Electricity pricing in Vietnam needs a clear, transparent roadmap that reflects true production costs and gradually aligns with market principles without creating economic shocks, according to experts.
Electricity pricing still not market-based. Photo: Hoang Minh
Electricity prices are burdened with too many objectives
During the forum titled "Ensuring electricity for growth - Requirements and solutions" held on May 7 by the Government Portal, former Director General of the Price Management Department, Nguyen Tien Thoa, outlined three major shortcomings in Vietnam’s current electricity pricing system.
First, electricity prices are not based on a market mechanism. For years, electricity rates have not accurately or fully reflected input costs. Furthermore, the system still suffers from the imbalance of buying electricity at high prices and selling it at low rates.
Second, electricity pricing is expected to serve too many goals. It must support the electricity sector’s growth, encourage investment, ensure macroeconomic stability, control inflation, maintain social welfare, and promote energy efficiency. Balancing these conflicting objectives is extremely difficult, and in practice, some have proven unattainable.
Third, the cross-subsidy pricing mechanism has persisted for too long, preventing the implementation of a true market-based system.
As a result, the electricity sector has suffered losses because the current prices do not accurately reflect the cost of producing one kilowatt-hour. The subsidized pricing model weakens investment incentives for the sector.
Thoa pointed out that the industry frequently faces negative cash flow, indicating recurring losses. Without balancing cash flow, the sector cannot reinvest or sustain itself, which poses a risk to the nation’s energy security.
Ha Dang Son, Director of the Center for Energy and Green Growth Research, noted that Vietnam’s average electricity price is on par with that of China and India but higher than in Bangladesh and Malaysia.
Conversely, electricity prices in Indonesia, Thailand, Cambodia, Singapore, and the Philippines are higher than in Vietnam. Singapore’s electricity price has nearly reached that of Japan. In Thailand, after reforming its pricing mechanism - particularly by shifting to time-based pricing - the average electricity price has surged over the past 3-4 years, in some cases rising by 50%.
Son emphasized that the issue is not simply about whether electricity prices rise or fall, but whether they accurately reflect production costs and promote stable, sustainable investment in the national grid.
Many developed countries are shifting to market-based electricity pricing systems that incorporate full cost elements and align with the global trend toward clean energy investment.
Maintaining artificially low electricity prices might offer short-term competitiveness or social welfare benefits, but over time, it could distort investment flows, threaten power security, and undermine sustainable development, Son warned.
A reasonable pricing roadmap to avoid sudden shocks
Transparent pricing is vital to attract investment. Photo: Hoang Ha
Energy expert Ha Dang Son recommended a strategic, transparent roadmap for electricity pricing that reflects actual production costs and moves toward market alignment - without causing sudden price shocks to households and the economy.
Balancing market pricing and social stability remains a complex but essential task.
Son noted that government signals have been relatively clear, with various decrees and regulatory reforms on electricity pricing underway in a coordinated manner.
Nguyen Tien Thoa also proposed that electricity prices be fully calculated and adjusted in line with market mechanisms, and that the current pricing structure be revised to address its limitations.
Additionally, he suggested eliminating cross-subsidies between regions. Instead, disparities should be addressed through separate policies tailored to different regions. Social welfare policies should be detached from electricity pricing.
National Assembly member Phan Duc Hieu, a member of the Committee on Economic and Financial Affairs, noted that the Electricity Law has seen significant updates, particularly in price-setting mechanisms.
“In my view, the most important aspect is ensuring transparency and stability in electricity pricing,” he said. He added that to attract private investment into the electricity sector, it is essential to ensure the reasonableness of costs, given that electricity is a critical input for production and business activities.
If Vietnam creates an electricity market that is overly profitable, turning electricity into a purely capital-attracting investment, it could push up production costs and negatively impact the economy.
Thus, drafting the new law presents a significant challenge: it must create a competitive electricity market that attracts investment while keeping prices reasonable to ensure clean, stable power supply without putting excessive pressure on input costs.
Power producers naturally want prices high enough to cover their costs, while buyers worry about impacts on business operations. Therefore, a balance must be struck to protect all stakeholders’ interests before moving toward the ideal of a fully competitive electricity market as envisioned in the revised Electricity Law, Hieu emphasized.
Vietnamnet.vn
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