The electric power sector represents one of the most promising areas for U.S. commercial prospects in the Vietnamese market. At present, Electricity of Vietnam (EVN), a state owned enterprise which reports directly to the Prime Minister, holds a monopoly on electricity transmission and distribution. The electric power industry is under the jurisdiction and management of the Ministry of Industry and Trade (MoIT).
The Vietnamese government relies on Power Development Master Plans to advance the development of the electric power sector. These plans forecast growth in demand and map out the overall development of the power industry to meet that demand going out ten years, while also providing a twenty-year overview. On July 18, 2007, the Vietnamese Prime Minister approved the Sixth Master Plan, covering the period 2006 – 2015, with an overview extending to 2025. Vietnam’s relevant authorities are working on the Seventh Master Plan covering the period 2010-2020 with an overview extending to 2030 that is planned to become public in 2011.
Demand for Electricity:
Vietnam’s annual power consumption growth over the period of 2006-2009 was 13.5 percent. In 2009 alone, according to estimates by EVN, the country’s power consumption was 74,479 GWh.
According to EVN’s statistics, as of December 2009, the Vietnamese power generation industry produced 86,948 GWh. The draft of Master Plan VII envisions that with forecasted GDP growth at 7.1 – 9.8 percent over the period 2011-2030, the demand for electricity will grow by 12.1 percent per year (low-case scenario), 13.4 percent per year (base-case scenario) or 16.1 percent per year (high-case scenario) during the period 2011- 2015
Power shortages are expected during this period if adequate measures are not taken to increase the power supply accordingly. According to draft Master Plan VII, it is estimated that an additional capacity of 4,100 MW will be required per year on average during the 2011 – 2015 time period to meet rapidly growing demand.
As of the end of 2009, Vietnam’s total generation capacity (peak) was 86,948 GWh, of which EVN’s facilities accounted for 70 percent. The remainder was under the control of local and foreign Independent Power Producers (including 27 IPPs).
The power generation system relies mainly on thermal power (39 percent) and hydropower (36 percent). Thermal coal-fired power, currently accounting for 10.5 percent, will play an increasingly important role in the medium and long term.
In 2009, the total installed capacity was 17,652 MW, of which hydropower, coal-fired, oil-fired, gas-fired, diesel and small HPPs, and IPP/BOT/Import account for 36, 10.5, 3.3, 18.5, 2.6, and 29.1 percent respectively. See below chart for detailed information on installed capacity from 2005-2009.
The current number of power plants under construction in Vietnam is 29 with total capacity of 10,029 MW that includes 20 hydropower plants and 9 thermal power plants. In 2010, Vietnam plans to put an additional 3,737 MW of capacity into operation. In order to meet increased market demand, Vietnam is planning on building two nuclear power plants with a capacity of 2,000 MW each, and at total estimated cost of approximately $6 billion. GVN’s current plan is to build the plants in the southern province of Ninh Thu?n, with the first becoming operable by 2020.
Transmission and Distribution Systems:
As of the end of 2009, the rural electrification rate in Vietnam was 95 percent and is expected to reach nearly 100 percent by 2020. The following chart shows the current transmission system as well as its projected development to 2025.
In addition to the transmission system, Vietnam currently operates a power distribution system of about 115,659 km of 6kV, 10kV, 15kV, 22kV and 35kV lines with a total capacity of 3,662 MVA and 109,199 km of 220V lines with a total capacity of 32,061 MVA. The rapid development of power generation and transmission systems will require a respective expansion of the distribution system.
According to state-run EVN, over the period 2006 – 2010, investment of over $16 billion (including investment in IPP projects) is needed for the development of new transmission and distribution systems as well as about 44 new power generation projects. Sources of finance for this development are expected to come from EVN funds (self-financing), Official Development Assistance (ODA) loans, Vietnam’s Development Assistance Funds (DAF), commercial loans and foreign export credit, as well as IPP developers (private sector). The following chart shows EVN’s projected investment in the power sector over period 2006 – 2010
In the longer term, EVN estimates that the electric power industry will require over $40 billion in order to achieve its goals set for the year 2015. Of this estimated investment, about $30 billion will be allocated to power generation and the remaining $10 billion will be needed for the development of the transmission and distribution network. Also, according to EVN, in the next 8-9 years, in the base-case scenario, Vietnam plans to build 95 power plants with a total capacity of up to 49,044 MW, of which 44 power plants with total capacity of 24.045 MW, will be invested by EVN itself. In the high-case scenario, Vietnam plans to invest up to 98 power plants with total capacity of 59,444 MW, of which EVN would build 48 power plants with 33,245 MW, with an estimated total investment of $39.58 billion (including $26.77 billion for power generation.)
Independent Power Producers (IPPs):
As EVN’s self-financing and other sources of debt financing can meet only about 66 percent of the total investment requirement, IPPs are expected to carry a large portion of the investment in the power generation sector, including those to be developed by foreign investors. In 2006, MoIT, the government agency responsible for planning, executing bidding, and contracting procedures for large IPPs, issued Decision 30/2006/QD-BCN to regulate the investment, construction and operation of IPPs. To date, a considerable number of foreign investors have shown interest in developing IPP projects in Vietnam, yet few projects have been realized due to obstacles including legal and regulatory issues, low electricity purchase prices by EVN, the lack of a transparent and competitive market, and poor coordination among related government agencies. In recognition of these hindrances, MoIT has taken radical measures in an effort to facilitate IPP development including signing a financial advisory agreement in 2006 with the International Finance Corporation (IFC), a financial arm of the World Bank (WB). The major goal of this agreement is to increase private participation in the power sector through open competitive bidding. In particular, MoIT and IFC expect that by 2010 the total electricity output of the electricity purchased from IPPs would be increased to 33 percent.
Electricity Retail Price:
The government strictly regulates electricity retail prices, with adjustments recommended by MoIT and requiring approval by the Prime Minister. A unified tariff is applicable across the country and is low in comparison with other regional countries. Both average urban and rural residential rates are cross subsidized by higher rates for industry, commerce, and foreign consumers. To attract more investment from the private sector in developing IPP projects, MoIT and EVN have been working on a roadmap for price increases and gradual elimination of government’s control. According to this roadmap, the first increase in the retail price of electricity, bringing the average price to 5.5 U.S. cents, was implemented from the beginning of 2007, and further increases are expected in 2010.
Establishment of a Competitive Power Market:
In 2004, the Vietnamese National Assembly passed the new Electricity Law that outlines the development of a competitive electricity market. In 2006, the Prime Minister issued Decision 26/2006/QD-TTg to detail the implementation of a competitive power market which will be carried out in three phases: (1) The first phase (2005-2014) focuses on creating competition in power generation with a single buyer, (2) the second phase (2015 – 2022) introduces competition for bulk supply of electricity (wholesale) including supply directly to major industrial customers, and (3) the final phase (after 2022) involves competition at the retail level.
One of the many key transitional steps towards a competitive electricity market is the restructuring of EVN, a state owned monopoly with many wholly owned subsidiaries, into shareholding companies with different types of shareholders including local and foreign private investors. This restructuring aims to create an increasingly business-oriented enterprise with an increased degree of separation from the government. This enterprise reform involves splitting various subsidiary entities away from EVN to form new shareholding companies.
FDI Encouragement and Challenges:
Government of Vietnam’s policies are to diversify investment sources, encourage foreign investors in power development with BOT, BOO and other related schemes. However, Vietnam has been facing a number of difficulties. For instance, (i) electricity prices are still low. Therefore, existing thermal power plants are unable to buy coal at a price (regulated by the Government) lower than the coal price in the region, leading to unattractiveness of new power plant projects; (ii) the procedures for investors under the scheme of BOT are still complicated, with insufficient guidelines; and (iii) equipment prices have sharply increased, leading to increased production cost and thereby reducing the financial attractiveness of power generation projects.
The power generation market may be divided into five main segments: (1) consulting and engineering services, including project management, (2) installation and construction services, (3) machinery, equipment and materials, (4) supply of equipment, spare parts, materials, consumables, and overhaul and maintenance services (aftermarket), and (5) investment in new IPP power projects in the form of BOT, BT, BTO and JV.
The power transmission and distribution market may be divided into four main areas: (1) consulting and engineering services, project management, (2) installation and construction services, (3) high, medium, and low voltage electrical equipment for the national grid, and (4) medium and low voltage electrical equipment for industrial, institutional and household users.
U.S. companies will find significant business opportunities in the above market segments, including:
• Sales opportunities in ongoing and upcoming power generation projects.
• Investment opportunities in IPP projects as approved by the Prime Minister.
• EVN- funded power transmission and distribution projects.