Vietnam faces shaky energy future as coal-fired power remains dominant

Thermal power will be the mainstay of Vietnam's electricity supply over the next two decades and possibly longer, Deputy Prime Minister Trinh Dinh Dung said in a message to the power industry during a recent event, the government's online news portal reported.

Dung's statement came as a confirmation of Vietnam's continued reliance on coal-fired power to keep up with its growth demand, which will pose a number of challenges to mitigating the power sector's environmental impacts while increasing the country's dependence on coal imports.

"Thermal energy, especially coal-fired and gas-fired power, will remain our main source of electricity until 2030, and possibly even longer," Dung said at the 10th anniversary of the Petrovietnam Power Corporation (PV Power), the second-largest electricity producer in Vietnam, after EVN.

PV Power, a member of the Vietnam Oil and Gas Group (PVN), contributes over 10 percent of the country's power output with a number of hydropower and thermal power plants scattered throughout central and southern provinces. It has been tasked by the government to develop at least eight more thermal power projects in the coming years.

Vietnam's energy demand is expected to grow 13 percent annually over the next four years.

Energy sources such as hydropower have reached their maximum capacity while the renewable energy sector remains in its infancy and nuclear power's steep price tag is too high for a country which public debt is approaching 65 percent.

Coal-fired power, despite its environmental impacts, is still the dominant power source for Vietnam. By 2030, over half of the country’s power will come from coal, adding 55,300MW to the national grid with 83 plants across the country, according to the revised government Power Development Master Plan VII.

Historically, the country has been self-sufficient in coal, but this has changed. More than $400 million was spent during the first quarter of this year on importing coal, based on recently published figures from the Vietnam Industry and Trade Information Center (VITIC).

Australia remained the largest supplier with nearly 1.3 million tons worth $157.2 million shipped in the first three months of 2017, up 11.6 percent and 136.8 percent respectively on-year. It was followed by Indonesia with nearly 1.1 million tons worth $77.2 million, up 127 percent and 260 percent. Another combined 800,000 tons of coal was also imported from Russia, China and Malaysia.

The development of coal-based power poses a challenge for the country's leaders who have repeatedly echoed the message of not sacrificing the environment for economic development in recent years.

In response to concerns over emissions from coal-fired plants, Nguyen Tai Anh, deputy general director of EVN, said in a recent meeting that they will be minimized with the application of modern technology. He added that all coal-fired thermal power plants under the management of EVN have treatment facilities for waste gas, water and solid waste in accordance with regulations.

"In the case of old coal plants, EVN has reviewed and planned upgrades for their emission treatment systems, which are expected to be completed in 2018-2019," he said.

In addition to the environmental effects of coal-fired power, the industry needs to deal with the threat of local power shortages due to an imbalance between supply and demand across different regions.

According to Deputy PM Dung, while 50 percent of the total electricity demand comes from the South (40 percent from the North and 10 percent from the Central region), current power supplies are concentrated mainly in the North with over 50 percent, while the southern region only produces about 40 percent.

"The threat of power shortages in the southern region next year is real if new power plants are not completed on time, and this is a very daunting task," Dung warned.

Energy experts have been highlighting the need to diversify energy sources and switch to renewable energy.

However, in comparison to traditional energy sources such as oil and coal, renewable energy is still relatively new in Vietnam. Its presence is strongly driven by government policies, and is mostly positioned within sustainable development and greenhouse gas reduction frameworks.

High installation costs and relatively low power prices have been discouraging investors from entering Vietnam’s wind energy market. The current buying price at 7.8 U.S. cents/kWh is well below that in other Asian countries, such as 20 cents in Thailand, 29 cents in the Philippines and 30 cents in Japan.

In a long-awaited decision last month, PM Nguyen Xuan Phuc approved a tariff of 9.35 cents per kWh for the purchase of electricity from grid-connected solar power plants in a new directive that will take effect between June 1, 2017 and June 30, 2019. This is higher than the tariff applied to onshore wind power projects of 7.8 cents per kWh.

"It was an important decision, though it remains to be seen if the increase is enough to motivate investors," said Tran Dinh Long, deputy director of the Vietnam Electricity Association.

While some investors say solar power prices should be set at 10 cents per kWh or higher to ensure profits, they could still make a profit at the new price, partly because solar power generation costs have been on decline in recent years.