Vietnam Renewable Energy: Will Vietnam go green?

What’s new

• Current overall power development plan implies a supply gap of 48 bn kWh in 2025.
• Renewable energy accounts for 9% of total power in Vietnam. Supportive policies include preferential purchase pricing, tax relief, and low-cost/free land use.
• Global renewable energy installation costs are in the range of fossil fuel power costs, and production costs are also converging.

Our View

• Supportive government policy led to substantial solar energy expansion in 2019. Wind power should also ramp up into 2021.
• Investable pure plays on renewable energy are still rare, but several stocks offer some exposure to the theme and should benefit from the undersupplied market.
• Key risks include a weak transmission system, policy, and counterparty risks.

Vietnam is vulnerable to input shortages and environmental issues. As highlighted in our recent initiation on POW, we estimate that electricity demand should grow at 11% per year in 2020-25E, which translates to a shortage of 48 bn kWh or worse by 2025. The concern is that electricity shortage may be resolved at the cost of the environment. The current plan is for coal to account for 53.2% of production by 2030.We estimate that CO2 emissions from coal-fired power plants could reach 103 mn MT in 2030, up from 44mnMT in 2020. However,However, we estimate that CO2 emissions would be 57% or 59mn tons lower in 2030 if the planned additional coal-fired power capacity were replaced by renewable energy.

Accommodation policies for renewable energy. Although not reflected in the revised power development plan 7 (Rev PDP7), the government is committed to developing renewable energy as demonstrated by policies such as attractive power pricing, tax reliefs, low-cost/free land, and long (20-year) PPA contracts. This has led to a quick ramp-up of solar power capacity, which reached 4,464 MW as of July 2019 (+49% YTD). This is five times the Rev PDP7 target of 850 MW for 2020. We expect wind power capacity to deliver similarly rapid growth over the next two years due to similarly effective accommodation policies.

The cost of renewable energy is closing on that of fossil fuel power. Global installation costs of renewable energy are in the range of those of fossil fuel energy. Generation costs of renewable energy are also falling quickly, according to McKinsey statistics.

Renewable energy to benefit from huge investments. The government plans to invest USD 148 bn in 2016-2030 to ensure sufficient power for 7% annual economic growth. Investable pure plays on green energy are hard to identify, but listed companies that provide some exposure to this theme include PC1, GEG, GEX, TV2, and FCN.

Please access the link for our complete report:Renewable Energy Sector note

Analyst: Binh Truong, binh.truong@yuanta.com.vn