ASEAN
22 March 2014
Time to Invest in Vietnam’s Power Transmission & Distribution Network
It's time to invest in Vietnam’s power transmission & distribution network, according to Frost & Sullivan's Avanthika Satheesh and Harsh Thacker.
It's time to invest in Vietnam’s power transmission & distribution network, according to Avanthika Satheesh and Harsh Thacker, Senior Research Analysts, Energy & Environment, Asia Pacific, at Frost & Sullivan.
Vietnam is the third most populous country in Southeast Asia after Indonesia and The Philippines, with a population of 90.7 million in 2012. In the past four decades, power sector in the country has developed remarkably from a meager 2.5% electrification in 1975 to 96% electrification in 2009. The installed capacity in 2010 was 21,542 MW, and the Directorate General of Energy has laid an ambitious plan to attain an installed power capacity in the range of 69,000 MW to 75,000 MW by 2020. About 55.0% of the electricity generation in 2010 was sourced from coal, gas and oil based thermal power plants.
Vietnam’s GDP growth in 2012 was registered as 5.9%, and is expected to be between 5.0-6.0% till 2020. It is realized that the power demand grows at double the rate of the country’s GDP and hence, the government forecasts that the country’s forecasted peak demand is expected to reach a figure of 37,682 MW by the year 2017, which will be the second largest peak load in Southeast Asia, after Indonesia.
The period of 2011 to 2030 is expected to attract investment of $42.6 billion in the T&D sector in the country.
· Phase 1 (2011-2016) concentrates on transmission grid development, automation and reliability improvement.
· Phase 2 (2017-2022) aims at expanding the distribution grid, enhance the network and increase its operational efficiency.
During Phase 1, the capital will be spent mostly in building and enhancing 220 kV and 500 kV network. About $8.50 billion is expected to be spent on strengthening the 500 kV for capacity addition of 33,850 MVA, and $6.80 billion on 220kV network for 74,926 MVA addition.
Investments are also expected in 110 kV network to strengthen the links between the transmission and the distribution system. With heavy investment in 500 kV network, the T&D losses are expected to come down significantly from 10.15%, estimated in 2010. Other investments are expected in the implementation of modern technologies to improve grid reliability and to decrease the power losses.
Rural Electrification Opportunities
Vietnam has embarked upon rural electrification in an extensive manner. For an economy which is primarily dependent on rice exports, the significance of extending electrification towards villages, remote communes and agricultural sector was considered on high priority. Rural electrification increased dramatically from 77% in 2001 to 96% in 2007. The power development plans are aligned to complete 100% rural electrification by 2020. This is backed by remote renewable energy sources spread across the nation. During 2011-2015, 500,000 rural households are likely to be connected to the grid and 377,000 households to have access to renewable sources of power.
Improving Power Distribution
As part of the electricity grid restructuring program, 5 distribution companies were empowered to handle energy distribution, since 2010. This division is expected to improve the economic performance amongst them, as well as attract investments under the control of EVN. During 2012-2018, a minimum of $800 million is to be invested for the distribution grid reliability improvement as part of the ‘Distribution Efficiency Project’, funded by IDA- World Bank.
Stable economic growth of over 5.0% till 2020 is expected and will be driving the growth of electricity demand to approximately 360 billion kWh in 2020 against a maximum expected figure of 210 billion kWh in 2015.
Better Regulations
Regulations are being revised by ERAV to stir-up the private investments in the power sector. DGE replaced Department of Energy in October 2011 and it’s clear roles and responsibilities were chalked as a planner and policy maker of energy sector in the country but the responsibility of day-to-day management and overlooking of the stability of the sector were left to ERAV which is the country’s regulatory body which also regulates the tariff and take care of the licensing process.
DGE has realized that self-financing capabilities of EVN will not be enough to meet the growth projection in power sector as Vietnam is set to double its installed capacity in 2015 against the installed capacity of 21,542 MW in 2010 and hence the country is likely to witness more foreign and private players investments in the power transmission sector which might stir the growth process in the power sector especially in the power generation which directly will put pressure on the growth of power transmission in Vietnam.
More than 55% of the electricity generated in Vietnam is generated from non-renewable fuels like oil, gas and coal. During the dry season when the contribution from hydro-power goes down, Vietnam has to import more fuel at higher cost which brings EVN in cash crunch situation. Secondly, the fluctuations in Dong to Dollar conversion have been very high which added to a huge loss of more than 23 trillion Dongs in the last year. The electricity tariff will be up by more than 40% by 2015 to recover part of these losses. Such losses incurred in EVN’s account can potentially halt the growth plans of transmission network development and the capital expenditure in the overall power sector can be curtailed.
EVN’s Monopoly
Although regulations are getting relaxed in Vietnam and multiple players have entered the power generation and distribution, EVN remains the sole player in power transmission. DGE’s decision of prolonging the monopoly in the country’s power grid might restrain the pace of growth in the sector. But effect of the monopoly might wear-off a bit after 2014 when the whole power market will be established in the country and EVN would no longer be the lone buyer and seller of electricity and the distribution companies will have the freedom of directly buying power from the generation companies.
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Overview of the Power Sector in Vietnam
Vietnam is one of the few countries in the Southeast Asia region that has established regulatory bodies in the power sector. The power sector reformation in 2011 appointed agencies such as Directorate General of Energy (DGE) under Ministry of Industry and Trade (MOIT) and Electricity Regulatory Authority of Vietnam (ERAV), and restricted the control and ownership of Transmission grid and power generation to Vietnam Electricity (EVN). Backed by privatization, power sector restructuring and a strong Power Development Master Plan, Vietnam has become a hot-spot for investments in T&D sector.Vietnam is the third most populous country in Southeast Asia after Indonesia and The Philippines, with a population of 90.7 million in 2012. In the past four decades, power sector in the country has developed remarkably from a meager 2.5% electrification in 1975 to 96% electrification in 2009. The installed capacity in 2010 was 21,542 MW, and the Directorate General of Energy has laid an ambitious plan to attain an installed power capacity in the range of 69,000 MW to 75,000 MW by 2020. About 55.0% of the electricity generation in 2010 was sourced from coal, gas and oil based thermal power plants.
Vietnam’s GDP growth in 2012 was registered as 5.9%, and is expected to be between 5.0-6.0% till 2020. It is realized that the power demand grows at double the rate of the country’s GDP and hence, the government forecasts that the country’s forecasted peak demand is expected to reach a figure of 37,682 MW by the year 2017, which will be the second largest peak load in Southeast Asia, after Indonesia.
Investment Opportunities in Vietnam’s T&D sector
Investment OutlayThe period of 2011 to 2030 is expected to attract investment of $42.6 billion in the T&D sector in the country.
· Phase 1 (2011-2016) concentrates on transmission grid development, automation and reliability improvement.
· Phase 2 (2017-2022) aims at expanding the distribution grid, enhance the network and increase its operational efficiency.
During Phase 1, the capital will be spent mostly in building and enhancing 220 kV and 500 kV network. About $8.50 billion is expected to be spent on strengthening the 500 kV for capacity addition of 33,850 MVA, and $6.80 billion on 220kV network for 74,926 MVA addition.
Investments are also expected in 110 kV network to strengthen the links between the transmission and the distribution system. With heavy investment in 500 kV network, the T&D losses are expected to come down significantly from 10.15%, estimated in 2010. Other investments are expected in the implementation of modern technologies to improve grid reliability and to decrease the power losses.
Rural Electrification Opportunities
Vietnam has embarked upon rural electrification in an extensive manner. For an economy which is primarily dependent on rice exports, the significance of extending electrification towards villages, remote communes and agricultural sector was considered on high priority. Rural electrification increased dramatically from 77% in 2001 to 96% in 2007. The power development plans are aligned to complete 100% rural electrification by 2020. This is backed by remote renewable energy sources spread across the nation. During 2011-2015, 500,000 rural households are likely to be connected to the grid and 377,000 households to have access to renewable sources of power.
Improving Power Distribution
As part of the electricity grid restructuring program, 5 distribution companies were empowered to handle energy distribution, since 2010. This division is expected to improve the economic performance amongst them, as well as attract investments under the control of EVN. During 2012-2018, a minimum of $800 million is to be invested for the distribution grid reliability improvement as part of the ‘Distribution Efficiency Project’, funded by IDA- World Bank.
What is going to Support Investments?
Stable Economy GrowthStable economic growth of over 5.0% till 2020 is expected and will be driving the growth of electricity demand to approximately 360 billion kWh in 2020 against a maximum expected figure of 210 billion kWh in 2015.
Better Regulations
Regulations are being revised by ERAV to stir-up the private investments in the power sector. DGE replaced Department of Energy in October 2011 and it’s clear roles and responsibilities were chalked as a planner and policy maker of energy sector in the country but the responsibility of day-to-day management and overlooking of the stability of the sector were left to ERAV which is the country’s regulatory body which also regulates the tariff and take care of the licensing process.
DGE has realized that self-financing capabilities of EVN will not be enough to meet the growth projection in power sector as Vietnam is set to double its installed capacity in 2015 against the installed capacity of 21,542 MW in 2010 and hence the country is likely to witness more foreign and private players investments in the power transmission sector which might stir the growth process in the power sector especially in the power generation which directly will put pressure on the growth of power transmission in Vietnam.
Investment Risks
High Dependence of Vietnam on Imported FuelMore than 55% of the electricity generated in Vietnam is generated from non-renewable fuels like oil, gas and coal. During the dry season when the contribution from hydro-power goes down, Vietnam has to import more fuel at higher cost which brings EVN in cash crunch situation. Secondly, the fluctuations in Dong to Dollar conversion have been very high which added to a huge loss of more than 23 trillion Dongs in the last year. The electricity tariff will be up by more than 40% by 2015 to recover part of these losses. Such losses incurred in EVN’s account can potentially halt the growth plans of transmission network development and the capital expenditure in the overall power sector can be curtailed.
EVN’s Monopoly
Although regulations are getting relaxed in Vietnam and multiple players have entered the power generation and distribution, EVN remains the sole player in power transmission. DGE’s decision of prolonging the monopoly in the country’s power grid might restrain the pace of growth in the sector. But effect of the monopoly might wear-off a bit after 2014 when the whole power market will be established in the country and EVN would no longer be the lone buyer and seller of electricity and the distribution companies will have the freedom of directly buying power from the generation companies.
Conclusion
Backed by favorable regulations, Vietnam Power T&D sector opens up several opportunities for private investors during 2011-2022. Until 2017, electrical equipment market and the investors should keep an eye on transmission grid enhancement plans. And between 2017 and 2022, many opportunities will be created for the industry catering to the power distribution sector.Acknowledgements
This article was authored by Avanthika Satheesh and Harsh Thacker, Senior Research Analysts, Energy & Environment, Asia Pacific, at Frost & Sullivan.For media queries or more information please contact: This email address is being protected from spambots. You need JavaScript enabled to view it.