Vietnam Power

Vietnam Smart Grid Reverse Trade Mission:

Power sector background

Over the course of two decades Vietnam has emerged as an important regional producer of oil and natural gas in Southeast Asia. The country has boosted exploration activities, allowed greater foreign company involvement in the oil and natural gas sectors, and introduced market reforms aimed at strengthening Vietnam’s energy industry. While these efforts have helped Vietnam expand production of oil and natural gas, domestic consumption of these resources has also increased as a result of rapid economic growth. The country’s real gross domestic product (GDP) has grown by an average 7.3 percent over the last ten years. Half of Vietnam’s domestic energy consumption comes from oil, with hydropower (20 percent), coal (18 percent), and natural gas (12 percent) supplying the remainder. There are a number of power plants planned or proposed in Vietnam. The government has plans to increase Vietnam’s total installed generating capacity to 81 GW by 2020, or 9 times the 2004 capacity. As part of this effort, EVN has outlined plans to build 74 new power stations by 2020. Of these, 48 are slated to hydroelectric facilities, which has led some in the Vietnamese government to express concern about the country’s reliance on hydropower. Among the planned facilities is the Song La plant, which at 2,400 MW will make it Vietnam’s largest hydroelectric power station when completed.

The Government of Vietnam, in the National 2001-2010 Socio-Economic Development Strategy, has set out its development goals for 2010. These 12 goals (referred to as Vietnam’s Development Goals or VDGs) that reflect the Millennium Development Goals (MDGs) take into account development features specific to Vietnam. The VDGs have been integrated into national socio-economic development strategies and five-year plans, which can be seen also as the national plan for achieving the MDGs. The nationalization and inclusion of the MDGs into national planning helps mobilize the entire society to reach its own goals and to honor Vietnam’s international commitments. The most recent household survey data indicate that in 2004 the poverty rate was 19.5 per cent, and the share of the population living on less than a dollar a day fell sharply to 7.8 per cent. In 2004, the net enrolment rate in primary school reached 94.4 per cent, the primary school completion rate 99.82 per cent, and the adult literacy rate (among persons 15-24 years of age) 94.5 per cent. Increased investment in rural infrastructure has provided clean water and sanitation facilities to millions of households. In 2004, 41 per cent of the rural population had access to hygienic latrines. The position of women has improved in education and training, employment, and leadership. Child and maternal mortality rates have been significantly reduced: for 2004 the under-five mortality rate was 31.5 for 100 live births; the infant mortality rate was 18; and the maternal mortality ratio 85 per 100,000 newborns. These figures are very impressive, particularly for a country of Vietnam’s income level

The demand for power consumption is expected to increase at a rate of more than 14 percent annually during the period of 2013-18 (1). Based on World Bank analysis, the capacity of Vietnam’s power system need to double in next five years to meet the demand growth projected at 15 percent per year. The demand is being driven specially by industrial load growth; heavy increases in residential uses as incomes are increasing and dramatically increased electricity access in Vietnam.

The electricity utility in Vietnam is being developed, managed and owned by the state-owned Electricity of Vietnam (EVN). EVN is currently managing almost all power plants, except some independent power plants (IPP) and other power plants that were constructed under the build-operate-transfer (BOT) scheme. EVN controls 77 percent of the total electricity generated by the power plants and 79 percent of Vietnam’s entire electricity output. EVN is also managing the national electricity networks by operating the transmission system plus owning all 10 distribution electricity companies which are responsible for selling power to end users. The major distribution companies are Electricity company No. 1 (in the North), Electricity company No. 2 (in the South) and Electricity company No. 3 (in the Central area) and 4 companies managing the distribution system in Hanoi, Ho Chi Minh city, Hai Phong and Dong Nai provinces.

By the end of 2010, the total installed generation capacity of 21,542 MW was dominated by hydropower (40 percent) and gas-fired plants (32 percent), oil fired power plants (6 percent) with the rest supplied by coal-fired (16 percent), and others (6 percent). By the year 2015, the government aims to maintain the dominance of hydropower at 40 percent while aggressively developing gas to a share of 40 percent and an increase in the proportion of coal-fired plants to 18 percent.

With an economy that has grown at a compound annual rate of 4.4 percent over the last four years, Vietnam has struggled to meet the demand for electricity created by an expanding industrial sector and a population with rising disposable income.  Investments in the power sector have been unable to keep up with demand growth in order to maintain adequate network capacity and generation reserve levels.  As a result, the Government of Vietnam is expected to spend around $48.8 billion over the next six years on power sector development to address these issues.

22 gigawatts (GW) in 2011 to 51 GW in 2025, and nearly 44,000 kilometers (km) of 500 kV and 75,000 km of 220 kV lines will also need to be constructed throughout the country to effectively transmit the generated power to load centers. As such, multilateral development banks (MDBs) such as the World Bank and Asian Development Bank (ADB) have focused a significant portion of their lending portfolios on power transmission and distribution.  As of September 2013, combined MDB, Clean Technology Fund, and government of Vietnam financing for grid efficiencies and distribution efficiencies totaled over $1.2 billion.

 

The Power Master Plan VII puts strong emphasis on energy security, energy efficiency, renewable energy development and power market liberalization. The Power Master Plan VII (2011-2020) sets out six key directions and four specific targets for Vietnam’s power development in the next 20 years:

1)    Integrate the development of the power sector into the socio-economic development strategy of Vietnam and ensure sufficient supply of electricity for the national economy and social life.

2)    Combine the efficient use of domestic energy resources with the reasonable import of electricity and fuels and diversify the primary energy resources for power generation and fuel conservation and ensure energy security for future.

3)    Improve the quality of electricity and electricity services step by step and adjust the electricity tariffs according to the market mechanism to encourage investment in power sector and efficient use of electricity.

4)    Develop the power sector in parallel with the protection of natural resources and the eco- environment to ensure sustainable development of the country.

5)    Create a competitive power market by diversifying the form of investment and trading of electricity. The State shall hold monopoly only in the power transmission network in order to ensure security of the national energy system.

6)    Develop the power sector based on reasonable and efficient use of primary energy resources in each region and continue the promotion of rural electrification to ensure sufficient, continuous and safe supply of electricity to the whole country.

 

With regards to Transmission Sector, the State will make further investment in the national power transmission grids to bring their development in line with the national and local power development plans, increase the reliability of power supply, reduce power losses during transmission and ensure favorable mobilization of power sources in the rainy season and dry season and in all operation regimes of the power market in Vietnam.

To implement the Power Master Plan VII, the State estimated that the total investment capital required for the power sector is approximately USD 48.8 billion up to 2020, of which two-thirds will be used for power generation development and one-third for power network development, and up to approximately USD 75 billion for the period from 2021 to 2030, of which 65.5% will be used for power generation development and 34.5% for power network development. Vietnam needs $10B to upgrade grid by 2020. The NPT started to turn the electricity network into a smart grid by applying modern technologies in operation and control to increase capacity. In 2014 the Ministry of Industry and Trade and Electricity of Vietnam presented a plan for the implementation of the road map on developing “smart grid”

Vietnam SWOT Analysis (2)

Strengths

  • Hike in electricity prices should stimulate investments in the energy sector.
  • Electricity demand has been rising steadily since the beginning of the decade, and we expect power consumption to see a sharp increase in the coming years due to Economic and demographic growth.
  • According to the Master Plan Development for the Power Sector of Vietnam, the Electricity sector needs total investment of around US$79.9bn to 2025. Around US$52bn of this will be invested in power generation and the rest in the electricity Transmission and distribution network.
  • Severe droughts is driving demand in other electricity generation sources besides Hydropower: ie gas-fired and wind power plants.

Weaknesses

  • The electricity system is still underdeveloped and there are electricity shortages, and the system operates without reserve.
  • Lack of sufficient electricity generation will result in rising import dependence and an increased burden on the economy.
  • Electricity of Vietnam (EVN)’s dominant position has deterred investments.

Opportunities

  • Vietnam has been one of the fastest growing economies in Asia in recent years, with GDP growth averaging 7.3% annually between 2000 and 2009.
  • Vietnam has a large, skilled and low-cost workforce that has made the country attractive to foreign investors. Similarly, Vietnam’s proximity to China and South
  • East Asia and its good sea links makes it a good base for foreign companies to export to the rest of Asia and beyond.
  • Vietnam has emerged as an important regional producer of oil and natural gas, allowing greater foreign company involvement in the oil and gas sectors, and introducing market reforms aimed at strengthening the country’s energy industry.

Threats

  • The country presents a relatively risky environment for major infrastructure projects, especially with regard to project finance operations due to the traditional low rates paid by the consumer make it a risky investment.
  • Public spending cuts, tighter credit conditions and aggressive monetary tightening are likely to keep economic activity depressed over the coming months.
  • The heavily managed and weak dong currency reduces incentives to improve quality of exports, and also serves to keep import costs high, thus contributing to inflationary pressures.
  • Vietnam’s infrastructure is in need of technological upgrades to increase service reliability.

Percapita

Yearly Per Capita Consumption is growing

HCMC Power Corporation

The transmission network of HCMC Power Corporation is supplying electricity to the area of Ho Chi Minh City including 374.93km of 110kV line, 14.59 km of 110kV underground cable and 37 110kV substations with 64 transformers with total capacity of 3,276.6 MVA. Distribution network in HCM City consists of 5,077 km MV line in which there are 1,247km of underground cable, 9,566 km of LV line and 21,614 distribution substations with total capacity of 7,810 MVA. In 2009, maximum received energy of Ho Chi Minh City Power Corporation reached 44.57 million kWh/day, increasing 5.96% compared to 2008, max peak load reached 2,245MW, increasing 3.06% compared to 2008; minimum peak load reached 616.1MW, decreasing 2.5% compared to 2008.

Energy loss reduction is a constant, thorough task in many recent years with the strong efforts of the company from technical management to sales. The company has focused on investment of transmission line and distribution, rehabilitation of power network in the whole HCMC power system, optimized operation of power network as well as reinforcement of anti-loss skill in business such as: inspecting and adjusting meters, anti-electricity stealing, and regional efficiency.

In the last 10 years, the company has strived to reduce 0.6 % of the average loss rate per year. Specifically from a network with the loss rate of 17.5% in 2000, it is reduced approximately to 6.03% in 2009. And in the coming 3 years, the average loss rate is reduced from 0.2% to 0.3% per year.

The Prime Minister has just approved list of Han Noi and Ho Chi Minh City Power Grid Development Sector Project financed by Asian Development Bank (ADB). Total investment for the project is USD 366.98 million. The project is implemented from 2014 – 2016 in these two cities and directed by Ministry of Industry and Trade. Purpose of this project is to overcome interruption of power supply and reduce load of 220/110kV transmission system; as well as to reduce power loss; ensure power supply for demand of increasing load in these two cities in the period of 2014-2016, with consideration to 2020.

EVN HCMC serves the Ho Chi Minh City region, with an urban base of about 1.9 million customers.  With a rapidly growing population of over 7.3 million residents, Ho Chi Minh City is Vietnam’s largest city and is faced with a large demand for electricity relative to the rest of the country.  In 2009, the amount of electricity consumption in the EVN HCMC area occupied over 18 percent of national consumption.  In managing the demand for electricity in the greater Ho Chi Minh City metropolitan area, EVN HCMC is facing the challenge of modernizing and enhancing power system efficiency and reliability, and promoting efficient use of electricity by customers to reduce investment needs.  In early 2012, EVN HCMC’s electricity losses were estimated to be over 5.3 billion kWh, or 11 percent, and at current electricity rates, this was the equivalent of $310.4 million in lost revenue between January and May 2012.  Thus, smart grid technology represents a viable means to better manage electricity demand by achieving sustainable security of supply at the lowest possible cost, and EVN HCMC will be the first PC to deploy smart grid technologies; if successful, these will expand to the other PCs as well.  Thus, by establishing a base for U.S. technologies with EVN HCMC, this activity will also set the groundwork for wider deployment across Vietnam.


Note 1: Asian Power News
Note 2: Business Monitor International Ltd.