Rising electricity prices are a significant concern for businesses across Vietnam, with the average retail cost set to increase. As input costs for electricity generation continue to climb, the Ministry of Industry and Trade has directed Vietnam Electricity to formulate a proposal for a new price framework. This imminent adjustment puts manufacturing enterprises under immense pressure, as energy often represents a substantial portion of their operational expenses. Rather than passively waiting for these changes, proactive businesses are seeking sustainable energy solutions to mitigate financial impact. This article explores the challenges posed by the price hike and outlines a strategic approach for companies to manage their energy costs effectively, ensuring long-term stability and competitiveness in a fluctuating market.
Rising Electricity Prices: A Growing Challenge for Manufacturing Enterprises
The cost of electricity is a critical factor that directly influences both household living standards and the operational viability of businesses. According to the National Federation of Independent Business (NFIB) in the US, energy costs are a top-three expense for 35% of small enterprises. In Vietnam, this impact is even more pronounced in certain industrial sectors, where energy can account for over 60% of a product’s final cost. An increase in electricity prices inevitably contributes to the consumer price index, affecting macroeconomic stability and inflation. This comes at a time when many companies are still recovering from the economic disruptions of the past two years, grappling with challenges like market access, high interest rates, and rising transportation costs. A higher electricity tariff will only add to the financial strain on these manufacturing businesses.
Average Retail Electricity Price Framework (excluding VAT)
| New Price (Decision 02/2023/QD-TTg) | Old Price | |
| Minimum average electricity retail price (VND/kWh) | 1,826.22 | 1,606.19 |
| Maximum average electricity retail price (VND/kWh) | 2,444.09 | 1,906.42 |
The 2022 energy crisis in Europe serves as a stark reminder of the potential consequences. Soaring energy expenses, which rose from 5% to 25% of total manufacturing costs for many, forced businesses to scale back production, increase product prices, and sacrifice competitiveness. This led to the temporary shutdown of nearly 10% of Europe’s steel production lines. A survey by the German Chamber of Commerce and Industry revealed that over a quarter of chemical companies and 16% of automotive firms had to cut production, with some even planning to relocate operations to regions with more stable and affordable energy.
Proactive Energy Management: The Strategic Priority for Businesses
Decision 02/2023/QD-TTg, issued by the Prime Minister on February 3, 2023, officially adjusted the average retail electricity price framework upwards. The new framework allows for a minimum price increase of 220 VND and a maximum of 538 VND per kWh, representing a potential increase of 13% to 28% over the previous structure. Experts suggest that a price hike of around 15% is necessary to align with market principles, though such an increase could directly raise inflation by approximately 5%. This would also have a cascading effect on production costs for energy-intensive industries, such as steel (0.9% increase), cement (2.25%), and textiles (1.95%).
At a recent Ministry of Industry and Trade conference, Prime Minister Pham Minh Chinh acknowledged that Vietnam’s electricity prices cannot be directly compared to those of developed nations, as excessively high rates would be unsustainable for citizens, businesses, and the economy. He urged a balanced approach, ensuring that the benefits, difficulties, and risks are shared equitably among the government, businesses, and the public, all while harmonizing the relationship between inflation and economic growth.
(Source: Dan Tri News)
Given that prices for nearly all commodities and electricity production inputs have risen, an increase in electricity tariffs is widely seen as unavoidable. Therefore, rather than passively waiting for a potentially unfavorable rate adjustment, companies should proactively implement energy-saving solutions to minimize the impact on their operations. Strategies such as investing in technological upgrades, improving production lines, reusing waste heat, and prioritizing renewable energy sources can significantly reduce energy costs.
For businesses needing to allocate capital towards production recovery or technological innovation, flexible financing models are available. One such solution is the Power Purchase Agreement (PPA) model, a pioneering initiative offered by Vu Phong Energy Group in collaboration with reputable domestic and international investment funds. Through this model, Vu Phong and its partners invest in a high-quality solar power system on an enterprise’s roof. The business can then purchase clean energy or lease the system at a rate consistently lower than the standard grid price. This allows companies to utilize their idle roof space to secure cost savings, regardless of future EVN pricing adjustments.
Solar power system with PPA (Power Purchase Agreement) model on Vinamilk’s Mega Factory, transferred in 2022
With a long-term contract, the PPA model helps businesses proactively manage energy prices and minimize risks associated with future tariff increases. At the end of the agreement, the entire solar power system is transferred to the business for free (0 VND), with a performance guarantee of over 80-90%. This is a highly effective solution that not only delivers significant energy savings but also contributes to greening the manufacturing process. Understanding the various benefits of solar energy for businesses is crucial in today’s global shift towards green growth and sustainable development.
Businesses interested in the PPA solar power system and other clean energy solutions to advance their sustainability goals can contact our Call Center at 1800 7171 or +84 9 1800 7171, or email us at hello@vuphong.com for more information.
Vu Phong Energy Group
