This law is expected to remove bottlenecks and create a mechanism to encourage non-state capital attraction in construction investment into the national electricity transmission system, which is considered one of major tasks towards sustainable development.
However, around the implementation of this policy, there exist many obstacles in legal, economic, and technical aspects as well as diverse opinions that need to be carefully studied to bring harmonious benefits for society and investors alike.
From an operational management aspect, the transmission grid is the backbone and arterial system of the national electricity system, which is particularly important socially and economically, holding decisive role to ensure the energy security and national security.
It is because of the importance of the transmission grid that the Law on Electricity 2004 stipulates, “The state will hold monopoly in the transmission and moderation of the national power system, as well as in building and operating large power plants”. This, however, does not mean that non-state economic entities are unable to partake in transmission grid investment activities.
Most recently, in January’s Dispatch No.70/TTg-CN, the prime minister greenlit the proposal assigning a local private investor to take on the creation of a 450MW solar power plant in Thuan Nam district in the central province of Ninh Thuan, combined with a 500kV and 220kV transmission grid infrastructure connected to the national power grid. That private investor was domestic Trung Nam Group, which was trusted to act as project developer via Dispatch No.831 dated March 18 from Ninh Thuan People’s Committee.
The main objective was to ensure seamless operation from the start, helping to avail of the full capacity of the new solar power plant and other power plants of renewable energy in the region after plugging into the national power grid.
The move was deemed as a timely measure to beef up development of solar energy projects in the region with enormous potential of solar radiation like Ninh Thuan, in the context that state-owned Electricity of Vietnam (EVN) and its member unit, National Power Transmission Corporation (EVNNPT), are scaling up efforts to source investment capital to feed transmission greed development projects pursuant to approved planning.
As per the progress commitment, the new solar power project will be entitled to enjoy the feed-in tariff (FiT) of 9.35 US cents per kWh as regulated in the prime minister’s Decision No.11/2017/QD-TTg issued in April 2017 on encouraging solar power development. In light of governmental Resolution No.115/NQ-CP released in August 2018 on supporting Ninh Thuan in socio-economic development, this FiT rate is much higher than the recently-enacted rate of 7.09 US cents per kWh to be applicable to solar power projects operational from July 1, 2019 to the end of 2020.
In exchange, upon investment completion the project developer needs to hand over the transmission grid infrastructure to EVN/EVNNPT for management, and simultaneously not request an investment cost refund.
EU development practices show that private and shareholding power transmission companies (even those of foreign origin) have been quite successful in the operation and management of national power transmission network over the past couples of years. That was because these countries have in place a very comprehensive regulatory system to oversee and moderate transmission activities that is continually updated and revised to match reality.
Based on the current circumstances of Vietnam’s power sector and to ensure effective enforcement of the draft law on PPP, facilitating engagement of private investors into the sector, several matters must be taken into account.
First is ensuring consistency of relevant legal documents. It is necessary to review and propose for revision current regulations related to the Law on Electricity, particularly amending the regulation “state monopoly in power transmission” gearing towards “the state not holding monopoly in transmission network investment, but only holding monopoly in transmission network operation and management”. This aims to encourage investors from the private sector to take part in transmission line investment.
Next is ensuring reasonable capital recovery for relevant parties. It is important to separate the costs of investment, operation management, repair, and maintenance of power transmission network projects, from there setting the method of calculating transmission cost to ensure the investors could recover cost and earn profits reasonably.
Third involves ensuring quality consistency of transmission projects, and reviewing and penning relevant legal documents on the management of investment construction projects on transmission network development, in order to ensure the effective supervisory role of state management agencies in the project’s different stage.
Finally, a roadmap must be crafted on diversifying capital sources to build a power transmission network. After the enactment of the law on PPP and revision of the Law on Electricity, the government needs to pass a roadmap on attracting private investors into developing transmission networks, gearing towards promoting engagement of private investors into this field, based on the level of importance of transmission network projects.
By Duong Manh Cuong- Senior project officer MOIT/GIZ Energy Support Programme
Vietnam Investment Review