Power to Vietnam

Trends and opportunities

The market

The Vietnam power sector has grown quickly over the past decade. In 2016 the combined power generation capacity reached 46,149 megawatts and is ranked second in Southeast Asia after Indonesia. In 2017, the aggregate electricity output reached 155.7 TWh (Source: BMI, Vietnam Power Report Q4 2017 ). Secured energy supply and affordable electricity is critical to the sustainable socio-economic development of Vietnam. Electricity demand is forecast to grow at an annual average of 10.5 per cent from 2015 to 2025, alongside average gross domestic product growth of 6.2 per cent ( Source: ADB, Vietnam Energy Sector Assessment Strategy, and Road Map, 2016 ).

Growing demand puts pressure on the national grid and the current generation capacity of 46,149 megawatts is expected to be outpaced in the near future. The short-term solution is to import electricity from neighbouring countries (China and Laos). In the long term, the Government of Vietnam aims to ramp up the installed capacity with a diverse energy mix, reflected in the revised Power Development Plan (PMP) VII 2016. In particular, the installed capacity is set to reach 75,000 megawatts (by 2020), 85,000 megawatts (by 2025), and 116,000 megawatts (by 2030). The government’s ambitious targets require a huge amount of capital to be invested in the industry. The revised plan shows that a total investment of US$ 79.9 billion is required for the 2020 to 2030 period, in which 65 per cent will be invested in power generation and the rest in transmission and distribution.

Gas and hydropower has dominated Vietnam’s power generation for years. Hydropower, however, will soon be overtaken by coal. Coal-fired generation is set to account for 49 per cent (in 2020) and 50 per cent (in 2030) of the generation mix. The main setback is insufficient coal production for power generation and Vietnam will have to import 120.1 million tonnes of coal to meet demand in 2030. The development of coal-fired power plants also triggers environmental concerns while the country is committed to reducing greenhouse gas emission. The government has recently revised the generation mix, converting some of the planned coal-fired power plant to use LNG as a replacement and increasing the proportion of renewable energy to demonstrate commitment to the international trend.

Vietnam is said to have excellent potential for developing renewable energy, yet it has the lowest adoption rate in the region and is at a very early stage. The entire country is located in the tropical belt between the equator and the Tropic of Cancer and Vietnam has high potential for solar energy, especially in the central and southern area of the country. Vietnam shows an average global horizontal irradiance (GHI) of 4-5 kilowatt-hour/m2/day in most southern, central regions and peak irradiation levels of up to 5.5 kilowatt-hour/m2/day on average in some southern regions (equivalent to about 2,000 kilo-watt-hour/m2/year) ( Source: GIZ, Solar Energy in Vietnam 2016 ). Decree 11/2017/QĐ-TTg and Circular 16/2017/TT-BCT demonstrates the Vietnamese government's commitment to encouraging the development of solar power in Vietnam, reflecting the investment trends and interests in line with new climate priority.

In terms of wind energy, the country is bestowed with a long coastline of over 3,000 kilometres and the average wind speed per year ranges from 5.5 metre/second to 7.3 metre/second, which are favourable conditions for wind energy development. The technical potential for wind power development in Vietnam is estimated to be around 8000 megawatts, covering a land area of 2,681 kilometre2. However, up to May 2017, only 146 megawatts of wind power has been put into operation (Source: MOIT, 2017).

The Vietnamese Government owns and controls the transmission and distribution systems and the majority of the generation in the power sector, while the Ministry of Industry and Trade (MOIT) is responsible for policy making, development guidelines, and industry regulations. MOIT recently restructured with key agencies responsible for energy including Oil and Coal Department; Energy Efficiency and Sustainable Development Department; Power and Renewable Energy Authority and Electricity Regulatory Authority of Vietnam (ERAV) who is responsible for supervising the operation of the electricity market including master plan, retail pricing and licensing.

The generation market is mainly dominated by The Vietnam Electricity Group (EVN), the state-owned enterprise, through its subsidiaries GENCO1, GENCO2, GENCO3 with 64 per cent market share, the remaining is shared by other government-owned businesses including the National Oil and Gas Group – PetroVietnam and the Vietnam Coal and Mineral Industries Group – Vinacomin and independent power plants (IPP) and foreign investors under BOT, BTO projects.

The transmission and distribution market is also run by EVN’s subsidiaries, four National Power Transmission Corporations and five Power Corporations. The national transmission network is comprised of 4,000 kilometres of 500kV lines, 30,000 kilometres of 110 kilovolts – 220 kilovolts lines. The electricity distribution network in Vietnam is over a 430,000 kilometres distribution grid from 0.4 kilovolts to 35 kilovolts. While a competitive generation power market has been slowly established, the government also sets the target to develop a competitive wholesale market by 2020 and competitive retail market after 2022 to eliminate EVN’s monopoly.

Opportunities

Since the government opened up the power generation sector with a series of reforms to attract investment, there are significant opportunities for international players. In the generation segment, the government is calling for investment from IPPs to build more thermal power plants in accordance with the revised PMP VII. The construction of power plants offer a wide range of opportunities for equipment manufacturers, energy consulting companies and EPC.

In the transmission and distribution segments, technologies and solutions that optimise operation, reduce cost and energy loss, and increase productivity are also of high interest to the market. Solutions for developing smart grid and undergrounding electricity cables are also highly placed in the development strategies of power corporations in big cities such as Hanoi and Ho Chi Minh City. The government’s vision to create a competitive electricity market also provides opportunities for professional consulting firms.

To tackle climate change and reduce greenhouse gas emission, the government is determined to encourage the development of renewable energy including solar, rooftop solar and wind energy as well as new technologies such as smart grids and micro grids.

Competitive environment

Existing international stakeholders already in the market include Japan, Korea, Malaysia, China, United Kingdom (thermal power plants), Germany, United States, Spain, and Korea (renewable energy). In the transmission and distribution segments, German, American and Japanese companies are big players with companies such as Siemens, GE, Honeywell, and Mitsubishi Electric, in the market. Most power plant constructions have been built by Chinese contractors.

There are concerns about the readiness of the legal framework, bankability of projects and further requirements for clarity in land use needed before any investments in place.

Tariffs, regulations and customs

The Vietnam power market is regulated by the Electricity Law issued in 2004 and Amendments of the Electricity Law dated 1 May 2013. The law defines electricity development policies, development planning and investments, market operations, price and licenses.

The Vietnamese Government is drafting a legal framework of competitive wholesale electricity market (VWEM). VWEM will be carried out in three steps:

  • 2016 – simulation on paper, no payment made
  • 2017-2018 – actual market pilot
  • 2019 onwards – fully implemented. Ministry of Industry and Trade approved VEWM action plan under Decision 8266 / QD-BCT dated 10 August 2015.

Marketing your products and services

Market entry

Australian companies need to keep regular contact with key market players in Vietnam and identify projects at an early stage. Companies should also maintain good relations with end-users to help identify the right distribution channels.

A complicated transaction system and strong competition are the main barriers to doing business within the sector in Vietnam. Language can also be a barrier to market entry.

Distribution channels

Many of the large projects are state-owned and the procurement process is often through bidding, where foreign companies are not allowed to submit a tender and must form a joint venture or utilise a local distributor.

Links and industry contacts

Government, business and trade

Electricity Regulatory Authority of Vietnam (ERAV)
Ministry on Industry and Trade (MoIT)
PetroVietnam Power Corporation
Vietnam Electricity (EVN)
Vietnam Energy Association
Vinacomin Group

Media

Vietnam Energy Magazine

Contact details

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