Coal-fired power generation is expected to increase rapidly in Vietnam over the next decade while hydropower and natural gas growth would slow down, according to a global research firm.

Coal-fired power expansion would remain an attractive option over the next decade as coal is regarded as a cheaper and more reliable source at present. 

Fitch Solutions Marco Research, a unit of Fitch Group, has just announced an outlook for Vietnam’s power and renewables sector, claiming that the country had traditionally relied on hydropower and natural gas for its power generation. However, it could meet several obstacles to continued growth in these two sectors.

Particularly, hydropower potential has already been almost fully exploited at present. Furthermore, recent droughts and decreasing water supplies highlight the threats facing Vietnam’s hydropower generation output reliability.

Regarding natural gas, domestic gas reserves are depleting and will not sustain a substantial ramp-up in the country’s gas power generation over the longer term.

Hence, the Fitch Solutions believes the Vietnamese Government to keep close eye on coal power to meet the country’s increasing power demand, which stems in particular from an expanding industry and manufacturing sector, in order to support continued economic growth. 

Rapid urbanization and government efforts to boost electrification levels to 100 per cent will help raise electricity consumption growth rates.

Under Vietnam’s revised Power Development Plan VII, coal-fired power generation will make up 53 per cent of the power mix by 2030, with 55.3GW of coal-fired capacity being installed. While the Government also intends to increase liquefied natural gas (LNG) imports and non-hydro renewable energy generation capacity, coal will remain the more attractive option over the next decade as it is cheaper and more reliable at present. 

The Fitch Solutions predicts that coal generation will reach 50.5 per cent of the total consumption mix by 2028, with gas at 22.5 per cent, hydropower at 22.8 per cent and non-hydro renewables at 3.8 per cent.

However, coal prices are forecast to go up due to a market deficit for coal over the next five years as global demand will exceed global supply. As a net coal importer since 2015, the rising cost of coal coupled with Vietnam’s increasing dependence on coal imports will increase electricity generation costs. 

In the last few years, State-owned Vietnam Electricity (EVN) group had been reporting losses due to electricity tariffs for coal-fired power – which are set by the Government – having been too low to absorb the increasing costs of coal power generation, according to the Fitch Solutions. 

This will become a pertinent issue over the coming decade, due to the high demand for power and the large number of new coal-fired power plants that makes up the majority of Vietnam’s upcoming power infrastructure pipeline.

Moreover, increasing environmental consciousness and pollution concerns have led to a general pushback against coal. While Vietnam has committed to carbon emission reductions, there are limited practical alternatives for the Government to meet the surge in power demand at present. 

In a scenario where the cost of alternative sources of power generation is comparable to that of coal power, the research firm predicts there would be a shift in government strategy that would seek to curb coal power growth and focus on alternatives.

A substantial shift in government strategy is likely to occur only beyond the next decade as Vietnam is only just starting to upgrade its grid infrastructure to facilitate renewable energy and building its first LNG terminal to increase natural gas imports. For now, the Government has set coal as the priority for its power generation.

VOV