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Vietnam Electricity Industry’s Achilles' Heel

Updated on March 30, 2019
Tuan Leminh profile image

An enthusiast for economic development and political issues in Vietnam.

When some countries in the region, such as China, India or Indonesia, are cutting their dependence on coal, Vietnam advocates in the next 10 years, more than half of electricity consumption will come from coal.

Is this plan feasible in terms of economics, environment, and society?

Is coal thermal power cheap?

The current price of coal power is estimated about 7 cents/kWh (1,600 VND), while onshore wind power is about 8.5 cents (2,000 VND), solar power is nearly 10 cents (2,200 VND). If only looking at this rough figure, obviously, coal power is really cheap.

Over the past 5 years, coal used for electricity generation in Vietnam has increased by 75% - higher than those that once used a lot of coal power, such as India, China, and Indonesia.

In order to produce coal power, according to the Power Plan VII, Vietnam will have to import about 10 million tons of coal each year from 2017 onwards. The cost of coal import and huge transportation cost are not fully reflected in the assumed coal power cost. Thus, by 2030, the amount of coal used by Vietnam for coal-fired thermal power plants will be about 15 times higher than that amount at this time.

If the import tax on coal is not exempted, will coal power still be economically feasible?

But one thing to remember, coal imports to Vietnam are now almost tax-free. If taxes are applied to coal heat as for gas, then the coal tax rate will reach 100 USD/ton. Trying to calculate, if not subsidized by the State, while the amount of imported coal is so big, is coal thermal economically feasible?

Burning coal as electricity will, of course, produce ash. In the US, the cost of pollution caused by coal-fired electricity generation is more than 3 cents/kWh (700 VND). By the same method calculated for the case of Vietnam, the total financial and pollution costs of coal power will fall between 10 - 11 cents/kWh (2,300 - 4,600 VND). With coal power plants in the US all having better pollution control equipment, it is not surprising that pollution costs in Vietnam are many times higher.

Pollution issues

In addition, social costs due to air pollution are increasing evidently over the years. If the losses due to disease and death increases due to pollution, coal will be the most expensive fuel.

A Harvard University study in conjunction with Greenpeace (Netherlands) announced in 2015 that burning coal produces harmful gases (SO2, NOx, PM 2.5 dust particles), depletes ozone layer and causes air pollution. The report estimates that in 2011 there were 4,300 premature deaths in Vietnam due to air pollution caused by coal-burning. The number of deaths could reach nearly 16,000 by 2030.

And we should take into account the financial risks when operating coal-fired plants. Reducing dependence on coal power in China and India has caused coal power plants to lose money since 2015. Meanwhile, it takes 3-5 years to build coal power plants and the investment period is 30-40 years. Once you start building, you can't stop. Maybe these factories will be a burden to the economy.

When a country has an average income or higher, even if it is a low average, people will begin to have a stronger sense of pollution. This may be difficult to convert to tangible costs but it does affect the operation of factories.

In short, the cost of raw coal may be low, but the costs of the operation, ash handling, pollution treatment and financial risks suggest that coal is not an economically beneficial power source.

Any other option than coal power?

With a huge demand for electricity and coal power is not too favorable for the economy, the question is: what source should be used to produce electricity?

In recent time, the role of large hydroelectricity has declined because good places to build hydroelectricity are no longer enough. Using gas to generate electricity is also not a viable option for Vietnam now. Although Vietnam has an abundance of gas reserves, offshore exploration is difficult; in addition, the tax on offshore gas is relatively high.

Producing electricity from wind and solar energy is a trend, and is expected to help limit climate change and protect the environment. Power Plan VII will soon be replaced by Power Plan VIII at the end of 2018. The current plan forecasts renewable energy to increase from 3.7% to 10.7% of the total electricity from 2016 to 2030.

The "green" electricity production has its own difficulties

Not all lands can be used to build wind or solar power plants. In Vietnam, wind power plants are mostly concentrated in the southern region, the process of deploying or acquiring land for factories is not easy.

In addition, the financial costs of building and operating expensive renewable energy plants are high and raising capital is difficult. If Vietnam decides to shift towards increasing the ratio of renewable energy as other countries are doing, it must find a way to attract international capital and take advantage of long-term loans with low-interest rates. Moreover, wind and solar power need to be connected to the national electric grid.

Of course, there is no perfect electricity production option, each country should make its own decision taking into account the financial cost and environmental aspects.

Vietnam electricity industry’s Achilles' heel

Electricity price in Vietnam is too low. Retail electricity price (cent/kWh) in Vietnam is still lower than that of Laos, China, Indonesia, Malaysia, Cambodia, Thailand, Hong Kong, Singapore, and Philippines. This is the Achilles' heel of all power industry development plans in Vietnam.

Some countries in the region have higher electricity price than Vietnam, such as: Singapore (0.16 USD/kWh), Japan (USD 0.26/kWh), Philippines (USD 0.19/kWh), Hong Kong (0.14 USD/kWh), South Korea (0.11 USD/kWh), Indonesia (0.11 USD/kWh), Thailand (0.11 USD/kWh), China - India (0.08 USD/kWh). Even when comparing to Laos and Cambodia, Vietnam's electricity price is only equal to 81.7% and 73.5% of these countries.

The current use of energy in Vietnam is extremely inefficient

According to statistics, the electricity loss in the year 2018 of Vietnam Electricity Corporation (EVN) is estimated about 6.9%. While in many countries, the electricity loss is only 3%.

In the 2006-2016 period, Vietnam used twice the amount of electricity to create a growth unit equivalent to India, China, Thailand or Indonesia. It is worth mentioning, these are countries with higher levels of urbanization and a larger share of industry sector (these two development trends consume more electricity).

This shows that Vietnam is a high energy consuming country. In other words, energy use in Vietnam is extremely inefficient.

In order to encourage energy efficiency, it is ideal for the government to direct consumers to use electricity-saving products and to use electricity more responsibly, thereby reducing Vietnam's electricity consumption, as well as improving electricity efficiency.

The solutions

In order to encourage energy efficiency, it is ideal for the government to direct consumers to use electricity-saving products and to use electricity more responsibly, thereby reducing Vietnam's electricity consumption, as well as improving electricity efficiency.


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