FLASH NEWS 05/05/2023 – EVN Officially Increase The Electricity Average Selling Price
05/05/2023 - 1:30:45 CHOn Mar 31st, 2023 the Ministry of Industry and Trade (MoIT) reported the annual inspection result of the prime costs for production of electricity of the Vietnam Electricity (EVN) in 2022 was 2,032.26 dong / kWh, +9.27% YoY. As a result, EVN is permitted to rise the electricity average selling price (EASP) to 1,920.37 from 1,864.4 dong / kWh, effective since May 4th, 2023; accordance with the Decision number 24/2017/QD-Ttg.
This adjustment is quite modest compared to overall expectations, which ranged from 5 – 7%, or even up to 10% and could be twice within 2023. However, we expect this adjustment is only “temporary” and “timely” because:
According to the most recent report from EVN, if old price scheme is maintained, EVN will not be able to pay its bills by the end of May 2023, additionally on the grounds that El Nino cycles is approaching and begun to have stronger effect, resulting in increased energy mobilization from thermal groups which have higher costs production than hydropower.
In addition, the annual heat wave is coming, leading to higher energy demand, particularly in temperature-controlled buildings. This will exacerbate the EVN’s financial situation, in related to huge loss of over 26,200 bn dong in 2022, primarily due to an ascent of fossil fuels input materials including oil, gas and coal as well as incentive policies for renewable energy (RE) development. Therefore, in order to cope with the “urgent” situation, and in respect to the Decision number 24/2017/QD-Ttg, EVN has decided to increase the EASP by 3%. This is because, according to the law, whether the adjusted range between 3% and under 5%, EVN can initially implement and then report for MoIT and the Ministry of Finance for supervision and inspection. On the basis of two previous record-years 2021 and 2022, it is forecast that the energy volume will exceed 72 bn kWh, resulting in additional 4,041 bn dong in revenue for EVN with the application of new EASP level, which would alleviate EVN’s financial strain. Besides, the new price scheme might provide EVN with stronger foundation to offer more competitive prices for transitioning RE projects.
Furthermore, we believe EVN has considered the possibility of reducing energy demand due to gloomy economic prospects, as the PMI index in April continued to drop to 46.7 from 47.7 in Mar, which is still below 50. Moreover, there is a likelihood that the Brent oil price will decline in the context of high interest rate, leading to lower demand in general; to illustrate, it closed at 72.33 $ / brrl on May 3rd, 2023 compared to 84.93 $ / brrl last month, resulting in lower electricity costs production, especially for thermal.
We also believe that a 3% increase is “reasonable” and “prudent” at this time to avoid awkward operations and share difficulties with businesses and citizens post COVD-19, based on the inflation target for 2023 of 4.5%, as well as to avoid unnecessary effect of electricity price adjustment and to ensure the national energy security. Besides, in combination with 3.5% of electricity in inflation basket, CPI is likely to face an increase of additional 0.1% over the next few months.
Last but not least, the adjustment made this time does not rule out the possibility of another electricity price adjustment in 2023.