Ministry of Industry and Trade proposes calculating retail price of electricity following 5-stage model

Illustration image. Source: Internet

5 innovative solutions

According to the latest information released by the Ministry of Industry and Trade, on December 30, 2019, Vietnam Electricity (EVN) sent Document No. 7166/EVN-TCKT to the Ministry of Industry and Trade to report on the project "renovation on structure of electricity retail tariff".

Based on EVN's report, as well as the opinions of relevant authorities and units, the Ministry of Industry and Trade has considered and developed plans to renovate the structure of household electricity retail tariffs to report to the Prime Minister for consideration and approval.

Specifically, the Ministry of Industry and Trade proposed five solutions to renovate the structure of household electricity retail price including 1, 3, 4 and 5 stages (the 5-stage plan has two scenarios).

The 1 stage plan with the price equal to the current average electricity price for household activities of VND1,897/kWh.

According to the 1-stage plan, the electricity payment of households with the usage rate is from 201 kWh/month or more (about 6.7 million households); electricity payment will be reduced from VND8,000 to VND330,000/household/month. Meanwhile, households with a usage rate from 0 to 200 kWh/month (about 18.6 million households) have to pay with the amount of electricity payment increased from VND17,000 to VND36,000/household/month.

The amount of budget support for poor and social policy households increased due to the increase in electricity price of stage 1.

According to the 3-stage plan, the electricity payment of households with the usage rate from 301 kWh/month or more (about 3.1 million households); electricity payment will reduce from VND45,000 to VND62,000/household/month. Meanwhile, households with usage rate from 0 to 300 kWh/month (about 22.3 million households) have to pay with the amount of electricity payment increased from VND4,000 to VND30,000/household/month.

The amount of budget support for poor and social policy households increased due to the increase in electricity price of stage 1.

According to the 4-stage plan, the electricity payment of households with the usage rate from 51-100, 201-300 and 301-400 kWh/month (about 10.3 million households); electricity payment will reduced from VND267 to VND32,000/household/month. Meanwhile, households with the usage rate is from 0-50, 101-200 and from 401 kWh/month or more (about 15.3 million households) have to pay with the amount of electricity payment increased from VND1,000 to VND105,000/household/month.

The amount of budget support for poor and social policy households increased due to the increase in electricity price of stage 1.

The last option is 5 stages. Accordingly, the lowest price level is VND1,549/kWh, the highest is applied for household using over 700 numbers with the price of VND3,105 VND/kWh.

Propose to choose option of 5-stages

Only the option of 5-stages, the Ministry of Industry and Trade has two scenarios.

In scenario 1, the electricity payment is 5 stages (instead of the current option of 6 stages). In particular, electricity price of stage 1 (0 - 100 kWh) is kept the same as the price of level 1 according to the current price index; the new stage 2 is from 101 - 200 kWh; new stage 3 is from 201 to 400 kWh; new stage 4 is from 401 - 700 kWh; and stage 5 is from 701 kWh or more.

The Ministry of Industry and Trade said that: the advantages of this method is simple and easy to understand because of the reduction from 6 stages in the current electricity tariff structure to 5 stages. Putting the steps together to increase the power consumption gap between stages and widening the consumption gap of the higher stage in order to reflect the actual situation of electricity consumption as well as encourage the economical use of electricity to be more efficient. At the same time, limiting a part of the high electricity bill in the changing seasons.

In addition, the amount of budget support for poor and social policy households has not changed compared to the current tariff.

The increase in prices between stages is reasonable, the gap between the first and last stages is double, in line with the general trend of countries around the world in order to encourage economical and efficient use of electricity through increasing the gap between the first and last stage. For example: Southern California, USA is 2.2 times; Korea is 3 times; Laos is 2.88 times; and Thailand is 1.65 times.

The disadvantage of this scenario is that the electricity payment of households with the usage rate from 701 kWh/month or more (about 0.5 million households, accounting for 1.8% of the total number of households) have to pay the amount of electricity payment increased by VND29,000/household/month, equivalent to about 1.1 percent of the total amount of electricity bill.

In scenario 2, the average retail price of electricity for household is unchanged; merging levels 1 and 2 with electricity prices is unchanged according to level 1 in order to ensure the amount of State budget support for poor and social policy households has not changed.

The lack of revenue is offset to the stage which has a usage rate of over 700 kWh. The electricity price of the stage of 201 - 400 kWh which is merged in accordance with the average price of stage 4 (201 - 300 kWh) and stage 5 (from 301 - 400 kWh) as stipulated in the old electricity price.

According to the Ministry of Industry and Trade, this plan has a gap between the first and the last stage of 1.86 times, which is lower than the 5-stage plan and scenario 1 as mentioned above.

However, this plan has a disadvantage in that the electricity payment of households with usage rate of 200 - 300 kWh/month (about 3.6 million households) and from 701 kWh/month or more (about 0.5 million households) have to pay with the amount of electricity payment increased by about VND 6,000 – VND 14,000/household/month (other groups of customers are reduced electricity payment). The increase in prices between stages is uneven.

Further analyzing the 5-stage option in both scenarios, the Ministry of Industry and Trade said that: scenario 1 has a reasonable increase in electricity price among the stages; ensure that all households with electricity usage below 700 kWh (accounting for 98.2 percent of the total households) have no change in electricity tariffs when applying the new electricity tariff, so the impact when applying this scenario is smaller than the 5-stage option of scenario 2.

In addition, the gap between the last stage and the first stage is in line with the trend of countries around the world to encourage households with large electricity consumption to use electricity economically and efficiently.

The impacts on households with usage rate of over 700 kWh between scenario 1 and scenario 2 are not large and households using electricity under 700 kWh with electricity payment under scenario 1 are lower than scenario 2.

After consideration that the 5-stage of scenario 1 is the most appropriate, the Ministry of Industry and Trade proposed to select the 5-stage of scenario 1 to apply.