Key View

We expect coal-powered generation growth to increase rapidly over the next decade and to dominate Vietnam’s power sector expansion. We forecast coal-powered generation to grow at an average of 10.1% y-o-y to reach about 50.5% of the power mix by 2028.

This is due to relatively slow supply growth from traditional sources of energy such as hydropower and natural gas, with the government set to turn to coal to meet the surge in demand for power.

Over the longer-term, we stress that there are downside risks for coal power due to increasing environmental concerns – notably due to air pollution. Furthermore, an increase in the price of coal will also increase the risk for rising electricity generation costs.

Coal to Dominate Vietnam's Power Sector Expansion

Vietnam Power Generation by Type, TWh

e/f = Fitch Solutions estimate/forecast. Source: National Sources, Fitch Solutions

We expect coal power generation growth to increase rapidly in Vietnam over the next decade, given our expectation that hydropower and natural gas growth will slow. Traditionally, Vietnam had relied on hydropower and natural gas for its power generation. However we see several obstacles to continued growth in these two sectors:

Hydropower : 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.

: 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. Natural Gas: Domestic gas reserves are depleting and will not sustain a substantial ramp-up in gas power generation over the longer term.

As a result, we expect the government to turn largely to coal power to meet the Vietnam’s increasing power demand, which stems in particular from an expanding industry and manufacturing sector, in order to support continued economic growth. We also note that rapid urbanisation and government efforts to boost electrification levels to 100% will further boost electricity consumption growth rates. Based on Vietnam’s revised Power Development Plan VII, coal-fired power generation will make up 53% of the power mix by 2030, with 55.3GW of coal-fired capacity being installed. While the government also intends to increase LNG imports and non-hydro renewable energy generation capacity, we believe that coal will remain the more attractive option over the next decade as it is cheaper and more reliable at present. As such, we forecast that coal generation will reach 50.5% of the total consumption mix by 2028, with gas at 22.5%, hydropower at 22.8% and non-hydro renewables at 3.8%.

Coal to Dominate Power Mix by 2028

Vietnam Power Generation by Type, 2028f, TWh

f = forecast. Source: EIA, National Sources, Fitch Solutions.

However, over the longer term, we stress that there are downside risks for our positive coal-fired power growth outlook. Our Commodities Team expects coal prices to increase due to a market deficit for coal over the next five years as global demand will exceed global supply. (See ‘Commodity Price Forecast - Thermal Coal Prices: Holding On To Forecasts As Waning Demand Will Cap Rally’, Feb 18 2019). 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) 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. 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 make up the majority of Vietnam’s upcoming power infrastructure pipeline.

Further, 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 are comparable to that of coal power, we believe there would be a shift in government strategy that would seek to curb coal power growth and focus on alternatives. However, a substantial shift in government strategy is likely to occur only beyond the next decade as Vietnam is only just starting to develop its grid infrastructure to facilitate renewable energy and building its first LNG terminal to increase natural gas imports. For now, the government have established coal as the priority for its power generation. ​​​​