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Improving energy security to maintain Vietnam's growth momentum

Thursday 26, 12 2019
"Vietnam has a positive outlook in renewable energy growth," wrote Daine Loh, a research analyst at Fitch Solutions in a report.
Improving energy security to maintain Vietnam's growth momentum
"We believe the government will prioritize the development of the power sector to support strong and stable economic growth." Fitch Solutions' National Macro Risk Research Group predicts a growth rate of 6.9% in 2019 and 6.8% in 2020, accounting for nearly 17% of GDP.

Vietnam’s potential

"Vietnam has a positive outlook in renewable energy growth," wrote Daine Loh, a research analyst at Fitch Solutions in a report. "And solar energy is one of the main drivers of it. Vietnam still has untapped solar potential.

With the industry and production expanding, especially in the context of the ongoing U.S.-China trade war, Vietnam will clearly have a significant increase in electricity demand and consumption over the next decade, which will stimulate the fast-growing demand for new power generation plants.

Rapid urbanization will also contribute to the growth of electricity consumption in Vietnam, in which Fitch predicts an average annual increase of 6.7% from 2019 to 2028 - one of the countries with the fastest growth rate in Asia.

Vietnam - non hydro renewwables capacity by type

The Government’s assistance

"We believe the government will prioritize the development of the power sector to support strong and stable economic growth. Fitch Solutions' National Macro Risk Research Group predicts a growth rate of 6.9% in 2019 and 6.8% in 2020, accounting for nearly 17% of GDP. Improving energy security is an extremely important factor to maintain Vietnam's growth momentum in the long term.

While the Government will continue to expand coal power capacity to meet the upcoming rising electricity demand, renewable energy will bring new growth opportunities, especially when environmental awareness is being increased, resulting in many concerns about pollution with the use of coal.

Solar energy, especially rooftop solar, is an attractive option to meet the energy needs of emerging markets, as it requires shorter development time than thermal electricity projects, and is able to overcome some infrastructure shortages such as grid congestion or land issues.

Fitch also appreciates the supporting policies and regulatory environment for the renewable energy sector. Based on the latest energy development plan, the Government aims to add 4 GW of solar capacity by 2025 and 12 GW by 2030.

"Although the proposed FIT 2 price reduction of about 20% compared to the old project announced in September may partly limit investor interest, we believe the new FIT of $70.90 and $76.90 / MWh for the two solar segments, respectively, will remain high enough to attract investors - as the auctions push prices significantly down in most alternative solar markets "- Fitch said.

"Moreover, we believe this will be partially offset by the reduced technology costs for solar energy. Chinese solar component manufacturers have faced oversupply, Chinese solar component manufacturers have faced oversupply, due to slowing domestic solar growth and limited access to the US and Indian markets, resulting in global solar module pricing pressure for the past two years. In addition, some Chinese manufacturers have also set up production capacity in Vietnam to avoid trade taxes and the presence of domestic supply chains that reduce domestic usage prices. "

"Vietnam has witnessed increasing interest from investors and enhanced solar projects, which is the basis for our positive growth prospects forecast" - Fitch said.

Notably, the Asian Development Bank (ADB) has signed a $ 37 million loan with Da Nhim - Ham Thuan - Da Mi Hydropower Joint Stock Company (DHD) to finance the installation of a floating solar PV array with a peak capacity of 47.5 megawatts (MWp) on the current reservoir of the Da Mi hydroelectric plant with a capacity of 175MW under DHD Company. This project marks the first installation of a large-scale floating solar cell in Vietnam, and also the largest in Southeast Asia.

As development continues, investors will likely find bright spots to invest in solar energy throughout Vietnam.

Read more: Factors Affecting Vietnam's Export Growth Momentum

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