Power demand surge to underpin sector outlook

Unlike prior PDP8 drafts, the most recent will phase out coal-fired power development beyond 2030.

Various changes in capacity structure

After four iterations of the Power Development Plan 8 draft (PDP8 draft), there have been major changes in capacity development. Particularly, under the direction of the Government and the Ministry of Industry and Trade, the consulting unit calculated and updated the PDP8 to incorporate Vietnam's commitment to net zero emissions at COP 26:

First, total capacity is unchanged from the Mar 21 version, at 147,522MW, to 145,185MW in the Apr 22 edition. However, with the current draft's forecast of a rapid energy transition, overall capacity in 2045F is 20% more than in the previous draft, reaching 413,054MW in a high-load scenario. To balance the green transition trend while maintaining a suitable backup rate for the power system, the new plan significantly boosts pump-storage power sources and battery energies, in addition to a solid increase in RE power.

Second, the hydropower development plan will be altered slightly. In general, hydropower will account for roughly 19.8% of total capacity in 2030 in all four scenarios, then decline to 9.1% in 2045 when its full potential is realized.

Third, unlike prior drafts, the most recent will phase out coal-fired power development beyond 2030. It will have a total capacity of 37,467MW, with a weight reduction of 25.7 percent to 9.7 percent in the 2030-2045 era. Due to legal concerns, it will not be able to remove approved thermal power projects that are in the investment process. The government, on the other hand, created precise roadmaps for lowering coal emissions, which stipulate that coal power plants must gradually shift to biomass or methane after 20 years of operation.

Fourth, gas-fired power remained the frontrunner in the 2030-45 timeframe, with capacity weights of 26.7 percent and 18.9 percent of total capacity, respectively, in 2030-45F. To achieve Vietnam's COP26 commitments, new gas-fired power plants must gradually convert to hydrogen (or increase the amount of hydrogen combustion) and eventually transition to hydrogen entirely after 20 years of operation, similar to coal-fired power plants.

Fifth, there have been beneficial changes in the capacity structure of renewable energy sources, particularly wind power. Despite having a smaller capacity in 2030 than the previous version, the revised plan's 2045F wind power capacity is 57 percent higher than the March version, at 120,450MW. Solar power will pick up after 2030, when it reaches a plateau. The new draft's total solar capacity is 35 percent larger than the March 2021 version, and it will reach 96,666MW in 2045, accounting for 23 percent of overall electricity capacity.

Large financial pressure

According to Mr. Nguyen Ha Duc Tung, a VNDirect analyst, this scenario will significantly reduce fossil fuel imports, improve electrical supply security, and reduce the burden of electricity imports as compared to previous scenarios. However, depending on the demand forecasts, the energy conversion scenario may increase power system investment costs by 25-32 percent between 2021 and 45. "From our perspective, the new PDP8 draft has produced a "sufficient and green" plan, but it may be more difficult to implement than the amended Power Plan VII, given the strong emergence of gas-fired and RE power, and the fact that hydrogen and ammonia technologies for thermal plants are still being explored and not yet marketed," Mr. Nguyen Ha Duc Tung said.

Total investment demand for power capacity is expected to reach VND1,120 trillion in 2021-25 and VND1,012 trillion in 2026-30, with a focus on thermal power (33 percent for coal-fired and 43 percent for gas-fired power). Coal-fired power, on the other hand, will be phased out after 2030, with the majority of investment going into conversion technologies (using methane and ammonia for combustion). Due to the high rise of RE power, capital demand will reach VND1,474tr in the 2031-35 period, then continue to surge to VND1,697tr and VND1,592tr in the 2036-40 and 2041-45 periods, respectively.

After a period of stagnation from 2021 to 2030, solar power will resume its growth trajectory with increased investment demand, accounting for 12 percent /18 percent /25 percent in 2031-35, 2036-40, and 2041-45, respectively. Wind power is predicted to require the most capital between 2031 and 2045, with total capital requirements of 46 percent in 2031-35 and 53 percent in 2041-45, respectively.

"In the period 2031-2045, capital needs for power grid development account for around 20-25 percent of overall power sector investment. Total capital need for electricity grid reaches VND399tr and VND425tr in 2021-25 and 2036-40, allocating equitably for transmission grid and distribution grid", Mr. Nguyen Ha Duc Tung stated.

Strong power consumption

The North is expected to face a power shortfall due to high electric load days during the summer, as well as a recent coal supply shortage for thermal plants with capacities exceeding 3,000MW. The Power Development Plan (PDP8) draft anticipated an 8.9% CAGR in power demand from 2021 to 2030 in the base-case scenario (9.5 percent for best-case scenario). Mr. Nguyen Ha Duc Tung feels that this is the driving factor behind the power industry's continued expansion, as well as the expectation of a rapid economic recovery in Vietnam in the future years.

Given the fact that energy consumption demand is predicted to skyrocket in the next years, creating a sufficient power infrastructure to meet the increased demand is vital. Hydropower, in particular, has rapidly depleted its capacity for further exploitation (now at 91 percent of total potential), leaving only a tiny window of opportunity for small hydropower (30MW to develop). Furthermore, coal-fired power has significant financial challenges as a result of its poor environmental impact, and numerous investors have withdrawn from this energy source as a result of the recent COP26 worldwide pledge to reduce emissions. As a result of its clean nature and tremendous capacity expansion potential, renewable energy (RE) is receiving a lot of attention. However, because to its instability and low capacity factor due to weather reliance, it is necessary to create other backup power sources, such as gas-fired electricity, to ensure the power system's full capacity.