On March 26, 2024, Deputy Prime Minister Le Minh Khai signed Decision No. 05/2024/QD-TTg regarding the mechanism for adjusting the average retail electricity price ("Decision 05"). Decision 05 replaces Decision No. 24/2017/QD-TTg on the mechanism for adjusting the average retail electricity price ("Decision 24/2017") with several notable changes:
1. The average electricity selling price is adjusted based on the examination of the electricity production and business costs of the previous 2 years
Under the previous regulation in Decision 24/2017, the average electricity selling price was reviewed and adjusted based on the fluctuations within the year of input parameters of all stages compared to the parameters used to determine the current average electricity selling price.
Decision 05 defines year N as the year the average electricity selling price is established. Accordingly, every year, after examining the electricity production and business costs of year N-2 of the Vietnam Electricity Group (EVN), the average electricity selling price of year N is reviewed and adjusted based on the objective fluctuations of input parameters of all stages.
2. Addition of new input parameters to determine the electricity production and business costs as the basis for reviewing and adjusting the electricity selling price
Decision 24/2017 only provided input parameters to determine the electricity production and business costs including: electricity generation, transmission, distribution - retail, operation - management of the industry, and system support services.
In contrast, Decision 05 adds new parameters:
+ System operation and electricity market transaction management; and
+ Allocation of other uncalculated costs into the electricity price.
This addition ensures that the electricity price reflects more accurately and appropriately the practical electricity production and business activities.
3. Shortening the timeframe for adjusting the average electricity selling price
Decision 05 stipulates that the minimum timeframe for adjusting the average electricity selling price is 3 months from the latest adjustment compared to the previous 6-month period.
4. Adjusting the electricity price downward when the average electricity selling price decreases by 1% or more
Decision 05 stipulates: When the average electricity selling price decreases by 1% or more compared to the current average electricity selling price, the electricity price may be adjusted downward accordingly. Previously, Decision 24/2017 regulated the reduction of electricity prices when the average electricity selling price decreased compared to the current price, without specifying a threshold.
For cases of increasing electricity prices, Decision 05 retains the previous regulation, meaning the electricity price will be adjusted upward when the average electricity selling price increases by 3% or more compared to the current average electricity selling price.
5. Limiting all cases of adjusting the average electricity selling price within the price range approved by the Prime Minister
Decision 24/2017 allowed the mechanism for EVN to report to competent authorities to report to the Prime Minister for adjusting the average electricity selling price in cases where the calculated price is outside the price range.
However, Decision 05 limits all cases of adjusting the average electricity selling price to be within the price range approved by the Prime Minister, even in cases where the calculated average electricity selling price is outside the range.
In our assessment, the new provisions aim to ensure that the electricity price reflects the true production and business costs, is suitable for the market, but within the limits of the approved price range to avoid significant fluctuations that may affect the socio-economic situation.
Decision 05 takes effect from May 15, 2024.
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