VOV.VN - Vietnam is set to face a surge in power demand and consumption over the coming decade, which will stimulate rapid development of power capacity.

This stems from the expanding industry and manufacturing sector, particularly as the Government attempts to better position Vietnam as a strong alternative manufacturing hub, amid external uncertainties facing other countries such as China in the ongoing trade war, macro-research entity Fitch Solutions noted in a newly released outlook for the Vietnamese power sector.

Fitch Solutions, a subsidiary of the financial information services provider Fitch Group, said that positive demographics and rapid urbanization will also further drive electricity consumption growth rates, which is likely to exceed the speed in which the power sector is expanding at present.

Fitch Solutions experts forecast the domestic power consumption to grow by an annual average of 6.7 per cent between 2019 and 2028 - one of the fastest pace in Asia, while the Southeast Asian country is expected to add more than 33.5GW of net power capacity over the coming decade.

They believe that the Government will prioritize the development of the power sector to support the country’s strong and stable economic growth, which was predicted by Fitch Solutions analysts at 6.5 per cent in 2019 and 6.8 per cent in 2020.

Vietnam's large manufacturing sector, which accounts for nearly 17 per cent of GDP, also makes improving energy security crucial to sustaining the country’s growth momentum in the longer term.

Given the increasing threat of power shortages as power demand exceeds capacity over the coming years, Fitch Solutions experts believe that the Government will look to improve the business and operating environment for the sector, and may look to fast-track certain power projects.

Vietnam’s strong support for fast-tracking power sector growth is evidenced by the Prime Minister’s recent efforts to create more favourable conditions for power projects. 

For example, the Prime Minister has urged the State Capital Management Committee and the Ministry of Industry and Trade to simplify the investment procedures for power projects, and has also requested for relevant officials and ministries to submit draft plans to hasten the development of certain key power projects. The State Bank of Vietnam is reportedly also considering to allow power projects to exceed their credit limits so as to complete them on schedule.

While the Government looks to improve electricity trading and buy more power from neighbouring countries, the ministry has also stressed that it will be a near-term solution and do not expect to depend on it over the longer term as it seeks to bolster energy security in the country.

Fitch Solutions experts believe that ongoing government support and effort to attract private investors, particularly foreign ones, will generate more private capital for power and renewables market. This will in turn reduce the financial burden of projects on its balance sheet and make them more competitive, which will be key to support the growth of the sector.

At present, infrastructure projects in Vietnam are largely driven by government funding or from financial assistance in bilateral and multilateral agencies. However, limited government budget and fiscal capacity to meet project financing requirements have posed some downside risks to the existing project pipeline. Hence, the Government will increasingly look to attract FDI by improving the general business and investment climate of the sector, which will support its continued growth. In late July 2019, the Government hosted the first ‘Infrastructure Vietnam Summit’, which included various discussions and networking sessions to attract foreign investors into the sector.

The Government already has a relatively well-developed public-private partnership (PPP) framework to attract private capital, particularly for power infrastructure, but still has room for more transparency and reliability. They are also implementing ongoing reforms, and is making efforts to liberalize regulations in the power sector, particularly for renewables, which has attracted some investor interest.

Regarding privatization and divestment of State-owned enterprises (SOEs), the Government has increasingly sought to attract private capital by equitization and divestment of SOEs. 

State-owned Vietnam Electricity (EVN) has been privatizing member enterprises and subsidiaries since the early 2000s, and has completed divestment from its non-core businesses and restructuring its subsidiaries toward production, generation and distribution.

The group is trying to restructure another nine subsidiaries, and expects a complete divestment from core and non-core businesses by end of this year.

As per competitive market reform, Vietnam's competitive electricity wholesale market was launched in early 2019, which has been successful based on a preliminary review released by Electricity Regulatory Authority of Vietnam(ERAV) in April. This is the second part of a three-phase reform process to establish a competitive power market in order to attract more private investment into the power sector. At present, EVN dominates the power industry and is the sole buyer and distributor. 

Going forward, EVN will move to pilot the competitive retail power market, the last phase of the reform process, with the relevant information and technology infrastructure expected to be ready in 2020.

Fitch Solutions has already seen growing investor interest across Vietnam's energy sector in recent months, which has strengthened the pipeline significantly.

Most recently, Korean Gas Corporation signed a MoU with Energy Capital Vietnam (ECV) to develop a privately-funded LNG regasification terminal, gas supply system and a 3200MW gas-fired project in Mui Ke Ga, BinhThuan. Enterprise Energy also has plans to build the Ke Ga offshore windfarm in Vietnam with a 3.4GW capacity, which will be the largest offshore wind farm in the region if it comes to fruition. 

The project has registered some progress, given that the Prime Minister has requested for a formal proposal for the project to be included into the country’s power development plan and this is set to boost the wind power project pipeline significantly. Fitch Solutions forecasts power capacity in Vietnam to grow by an annual average of 5.69 per cent between 2019-2028 and to reach 79.6GW by the end of their forecast period.