011) 9 Graph 5: Solar energy: From light to electricity Source: Internet A solar plant includes a number of solar cells and some equipment to collect energy from those cells. General speaking, a solar cell must have a large surface in order to get as much sunlight as possible. When these cells receive sunlight, they will convert it into electricity thanks to their semi – conductors inside. (Scientificamerica, n.d) Graph 6: Nuclear energy – From nuclear to electricity Source: Internet The way a nuclear power plant generate electricity is quite similar with this one of thermal power plants and geo – thermal power plant do. That is to heat up water and let water steam turn turbines and activate electric generators. The difference is that nuclear power plants take energy from nuclear reaction. (Howstuffworks.com, n.d) 10 [...]... this ministry has approved the plan to establish much more competition in the electricity market which is now dominated by EVN, and initially state – owned monopoly in electricity market In term of operation or the balance between supply of and demand for electricity, see that both of them have increased continuously in a recent decade and are forecasted to keep increasing in the coming years The electricity. .. authorities including Ministry of Industry and Trading (MoIT), Ministry of Planning and Investment (MoPI), Ministry of Finance (MoF) and State Bank of Vietnam (SBV) MoIT and its Electricity Regulatory Authorities of Vietnam (ERAV) are in charge of managing supply of electricity, demand for electricity, and the price adjustment in the market (ERAV, 2011) MoPI is responsible for making policies in order... operates electricity market Its function is to encourage transparency, competitiveness and the efficiency of electricity market 18 AU – The only intermediary entity in the electricity market, who is the single buyer in the wholesale market The picture above has shown the nature of electricity market in Italy At the stage of generation, there are only national generators and foreign ones, the private... building, and buying machines, maintenance cost, and administration cost for hiring labor and other office expense The value of these investments was recorded in different point of time As a result, in order to make better comparison, all these values are adjusted based on inflation rate in corresponding countries from the recording year to present; they are also converted into value of U.S Dollar at the. .. billion TOE/year as the estimated potential solar power Solar energy is higher and more stable in highland, central coastal and southern provinces Wind energy Thanks to the location in the monsoon wind zone with two man wind directions: the cold East – North monsoon wind from Siberia and China in winter, and the hot South – West and South – East monsoons from the equator in summer, Vietnam has: - Up... planned In May 2011, Vietnam National oil and gas Group (PetroVietnam) and Coal Producer and Supplier Vietnam National Goal and Minerals Industry Group (Vina Comin) announced that EVN owned them VND6.6tr.n or $320m.n In more details, the debt to PetroVietnam was VND5.16 tr.n or $250m.n, ten times of the debt to Vinacomin at that time In addition, though there were many complaints and critics about the investments... market in Vietnam, see that it is growing year by year and in the reform process In term of administration, this market is regulated by a competitive authority named Ministry of Industry and Trade of Vietnam This authority is in charge of preparing, launching, and monitoring the execution of all policies and regulation relating to electricity generation, transmission, distribution, and trading Recently,... private and foreign investment in electricity generation and distribution activities (Vietnam Prime Minister, 2011) MoF and SBV are cooperating to each other to monitor capital flow in and out the national budge for electricity projects (Vietnam Prime Minister, 2011) On the market, EVN has the position of a monopoly in term of its dominant contribution to total electricity productivity, the role as single... remaining countries have a similar beginning in power consumed per capita (0 – 1000 kWh/capita) In the next 20 years, this volume has increased dramatically in all countries In more details, electricity consumption per capita has been increasing continuously in the period 1990 – 2009 Among these countries, Singapore, Malaysia, Thailand, China, Phillipines, Vietnam, and Cambodia have descendent increasing... of the environment in which they work For example, turbines and electricity generators in hydro power plants work with the pressure of water and water flows But in wind power plant, these equipments work with the flow of air in dry condition Turbines and electricity generators in thermal power plant have to work in high temperature, high pressure, and high humidity also The second factor which influences . understand the nature of this market. These concepts and definitions include ones about electricity itself as the only product in the electricity market, supply of and demand for electricity and their. competitiveness and the efficiency of electricity market. 18 AU – The only intermediary entity in the electricity market, who is the single buyer in the wholesale market. The picture above has shown the. including initial investment in research, building, and buying machines, maintenance cost, and administration cost for hiring labor and other office expense. The value of these investments was recorded in different