Small Hydroelectricity Plant Development Faces Difficulties | VCCI

Posted: Friday, July 20, 2012 
Quynh Chi

Small hydroelectricity plant development not only creates incomes for local people, meets electricity demand of households and small communities in mountainous and midland areas, but also supplements energy for the whole country. However, the development of small hydroelectricity plants in Vietnam is still facing many difficulties.

At the forum “Development of small hydroelectricity plants and recommendations from enterprises” jointly held by Vietnam Business Forum newspaper and Vietnam Energy Association (VEA) in Hanoi, Mr Nguyen Duc Dat from the VEA said Vietnam has a huge hydroelectricity potential of 80 – 100 billion kWh a year, of which capacity of small and medium hydroelectricity plants reaches about 15-20 billion kWh a year. Currently, throughout the country there are nearly 30 hydroelectricity plants with capacity of over 100 MW, and over 200 projects of small and medium hydroelectricity plants with total capacity of 10,000 MW and over 40 billion kWh. That means Vietnam has exploited about 40-50 percent of its electricity potentials.

In fact, most hydroelectricity projects with highest economic efficiency and most favourable conditions have already received investment. The rest are less efficient ones with more difficult conditions and usually in remote areas. Small and medium hydroelectricity projects are among the latter. Therefore, if invested properly, small hydroelectricity plants will not only create incomes for the people, meet power demand of the whole country.

Dr Pham Thi Thu Hang, Secretary General of Vietnam Chamber of Commerce and Industry (VCCI) said that under Decision 1208/QD-TTg dated July 21, 2011 of Prime Minister on “Approving the plan of developing national electricity in the period of 2011-2020, with prospect to 2030”, referred as General Plan VII, currently Vietnam has about 9,200 MW of hydroelectricity and it targets to exploit all of its hydroelectricity capacity to achieve 17,400 MW by 2020. Among approved solutions, solutions to electricity prices and investment capital play an important role in implementing successfully General Plan VII, as well as removing somehow difficulties of enterprises, promoting investment into small and medium hydroelectricity plants.

“In the process of investment – production – purchasing, because of inadequacies of tax policies in water resource and commercial electricity pricing, investors of small hydroelectricity meet many difficulties,” said Ms Hang.

According to Mr Tran Viet Ngai, Chairman of VEA, hydroelectricity industry is characterized by huge and long term investment, and being located in remote areas with difficult road access. Besides inadequacies like low electricity prices and improper tax policies, small and medium hydroelectricity projects suffer too high interest rates. It is estimated that constructing a small hydroelectricity plant with capacity of under 30MW requires an investment of VND30 billion a MW, therefore if an enterprise must get loans from banks at an interest rate of over 20 percent a year, or even 22 percent a year, its revenues are just enough to repay interest, not to mention environment service fees, water resources tax, management and labour costs… Meanwhile, hydroelectricity plants signed trading contracts with EVN in years of 2006-2008 with stable prices of VND600-700/kWh, although electricity sold to consumers by EVN is currently VND 1,369/kWh, till now there is no change in the contracts. It is the reason why investors of small hydroelectricity plants make no profits, even suffer serious losses.

“With the participation of ministries, sectors, experts in hydroelectricity industry, the Forum is expected to create an opportunity for small hydroelectricity enterprises, as well as hydroelectricity enterprises in general, to meet and discuss their difficulties and problems. On that basis, Organizing Committee will gather proposals and submit them to the Government with the hope of finding out reasonable solutions, creating favourable conditions for small hydroelectricity enterprises to operate effectively, contributing to the development of hydropower in particular and development of energy in general. Consequently, electricity demand for socio-economic development will be fulfilled, and national energy security will be ensured”, added Ms Hang.

According to Mr Ngai, there are 5 proposals of solving difficulties for small hydroelectricity enterprises: First, small hydroelectricity enterprises are recommended to participate in the competitive electricity market; if they cannot, 5 electricity corporations will buy their products. Second, purchasing their electricity in larger quantity to help them cover costs and make profits. Third, purchasing electricity of small hydroelectricity enterprises at the same prices of national electricity trading companies. Fourth, projects that are invested should get favourable loans. Fifth, related to taxes on water resource and environment, currently electricity is sold to customers at the price of VND1,506, equivalent to 7.2 cents (equal to that of countries in the region). It is proposed to apply taxes only on enterprises selling electricity at the price of over VND1,000 a KW.

Mr Vu Ngoc Cu, Deputy Chairman of Lao Cai Enterprise Association

Hydroelectricity investment is not easy, because of huge and long-term investment, projects being located in difficult-to-reach areas. Besides, the power transmission system cannot meet the demand of connection from hydroelectricity plants. Infrastructure in rural and mountainous areas is so poor that it makes equipment transport and energy supply for constructing very difficult. Moreover, hydroelectricity investment has to suffer more factors such as: inflation due to economic recession, credit policies, natural disasters, prolonged drought…which make many investors worry about investment’s effect.

To reduce the difficulties, the authorities should create a proper price scheme for trading electricity. Electricity industry also has to invest in constructing and improving power grids 220kW and 110 kW to transmit electricity from hydroelectricity plants. Moreover, small hydroelectricity plants should be supported with after- investment interest rate, particularly, Ministry of Finance is proposed to consider about taxes on water resource in hydroelectricity industry.

Mr Pham Cong Nhan, Chairman of Ha Giang Enterprise Association

For hydroelectricity plants of which transmission lines to the connection point are up to 3 km, the electricity sector should buy their power at generally regulated prices. If transmission lines are longer, the electricity sector should increase the prices about 0.7-1 percent for each kilometer in order to reduce difficulties and disadvantages of hydroelectricity plants that are far from national transmission lines, meanwhile electricity sector do not have to invest huge capital at once. For transformers and transmission lines that need to be improved but the sector is in short of capital to afford the improvement, enterprises should also share with the sector by lending it money at middle term interest rate that is equal to the interest rate of banks.

Dr Le Truong Thuy, Chairman and General Director of Mai Chau Hydropower JSC (Hoa Binh province)

Electricity market has started wholesale operations, however practically no competitive market exists because there is only EVN. The Government approved every economic subject to invest into small hydroelectricity projects, but according to the list of 29 electricity plants that participate directly in the competitive electricity market, there are 26 plants participating indirectly, 18 plants participating temporarily indirectly, 20 plants that plan to participate in the market. The list has revealed that the opportunity for small hydroelectricity plants is very small, and it is hard to call the market a competitive one. Therefore, a competitive market with proper organisation is needed, in which units participate individually, creating a transparent, equal and competitive electricity market. The retail market should be constructed only after this wholesale process, and EVN should be only a retailer.





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