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Renewable Energy Sources in Vietnam’s Competitive Generation Market Hanoi, 30 March 2010

William Derbyshire (ECA). Renewable Energy Sources in Vietnam’s Competitive Generation Market Hanoi, 30 March 2010. ECONOMIC CONSULTING ASSOCIATES LIMITED 41 Lonsdale Road London NW6 6RA UK tel +44 (0)20 7604 4545 / fax +44 (0)20 7604 4547 www.eca-uk.com.

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Renewable Energy Sources in Vietnam’s Competitive Generation Market Hanoi, 30 March 2010

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  1. William Derbyshire (ECA) Renewable Energy Sources in Vietnam’s Competitive Generation MarketHanoi, 30 March 2010 ECONOMIC CONSULTING ASSOCIATES LIMITED 41 Lonsdale Road London NW6 6RA UK tel +44 (0)20 7604 4545 / fax +44 (0)20 7604 4547 www.eca-uk.com Phnom Penh, 24 December 2009

  2. Renewable energy sources in Vietnam • RES potential is very large but little-developed • exception is small hydro power • wind power being developed: ~314 MW in 8 projects • Currently, RES generators are ~2.5% of total capacity • Masterplan for Renewable Energy envisages major expansion RES potential and development Masterplan for RES (base scenario) 2009 targets have not been met

  3. VCGM status • The Vietnam Competitive Generation Market is Stage 1 in the Roadmap for Power Sector Reform (approved 2006) • Stage 2 is the introduction of wholesale competition (from 2014-16) • Stage 3 is the introduction of retail competition (from 2022-24) • The overall VCGM design was approved on 31 December 2009 by the Ministry of Industry and Trade • The pilot VCGM is expected to start in early-2011 with the full VCGM starting in mid to late-2011

  4. VCGM overview - participation • All generators >30MW are required to sell their output in the VCGM • ‘Direct trading generators’ are scheduled through daily bidding process • ‘Indirect trading generators’ are scheduled seperately • large hydro generators are scheduled weekly by SMO • contracted ancillary services are scheduled after energy scheduling is complete • All output is sold to a single buyer (currently EVN) PC Power Company SPP Small Power Plant MDSMP Metering Data Management Service Provider TNO Transmission Network Owner (NPT) SMO System and Market Operator (NLDC) SB Single Buyer (EVN – EPTC) BOT Build-Operate-Transfer plant (currently Phu My -2-2 / Phu My 3) TPP Thermal Power Plant HPP Hydro Power Plant SMHP Strategic Multi-Purpose Hydro Powr Plant (currently HoaBinh / Yaly / Tri An) FSR Fast Start Reserve (ancillary service) CSR Cold Start Reserve (ancillary service) RMR Reliability Must Run (ancillary service)

  5. VCGM overview - operations • Cost-based power pool • generators bid to be dispatched (lowest-cost first) • market price (system marginal price, SMP) paid to all generators included in ex-post unconstrained schedule • bids are capped at variable cost for thermal generators, and at bid-cap of most expensive thermal generator for hydro generators • Capacity is paid for through capacity add-on (CAN) payments • set so as to allow best new entrant (BNE) to recover its costs in full, given expected dispatch and SMP in year • paid to all capacity required to meet reserve requirements in each hour • payments are higher for hours where capacity is more valuable • Initial contracts cover 90+% of expected annual output • contracts for differences – not linked to actual output. This gives incentive to be available when expected • contract prices are negotiated in a range around a benchmark capacity and energy cost

  6. VCGM operation illustrated Scheduling and payments Contracts for differences Generator is paid (SMP + CAN) * Qa Generator pays [(SMP + CAN) – Pcfd] * Qcfd Generator loses money where SMP + CAN > Pcfd Qa < Qcfd

  7. RES generators in the VCGM • RES generators with capacity <30 MW (small power plants) are excluded from the VCGM • sell all output to Power Companies (distributors) at an avoided cost tariff established by ERAV • avoided cost tariff is based on cost savings for EVN, not costs of generator – unclear if this is high enough for all RES generators • Larger RES generators will have to sell their output into the VCGM and take market risk • market prices (SMP + CAN) will generally be below costs of RES generators • Currently, VCGM is not designed for RES generators • RES generators with intermittent output (eg, wind) may find it difficult to match contract profiles • possible solution is to remove these RES generators from the market – give priority in dispatch and offer feed-in tariff to recover costs

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