Fitch Solutions has released a report that shows an expectation of Vietnam's power expansion to continue being largely driven by coal, despite increasing pressures on the fuel source recently.
- Fitch expects Vietnam's power expansion to continue being largely driven by coal despite increasing pressures on the fuel source of late.
- Coal will remain the most practical option in the short-term to stimulate affordable electricity generation growth at the pace and scale needed by the country, particularly as it deals with looming threats of power shortages in the short-term.
- In the short-term, there are also limited alternatives that the country can use to ramp up power generation capacity substantially.
- A key supportive factor for continued coal-fired power growth is the continued access to financing from China and South Korea.
Power project pipeline driven by coal: Vietnam – capacity of power project pipeline by fuel type, MW.
The National Steering Committee for Power Development has recommended scaling the share of coal down for the upcoming PDP VIII, eliminating nearly 15 GW of planned coal projects and for coal to account only 37% of Vietnam’s electricity by 2025, due to slow progress and environmental opposition to in some coal projects.
We note that the government initially had a coal capacity target of 106 GW by 2025, and for an additional 55 GW of coal capacity from 2017 - 2030. There is yet to be a decision made on capacity targets, and Fitch believes that the government is likely to retain an ongoing commitment to coal at present.
According to its key projects database at present, there is more than 17 GW of coal power plants that are already under construction, and almost another 29 GW under preconstruction stages. It is unclear how the government will halt the development of these projects that are already under construction without incurring significant compensation costs.
Furthermore, Vietnam is facing looming threats of power shortages over the coming years, given an expected surge in power demand, and has in fact been trying to fast-track the development of some of these projects since 2019. It is clear that the government is prioritising the development of the power sector in general to support the country’s strong economic growth.
Coal remains the most practical option in the near-term to stimulate affordable electricity generation growth at the pace and scale needed by the country, given its affordability, accessibility and reliability.
Coal share to rise rapidly: Vietnam – coal power generation, TWh and % of total power generation.
In the short-term, there are also limited alternatives that the country can use to ramp up power generation capacity substantially. Vietnam's power generation has been traditionally dominated by natural gas-fired power and hydropower but Fitch sees several obstacles to growth in the short-term.
- Hydropower: hydropower potential has already been almost fully exploited at present, and hydropower generation output reliability is further threatened by lower rainfalls and a series of abnormal weather patterns in recent years. Many major hydropower dams have seen historic low water levels in 2019, as low as 20 - 30% of capacity, and were in fact being forced to shut down.
- Natural gas: domestic gas reserves are depleting and have also seen output reductions in recent years. While there is some scope to boost LNG-to-power projects, a rebound in gas-fired generation will likely only occur from 2023, as the first LNG terminal comes into operation. This is also contingent on global gas prices remaining low.
- Non-hydro renewables: while Vietnam is seeing substantial growth (and opportunities) in renewables capacity, Fitch stresses that the intermittent nature of wind and solar power coupled with an underdeveloped grid capacity remains a bottleneck to generation growth at present. For example, the rapid build out of renewable projects in Ninh Thu?n and Bình Thu?n has caused grid overload and renewables curtailment in recent months, and some wind and solar plants were forced to reduce their output.
As such, Fitch expects thermal capacity in Vietnam to continue seeing robust growth, adding a net capacity of approximately 15 GW by 2025 from end-2019, and another 4.8 GW by 2029, with coal being the main driver of this expansion. Fitch does stress that its forecasts remain conservative as a fraction of those in the pipeline, as Fitch has already accounted for project realisation risks. Coal rojects that are at the highest risk of derailing are those that use less efficient technologies, located in provinces with high renewables penetration, and those that have yet to achieve a final investment decision and financial close.
Thermal capacity dominates growth: Vietnam – total power capacity by type, MW.
A key supportive factor for continued coal-fired power growth is the continued access to financing from China and South Korea. While a shifting international financing environment for coal amid environmental concerns posit some downside risks, Fitch believes that alternative financing sources, particularly from China, will likely remain forthcoming. Fitch notes that the 1200 MW Vung Ang 2 and 1980 MW Vinh Tan 3 coal-fired power plants have come under the spotlight following OCBC Bank, Standard Chartered Bank and HSBC Bank recent announcements to withdraw financing from the plants.
Japan, a key financing source in the region, is also looking towards reviewing their coal financing and export policies by end of June 2020. That said, most Chinese and South Korean banks, which form a substantial majority to Vietnam’s coal financing, have not flagged any commitments to exit coal yet.
Crucially, these countries aim to generate external demand for coal power equipment through the use of their respective export credit agencies, amid a decline in domestic coal power markets. Fitch stresses that many banks with effective coal bans also have financing loopholes and exemptions, which unlock funding for certain projects in light of its importance to economic development. As such, the extent and scope of Japan’s coal financing review also remains uncertain at present.
Read the article online at: https://www.worldcoal.com/coal/04032020/coal-to-remain-key-in-vietnam-power-expansion/
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