Vietnam Rising

Vietnam Rising

Vietnam has accelerated to become one of the fastest growing economies in the world. But a shortage of power threatens to slow down its remarkable journey. How can the country have enough energy to continue fuelling its growth? Find out.

Vietnam has accelerated to become one of the fastest growing economies in the world. But a shortage of power threatens to slow down its remarkable journey. How can the country have enough energy to continue fuelling its growth? Find out. 

A few months ago, Vietnam’s ministry of industry and trade reportedly raised a red flag when it pointed out that the country will contend with severe power shortages from 2021 as electricity demand outpaces the construction of new power plants. 

Vietnam’s current Power Development Plan estimates that the country needs USD 150 billion to meet its target of 130 GW by 2030. But it’s not going to be easy. Energy demand is rising at an average 10% annually since the past five years and energy supply has been unable to keep pace. Depletion of domestic reserves is taking a toll on existing coal and gas power plants. Coal and oil imports have surged because of the rising electricity demand. Meanwhile,international banks are now reluctant to fund new coal capacities and are favouring renewable projects. 

The Coal Conundrum 

According to McKinsey, “The current plan relies heavily on foreign coal (57 percent of total generation and 47 percent of total capacity by 2030). The current coal-plant build-out is well behind schedule, reflecting the relative cost and complexity of coal-plant construction, creating cost escalation and reliability risks.”

“Due to the slow progress of large Coal & Combined Cycle Gas Turbine (CCGT) power plants and also the high electricity demand, the government has realised that this shortage will happen from 2021 until 2025. The south, as the region with the highest demand, will be most affected by this challenge,” explains Pham Minh Thanh, Business Development Manager, Wärtsilä Energy Business. 

By the end of 2019, Vietnam had a total installed capacity of 55.94 GW comprising coal (36.2%), hydropower (30.3%), oil & gas (16.2%) and renewables (9.64%). State–owned utility, Electricity Vietnam (EVN), along with its generation units, dominates the market with a 54% capacity followed by other state-owned companies (11%). Private and international players contribute just 27% of the total capacity.  

EVN’s evolving role 

While Vietnam has achieved near universal electrification, most of its power and network infrastructure have been financed through EVN’s balance sheet. The World Bank’s report - Maximising Finance for Development in Vietnam’s Energy Sector explains, “The Ministry of Finance (MOF) on-lends concessional, foreign currency-denominated resources from international financial institutions (IFIs) and development partners (DPs) to EVN at less than concessional rates. The MOF also guarantees EVN’s direct borrowing from local and international commercial banks.”

But public debt is nearing its limit of 65% of GDP. New energy investments will have to come by increased private participation. Fortunately for Vietnam, the government embarked on the liberalisation of its energy sector in 2004 which involved unbundling of EVN, having an energy market regulator and building competitive generation and power trading (wholesale and retail) markets. 

“In June 2018, EVN was assigned by Fitch Ratings Agency as a Long-Term Foreign Currency Issuer Default Rating of BB with a Stable Outlook. This positive rating would help EVN access the international capital market for future investment,” says Vo Quang Lam, Vice President, EVN.

A cleaner, greener future 

As a signatory to the Paris Global Climate Agreement, Vietnam has also committed to reducing its greenhouse gas emissions by 8% by 2030, and additionally cutting them by 25% with international support. With Vietnam being naturally endowed with solar and wind resources, renewables are playing a big role in helping the country achieve these twin objectives. 

The Institute for Energy Economics and Financial Analysis (IEEFA) estimates that in the past 2 years, the country has delivered 4.7 GW of new solar capacity. In addition, renewable energy was amongst the top 10 most attractive sectors for investment in Vietnam, supported by a generous feed-in tariff fixed by the Government.

According to the current Power Development Plan (PDP7-revised) released in 2016, 10% of Vietnam’s energy output in 2030 will be from renewables (solar, wind, biomass, others, excluding hydro), with wind and solar comprising 5.4%. Now the country is planning to revise and increase this target due to the significant change in the energy landscape over the last few years. The government also plans to further restructure the regulatory environment in favour of renewable energy sources and to promote technologies that reduce reliance on conventional baseload thermal sources such as coal. But this rapid renewable energy (RE) growth comes with a new set of challenges.

“The development of transmission projects is taking longer than that of PV solar (at least 3 years compared with less than a year). There is curtailment because a significant amount of energy output from 25 solar power plants (out of 100) with total capacity of 984 MW (out of 4,900 MW) shows PV solar is not operating at its full capacity at the moment due to the limit of transmission capacity,” explains Thanh. 

Flexibility enables reliability of power systems

Experts say that Vietnam can bank on increased flexibility and reliability to solve this problem and ensure that its RE targets are delivered as planned. This is where European energy major Wärtsilä comes in. The company has been operating in the country for 25 years and installed seven power plants producing more than 100 MW. 

Wärtsilä’s advanced power system modelling software PLEXOS (used in over 70 countries and sub-systems for the last 10 years) can be a useful source to help Vietnam discover the best possible energy-mix to achieve 24/7 reliability in its power systems while achieving full RE potential, reducing costs and bringing down emission levels. 

The company’s modular multi-fuel power plants, based on the internal combustion engine technology, can be delivered on a fast-track basis (less than 12 months), which can help Vietnam overcome its power shortage in the coming years. However, the big challenge is the lengthy project approval process which will require some type of special mechanism from the government to simplify such process. 

“These plants can be ramped-up to full load less than two minutes after starting and stopped instantly when not needed for several times during the day. This makes them an ideal solution for a power system as it can fully exploit and seamlessly integrate renewables, which are known to be intermittent in nature,” elaborates, Nicolas Leong, Sales Director, Wärtsilä Energy Business. 

There is no doubt that Vietnam will need more investments and reliable power systems to fuel this growth. With RE emerging as the most popular source of generation, it’s time for Vietnam to take the giant leap towards more flexibility and reliability. 

Written by
Payal Bhattar
Associate Editor at Spoon Agency