Vietnam’s power development plan has seen the country ramping up production via renewables such as hydro, solar and wind, as well as LNG, but the government has also been subsidizing new coal-fired plants
(AF) More good news came this week for Vietnam’s energy sector. Government data shows that the country’s coal imports declined in May by around 50% from the same period last year – however, that trajectory will likely reverse as the country pushes ahead with more coal power generation development.
Last month, Vietnam’s seaborne coal import receipts dropped for the sixth straight month from a year earlier to 3.81 million tonnes, falling from a record monthly high of 7.19m t in May 2020. April coal imports also declined to 3.94m t. Vietnamese customs data doesn’t differentiate between coking and thermal coal.
However, the country’s coal imports in 2020 reached a record high amid the government’s push to keep the economy going during the first year of the Covid-19 pandemic and as the government kept new Covid cases at relatively low levels compared to the rest of the region.
May’s coal import declines in the country of nearly 100 million people comes amid more hydropower and renewables power generation. Coal imports in the short-term could continue their downward trajectory amid pressure from multi-year high prices for the fuel and higher freight rates.
Vietnam’s hydropower generation in May was at 5.62 terawatt hours, up from 4.18 TWh over the same period last year, data from state-controlled electricity power generation company EVN shows.
But, hydropower in Vietnam remains a problematic energy source as it is impacted by periodic droughts and water shortages.
The country’s hydropower draws from several river systems, including the 5,000-kilometre-long Mekong River which gets its source on the Tibetan Plateau in China. China has built 11 dams at the top of the Mekong River and these have severely impacted flows to downstream countries over the past decade: Myanmar, Thailand, Laos, Cambodia and finally Vietnam and the Mekong Delta, its crucial and fertile rice-growing region.
The dams have upset citizens who live adjacent to Mekong because of unannounced interruptions to the river’s flow, which Beijing claims is for maintenance, but its neighbours sometimes claim has been for political purposes. With downstream countries such as Laos and Thailand also building dams on the river’s midstream, the ecological impact to the river, plus the huge Tonle Sap lake in Cambodia and areas further downstream in the Delta has been considerable.
Renewable power generation in Vietnam rose to 2.85 TWh last month, up from 1.06 TWh a year earlier. Vietnam’s coal-fired generation of 12.65 TWh last month was relatively flat on the year but rose from 11.7 TWh in April due to a power demand surge from higher summer temperatures across much of the country. As such, coal for May still remained the largest part of the country’s power generation mix.
Going forward, however, Vietnam’s coal usage is projected to hold its ground and even increase since the country appears to still be subsidizing the build-out of new coal-fired power plants.
In 2020, more than half of Vietnam’s energy came from coal, according to a new US Energy Information Administration (EIA) report. Around 3.2GW of coal-fired power generation in Vietnam is under construction and scheduled for launch in 2022, while another 870MW is planned, with construction yet to start.
This trend comes at the same time the government tries to make a hard pivot to more liquefied natural gas (LNG) for its power sector to make up for depleting offshore gas development. Gas, for its part, releases on average 50% less CO2 emissions when used for power generation that coal.
Hurdles for renewables
However, a recent draft for Vietnam’s soon to be released Power Development Plan (PDP8), earmarks more development of both solar and wind power (onshore and offshore) though needed investment and build-out has a long way to go. Last year, solar and wind made up only 5% of the country’s energy mix.
As of 2020, solar and wind capacity in Vietnam was placed at some 16.6GW and 0.6GW, respectively. Under the draft PDP 8, Vietnam plans to increase solar capacity to 18.6GW and wind capacity to 18GW by 2030.
The problem, however, for Vietnam’s wind power (both onshore and offshore) ambitions is lack of grid capacity, thereby impacting the bankability of new project proposals since they could experience production curtailment, which in turn reduces the amount of electricity sold and the corresponding revenue needed to remain profitable and service debt.
To its credit, Hanoi has included grid and transmission infrastructure build-out in its soon to be released PDP8, but it appears insufficient to meet the country’s renewables ambitions and benchmarks.
LNG market dynamics
Vietnam’s LNG build-out has also been gathering momentum over the last few years as the country seeks to stave off a gas supply crunch that was projected to begin as early as last year, particularly in the more populous south, but has been pushed back due to economic contraction from the Covid-19 pandemic.
The country’s PDP8 includes as many as 22 new LNG-to-power projects scattered across the country, but also more heavily concentrated in the south. The country also has as many as six LNG import terminals planned, more considering those pending with provincial authorities. Two are currently under construction.
Vietnam’s LNG sector will enter a market undergoing systemic changes in how the fuel is bought and sold, with term deals now often shortening to around 5 to 10 years instead of the traditional 15 to 20 years needed by LNG producers to help finance their CAPEX intensive projects.
Pricing for the super-cooled fuel is also undergoing significant changes, with term deals also moving away from traditional oil indexation, usually to Brent crude prices or the so-called Japan-Crude-Cocktail (JCC) price in Asia, to a mix of benchmarks, including the Japan-Korea-Marker (JKM) traditionally used for short term and spot cargoes, the West Indian Marker (WIM), originally used for cargoes for Indian and Middle East destinations, the Henry Hub benchmark in the US and TTF benchmark in Europe.
LNG term deals will also use a mix of these benchmarks, as well as offering more flexible contractual and destination clauses.