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Vietnam, a hidden gem in power development & investing
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Vietnam, a hidden gem in power development & investing

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Phat Nguyen spoke at Power-Gen Asia conference in Bangkok in October 2009

Phat Nguyen spoke at Power-Gen Asia conference in Bangkok in October 2009

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  • 1. Power-Gen Asia Conference October 2009 Vietnam, A Hidden Gem In Power Development and Investing  Presented by Phat Nguyen Indochina Capital Corporation
  • 2. Agenda 1 Current status of the power market & master plan no. 6 2 Power generation by sub-sector 3 Investment opportunities for private sector 2
  • 3. Status quo of power generation, transmission and distribution
    • A state-owned enterprise controls some 80% of total domestic power generation with the balance supplied by independent power producers (IPPs) and imports.
    • The state-owned enterprise also manages the entire transmission and distribution network.
    Source: Ministry of Industry, June 2008 3
  • 4. Electricity demand projections (2005 - 2025)
    • Electricity demand is projected to increase by 16% per year until 2010, and 11% per year from 2011-2015.
    • Given this unprecedented peak demand, Vietnam now starts having blackouts every week.
    • Statistic from Electricity of Vietnam (“EVN”) showed that Vietnam bought 2.5 billion kwh from China in 2007 and approximately 3.8 billion kwh in 2008, due to its current serious power shortage.
    • Vietnam also plans to buy electricity from Laos.
    4 3,703 2,629 1,774 1,106 549 Per Capita Consumption (Kwh) 71,400 48,650 32,200 19,550 9,500 Maximum Demand (MW) 8.1% 9.3% 11.1% 16.1% --- Annual Demand Growth (5-year period) 381.2 257.3 164.9 97.1 45.6 Annual Demand (billion Kwh) 2025 2020 2015 2010 2005
  • 5. Power generation development plan Source: Ministry of Industry, October 2007
    • The Ministry of Industry has formulated a National Energy Policy for the 2006-2015 period, emphasizing the need to diversify the country’s energy mix whilst maximising the use of local energy reserves.
      • development of energy infrastructure and enhancement of long-term energy supply;
      • development of energy in consideration of environment;
      • restructuring the energy sector’s structure and opening up the market for energy; and
      • enhancement of international energy cooperation.
    5
  • 6. Projected total capacity, capacity mix and capacity additions Capacity Additions to Vietnam Power System (2000-2015)
    • From 2011 to 2015, IPPs’ share of investment in new capacity will increase to a level roughly equal with EVN’s.
    Projected Total Capacity and Planned Capacity Mix
    • Hydropower development is still given a top priority given its ability to provide low-cost base load, but the masterplan also promotes the development in gas- and coal-fired plants.
    • Renewable energies only account for 3% of total supply by 2010 and 4% by 2015.
    6 17,938 15,325 8,756 4,947 1,750 4,250 Total 3,000 --- 2,700 150 1,465 2,385 Natural Gas 10,200 10,400 4,194 900 210 600 Coal 4,738 4,925 1,862 3,897 75 1,265 Hydro Non-EVN EVN Non-EVN EVN Non-EVN EVN 2011-2015 2006-2010 2000-2005 Type of Plant 100% 59,467 100% 24,454 Total 1% 595 2% 489 Imports 4% 2,379 3% 734 Renewable 16% 9,595 27% 6,595 Natural Gas 46% 27,149 27% 6,549 Coal 33% 19,750 41% 10,087 Hydro % MW % MW 2015 2010 Type of Plant
  • 7. Road map for Vietnam’s electricity market
    • The government has rolled out a roadmap for establishing a competitive wholesale and retail market, enabling power projects to appropriately raise tariffs in years to come.
    Source: Ministry of Industry, October 2007 7
  • 8. Agenda 1 Current status of the power market & master plan 6 2 Power generation by sub-sector 3 Investment opportunities for private sector 8
  • 9. Hydropower plants in main river basins
    • Hydroelectricity development has historically received high priority in Vietnam due to its ability to provide base-load at relatively low cost. Almost half of the total electric generating capacity is currently provided by hydropower.
    • Nonetheless, the share of hydro in total power production will decrease considerably in the coming decades. Even so, hydropower will continue to play a vital role in Vietnam’s capacity mix
    Source: Ministry of Industry, October 2008 9
  • 10. Coal-fired power plants in northern Vietnam Source: Ministry of Industry, October 2008 10
  • 11. Recently-completed gas-fired power plants
    • Ca Mau power plant (1,500 MW): completed in 2008
    • Nhon Trach power plant (1,200 MW):
      • 450 MW: March 2008
      • 750 MW: after 2010
    • O Mon power plant (3,020 MW)
      • 600 MW: in 2008
      • 720 MW: by 2009
      • 1,700 MW: after 2010
    11
  • 12. Renewables – an untapped sub-sector
    • Renewable energy sources are still largely untapped in Vietnam, but will play an increasingly important role in the Government's energy policies within the next years.
    • Commercial renewable energy industry in Vietnam is still in its infancy.
    • “ Decision of applying avoided energy costs to the tariff” effective since Jan 2009
    • PPA term: 20 years
    • Tariff is based on the costs of thermal power plants that EVN can avoid by purchasing renewable energy and is defined as avoided cost tariff (“ACT”)
    • ACT is to be announced every year by an energy agency (part of the Ministry of Industry and Commerce)
    • ACT includes 2 components, namely capacity charge and energy charge
    • An option to fix the tariff range over a maximum period of 12 years
    • EVN buys all output
    • “ The World Bank provides US$202-million credit to support renewables-based projects in Vietnam”, April 2009
    • Not exceeding 30MW, developed by private sponsors
    • Three Vietnamese banks on-lend to private developers
    • “ The European Investment Bank is providing a EUR100-million loan for Viet Nam to finance investments that will contribute to the mitigation of climate change”, May 2009
    • Renewable energy and energy efficiency
    • Four Vietnamese banks on-lend to developers
    12
  • 13. Agenda 1 Current status of the power market & master plan 6 2 Power generation by sub-sector 3 Investment opportunities for private sector 13
  • 14. Vietnam’s economic growth and stability GDP (US$ billion), Population (millions) Source: International Monetary Fund, World Economic Outlook Databases, Sep-2008 CAGR: 8.4% CAGR: 7.7%
    • Social, political and economic stability
    • Improving infrastructure
    • Incentives offered to foreign investors
    • Hard-working and well-educated labour force
    • Pent-up electricity demand
    • New masterplan allows active participation of private sector
    • More ease in tariff negotiation
    14 $46 $53 $61 $70 $91 $104 $131 $146 $81 $117 84 83 82 87 85 90 91 91 89 88 2004 2005 2006 2007 2008E 2009E 2010E 2011E 2012E 2013E GDP Population
  • 15. Power sector investment program 2007- 2015
    • To facilitate investment in new generation, nearly $10 billion of the planned $29 billion in investment is expected to come from non-EVN projects, including domestic and foreign private sector investment in BOT or BOO projects.
    US$ billion Source: EVN, 6 th Power Development Masterplan 15 40.56 4.76 4.41 3.66 4.16 4.05 3.84 4.67 5.46 5.55 Total 7.15 0.94 0.87 0;.84 0.81 0.78 0.95 0.96 0.93 0.91 < 110 kv Distribution 4.23 0.57 0.47 0.42 0.4 0.41 0.5 0.57 0.48 0.41 220 kv - 500 kv Transmission 9.73 0.74 0.72 0.52 0.59 0.65 0.65 1.26 2.2 2.4 Non-EVN 19.45 2.51 2.35 2.72 2.36 2.21 1.74 1.88 1.85 1.83 EVN                     Generation Total 2015 2014 2013 2012 2011 2010 2009 2008 2007 Sectors
  • 16. Increased involvement of private foreign and local players
    • In view of the very substantial investments needs, which Vietnam cannot easily meet on its own, and of the requirement for state-of-the-art technologies, the modernisation of Vietnam’s energy sector will necessitate an increased involvement of private foreign and local players.
    • Foreign commercial firms are already active in various parts of the energy sector.
    • EDF, Sumitomo, TEPCO: Phu My 2.2 gas combined-cycle power plant (715 MW)
    • BP, Sembcorp, Sojitz, Kyushu Electritric: Phu My 3 power plant
    • Malaysia's Jaks Resources Bhd: Hai Duong thermo power project (1,200 MW)
    • Malaysia's Janakusa Group: Duyen Hai 2 project
    • China's Southern Power Grid: Vinh Tan 1 project (1,200 MW)
    • Hong Kong's One Energy: Vinh Tan 3 (2,000 MW) and Vung Ang 2 projects
    16
  • 17. Co-operation forms and privatization
    • Electric power generation and distribution sectors are open to investment from other domestic investors as well as to foreign players, under various forms, including IPP, BOT projects, and joint-ventures.
    • IPPs already today generate some 10% of total power supply. Over the next 10 years, it is expected that up to 20% of generating capacity will be in the hands of foreign-invested IPP, BOT, and JV projects.
    • Private investment in IPP should lead to a boom in deregulation with the emergence of key local players.
    • Since July 2006, EVN has privatized many of its subsidiaries and converted others to limited liability companies , including most power plants and distribution companies, retaining, however, majority shares in the new entities.
    • EVN has successfully privatized more than 40 subsidiaries to date.
    17
  • 18. Phat Nguyen Indochina Infrastructure Management Floor 10, Capital Place, 6 Thai Van Lung, District 1, HCMC, Vietnam [email_address] www.indochinacapital.com This presents the author’s view and does not necessarily reflect Indochina Capital’s