Vietnam keeps grip on coal

17GW of coal-powered plants are already under construction.

The expansion of thermal power in Vietnam is not expected to stall even as the country’s environmental pressures mount, according to a note by Fitch Solutions.

The National Steering Committee for Power Development has recommended scaling the share of coal down for the upcoming PDP VIII, eliminating nearly 15GW of planned coal projects and for coal to account for only 37% of Vietnam’s electricity by 2025, due to slow progress and environmental opposition to some coal projects. The government initially had a coal capacity target of 106GW by 2025, and for an additional 55GW of coal capacity from 2017 to 2030, but there is yet to be a decision made on capacity targets.

According to Fitch Solutions data, there’s more than 17GW of coal power plants that are already under construction, and almost another 29GW under pre-construction stages. “It is unclear how the government will halt the development of these projects that are already under construction without incurring significant compensation costs,” it said.

Vietnam is also facing looming threats of power shortages over the coming years, given an expected surge in power demand, and has in fact been trying to fast-track the development of some of these projects since 2019.

Fitch Solutions argued that coal remains the most practical option in the near-term to stimulate affordable electricity generation growth at the pace and scale needed by the country, given its affordability, accessibility and reliability.

Also read: COVID-19 to weigh on Vietnam's power consumption in 2020

“In the near-term, there are also limited alternatives that the country can use to ramp up power generation capacity substantially. Vietnam's power generation has been traditionally dominated by natural gas-fired power and hydropower but we see several obstacles to growth in the near term,” it said.

Thermal capacity in Vietnam is expected to continue growing robustly, adding a net capacity of approximately 15GW by 2025 from end-2019, and another 4.8GW by 2029, with coal being the main driver of this expansion.

“We do stress that our forecasts remain conservative as a fraction of those in the pipeline, as we have already accounted for project realisation risks. Coal projects that are at the highest risk of derailing are those that use less efficient technologies, located in provinces with high renewables penetration, and those that have yet to achieve a final investment decision and financial close,” Fitch Solutions added.

A key supportive factor for continued coal-fired power growth is the continued access to financing from China and South Korea. “Whilst a shifting international financing environment for coal amid environmental concerns posit some downside risks, we believe that alternative financing sources, particularly from China, will likely remain forthcoming,” Fitch Solutions said.

Japan, a key financing source in the region, is also looking towards reviewing their coal financing and export policies by the end of June 2020. That said, most Chinese and South Korean banks, which form a substantial majority to Vietnam’s coal financing, have not flagged any commitments to exit coal yet.

“Crucially, these countries aim to generate external demand for coal power equipment through the use of their respective export credit agencies, amidst a decline in domestic coal power markets. We stress that many banks with effective coal bans also have financing loopholes and exemptions, which unlock funding for certain projects in light of its importance to economic development. As such, the extent and scope of Japan’s coal financing review also remains uncertain at present,” Fitch Solutions commented.