Thermal power plants were adversely affected by the La Niña phenomenon. Photo: Pha Lai Thermal Power

Strong leverage

In 2021, the complicated developments of the pandemic led to a halt in production, business activities, low loads, and decreased electricity consumption. Given the strong intensity of the La Niña phenomenon, hydropower is prioritized due to low loads and low costs, helping 11M21 hydropower reach 72 billion kWh (8.2% YoY).

KB Securities expects hydropower output to decline in 2022 due to the weakening of La Nina, and the output of thermal power plants to increase. However, this may lead to a higher ceiling of bid prices in the competitive electricity market, ensuring revenue and profit for power plants.

Furthermore, the looming energy crisis in the EU and UK following the post-pandemic recovery of demand caused coal and gas prices to rise, raising the electricity production costs of coal- and gas-fired power plants. In 11M21, the output of coal- and gas-fired power plants hit only 108 billion kWh (-3.6% YoY) and 24 billion kWh (-24% YoY) respectively; and the total production of the whole system was 233 billion kWh (4% YoY) with a large contribution from 27 billion kWh of renewable energy (172% YoY).

KB Securities said coal-fired power is always the preferred source after hydropower due to its lower cost compared to gas power. So, it believes that with the economic recovery in 2022, existing coal-fired plants will be prioritized for high mobilized output compared to 2021.

Investment highlights

KB Securities said the investment highlights for the power industry in 2022 include the following:

First, the possibility of La Niña ending in 1Q22 and fading to a neutral phase is higher than that of El Niño. This will be the driving force for thermal power plants that were adversely affected by the La Niña phenomenon as well as the pandemic, namely Hai Phong Thermal Power (HND), Pha Lai Thermal Power (PPC), PV Power Nhon Trach 2 (NT2), Quang Ninh Thermal Power (QTP), PV Power Corporation (POW), and Ba Ria Thermal Power (BTP).

Second, coal- and gas-fired power plants have good growth rates as compared to output mobilized by Vietnam Electricity (EVN) given the pandemic, high input costs, and competitive electricity prices in 2022 versus 2021 because there is not much room left for cheap energy sources like hydroelectricity in 2022.

Third, units 4 of Quang Ninh Thermal Power (QTP), Hua Na Power Plant and Unit 2 of Vung Ang 1 Thermal Power Plant of PV Power Corporation (POW) will be mobilized due to completed maintenance in 2021, ensuring stability, smooth operation and higher-than-capacity output in 2022.

Fourth, many power plants’ domestic and foreign currency loans have decreased, helping to improve interest expenses, financial expenses, and business results. After paying off debts, Pha Lai Thermal Power (PPC), PV Power Nhon Trach 2 (NT2), Hai Phong Thermal Power (HND), and QTP will likely pay cash dividends thanks to large equity cash flow.

However, in KB Securities’ view, there are four major risks to the business activities of power enterprises: (1) risk of climate change; (2) risk related to the supply of input materials like coal and gas; (3) risk of re-signing the power purchase agreement after the plants' paying off debts; and (4) the appearance of new coronavirus strains.