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CGM suspension benefits gas producers

GAS and oil power plants in Vietnam are expected to benefit from the new decision of the Ministry of Industry and Trade that has suspended the operation of the competitive electricity generation market.

The competitive electricity generation market (CGM) was launched in July 2012 to diversify power sources, reduce the country’s dependence on hydropower plants and make the power market more competitive.
MoIT Decision No 3698/OD -BCT that took effect on October 1 suspends the CGM operation to maximise the consumption of gas-based power production, thus benefiting gas power producers at least in the fourth quarter, according to HCM City Securities Co (HSC).
Until now, the Electricity of Vietnam (EVN) bought power from plants through bidding competitions based on the plants’ costs.
EVN will now buy power from the plants based on the prices stated in the power purchase agreements (PPAs) it signed with power producers.
For thermal power producers, the PPA price is calculated on the fixed cost plus operation and maintenance costs, varying cost and material transportation cost.
The PPA price for thermal power plants would be higher than the average CGM price. 
However, the volume of power EVN purchases from those plants will be lower once EVN gives priority to gas power products, thus making earnings of those producers decline, HSC said.
For hydro and gas power plants, the PPA price is calculated by the fixed cost plus operation and maintenance costs.
Of the two types of power producers, HSC assumes hydro power plants would suffer as they have the lowest production cost, pulling the PPA price below the CGM average price by 20-30 per cent. EVN will also buy less from hydro power plants, therefore, their income will be badly affected, HSC said.
The gas power producers that could benefit from the decision are PetroVietnam Power Nhon Truch 2 JSC (Nhon Truch 2), Ba Ra Thermal Power JSC and PetroVietnam Power Company (PV Power), HSC added.

Published : October 13, 2017