NANGLUONGVIETNAM - The application of electricity prices with two components (based on capacity and electricit...
NANGLUONGVIETNAM - The application of electricity prices with two components (based on capacity and electricity consumption) is evaluated to bring many benefits to both investors and electricity consumers. Therefore, the Ministry of Industry and Trade has assigned EVN to study electricity prices with two components to move towards replacing single-component electricity prices (where electricity fees are paid only based on consumption). To clarify this further, the Vietnam Energy Magazine has compiled and analyzed the following article. We look forward to the sharing of experts, managers, and readers.
Electricity prices with two components:
Around the world, many countries have implemented electricity prices with two components, including capacity prices (measured in kW) and electricity prices (measured in kWh), mostly applied to customers using electricity for production, business purposes, and in some places for household electricity as well. The application of electricity prices with two components will provide the correct signal for both electricity producers and consumers to enhance economic efficiency through allocation and rational use of resources.
The single-component electricity price (only based on electricity consumption) currently applied in our country has the advantage of simplicity but does not accurately reflect the costs incurred by consumers for the system. Adding capacity prices alongside electricity consumption will also encourage customers to use electricity efficiently, thereby increasing the power factor, saving electricity costs, reducing the need for power source investment, and expanding the power grid. Especially for customers who register for capacity greater than their actual usage needs, the electricity sector will be able to recover investment costs.
In the context where power companies have deployed electronic meters, especially for customers using electricity for production and business purposes, deploying electricity prices based on capacity and electricity consumption is necessary to ensure that electricity prices reflect the true and sufficient costs. Based on this perspective, the two-component electricity price mechanism is considered a means to manage natural load demand.
Currently, power companies have deployed electronic meters capable of measuring both capacity and electricity consumption for most customers using electricity for production and business purposes (customers subject to time-of-use electricity pricing). Along with this, implementing electricity prices based on capacity and electricity consumption is necessary to ensure that electricity prices create accurate signals and sufficient costs (in terms of capacity) to customers using electricity. Accordingly, customers with the same amount of electricity usage per month (measured in kWh) but with a low load factor have to pay more than customers with a high load factor. Applying electricity prices with two components combined with the current time-of-use electricity pricing regulations will contribute to balancing the system's load profile and reducing the need for investment in power sources and grids to meet electricity usage during peak hours.
Electricity purchasing prices with two components - Boost for LNG and potential hydroelectric power development:
Especially in the context where renewable energy sources (RES) are increasingly high and important in the overall system's structure, but their operations are unstable (such as solar power when there is no sunlight, or wind power when there is no wind), traditional power sources such as hydroelectricity, coal-fired power, or gas must play a backup role to compensate for the instability of RES.
As of the end of 2023, the scale of Vietnam's power system reached about 80,555 MW in total capacity, an increase of about 2,800 MW compared to 2022. Among them, the total capacity of RES is 21,664 MW, accounting for 26.9% of the total system.
Scale of power system development 2018-2023. (Source: EVN).
China - our neighboring country has begun to implement electricity prices with two components since January 1, 2024, to increase the supporting role of coal for renewable energy, which means coal-fired power plants are paid for capacity when not generating electricity (but the operators remain on standby when there is a need to start the units according to the system's dispatch requirements). This is an important reform, assessing the true role of active power sources in the context of increasing renewable energy sources. The reason given is that currently, coal-fired power plants sell electricity to the grid at a single price - meaning if they do not deliver any kWh, investors will not receive revenue
The operating costs of coal-fired power plants include fixed costs (such as depreciation, labor costs, repair costs, financial costs) and variable costs (such as coal purchase costs, materials). Due to the energy transition process, coal-fired power plants have had to yield to RES and always remain ready to compensate for the instability of RES [1].
For LNG power:
With the power source structure as above, along with the orientation towards not using coal for power generation by 2050, the role of base-load power plants in the power system is inevitable - power sources less affected by weather compared to hydroelectricity, wind power, and solar power. Additionally, the advantage of LNG power is high readiness, large capacity, wide adjustment range, minimizing CO2 greenhouse gas emissions, especially reducing pollution gases SOx, NOx compared to coal and oil-fired power plants, quick response time when renewable energy sources are not operating.
For LNG power projects, the number of hours of machine operation if achieved 6,000 hours/year and with a reasonable electricity selling price to EVN will only be beneficial for investors.
For pumped-storage hydropower:
The development of pumped-storage hydropower (PSH) not only increases the electricity supply to the system but also consumes electricity (during off-peak periods). The main task of PSH is to cover the peak of the load curve, contributing to flattening the load curve by mobilizing pumping capacity during off-peak hours and generating electricity during peak hours to compensate for the instability of renewable energy. Developed countries with the most PSH facilities currently include China, India, Europe, Australia, Southeast Asia, and the United States. PSH storage worldwide currently accounts for over 95% of all forms of energy storage.
In conclusion
The Ministry of Industry and Trade's requirement for the Vietnam Electricity (EVN) to study and develop a two-component electricity pricing mechanism (comprising capacity charges and energy charges) for electricity consumers is a correct step for both electricity producers and consumers to enhance economic efficiency through appropriate allocation and rational use of resources. This helps balance the load curve of the system and reduce the need for investment in power sources and grids. Two-component electricity pricing will bring fairness to electricity users (those using electricity for production and business purposes), promote energy-efficient and cost-effective electricity usage.
Via Nang luong Viet Nam