Mitigating Power Shortages in Vietnam: How Businesses Can Prepare
Recent power shortages are causing a myriad of problems for businesses in northern Vietnam. There are, however, several alternatives to mains power in Vietnam alongside a number of steps firms can take to mitigate the impact of power outages.
Northern Vietnam in recent weeks has been plagued with power shortages. Local media is reporting that this is the result of adverse weather patterns, a by-product of the El Niño weather system. This has seen lower-than-expected rainfall and as a result, hydropower plant reservoirs in many places have run dry. There are however a number of systemic issues that have made this problem much worse (see: Vietnam’s Electricity Sector: Past, Present, Future).
Root causes and long-term solutions aside, there are a few options that firms already operating in Vietnam or looking to enter the market can consider in order to mitigate the impact of power supply outages. This includes Direct Power Purchase Agreements (PPAs), private power generation, battery storage, and power conservation.
Direct power purchase agreements
Direct power purchase agreements (DPPAs) are currently only in limited use in Vietnam, but the concept has received a lot of attention. Essentially, a DPPA involves a company purchasing electricity directly from a power generator, thereby bypassing intermediaries. In the case of Vietnam, this intermediary is the state electricity provider, Electricity Vietnam (EVN).
On a practical level, however, since most electricity infrastructure in Vietnam is owned by EVN, the power generator supplies electricity to the state power provider, who then delivers it to the firm or company with whom the generator has a DPPA. As a result, the electricity received by the end user may not necessarily originate from the generator with whom they have a direct agreement.
That said, this may soon change. Recent amendments made to the Law on Electricity (Law No. 03/2022/QH15 ) now allow for private investment in infrastructure and for private investors to operate the sections of the grid within which they invest. There has only been one private grid development project approved so far but with precedent for these kinds of investments and arrangements, it may become more mainstream moving forward.
Furthermore, the regulations on DPPAs are still evolving. The Power Development Plan 8 (PDP8) flags further development needed in related regulations, specifically concerning fees, to establish a more robust and transparent system for the functioning of these agreements. These efforts are expected to enhance the legal framework surrounding such arrangements and make them more prevalent in Vietnam’s power sector going forward.
Private power generation
The Government of Vietnam is often supportive of foreign firms seeking to develop their own power sources for their operations.
For instance, Lego is currently investing US$1 billion in a new factory in Binh Duong, aiming to achieve carbon neutrality by constructing its own solar power plant.
In addition to solar power, generators can be an option depending on the scale of a firm’s operations. However, these typically rely on oil-based fuels such as petrol or diesel, which can become costly to operate.
Another viable option for localized power generation is solar power, with the PDP8 specifically highlighting the potential of rooftop solar. This strategic document, approved in May, facilitates the unrestricted development of this hyper-localized power source, encouraging businesses and consumers to adopt rooftop solar for their own consumption.
In the past, rooftop solar has been highly popular among manufacturing firms, and there are various financing options available for its implementation.
As an example, a Golden Victory Vietnam factory in the northern province of Nam Dinh, which produces sports shoes for Nike, has currently installed 2.9MW of solar power. In May, the factory announced a partnership with TotalEnergies ENEOS to develop an additional 4.6MW of solar, increasing the total capacity to 7.5MW.
Under this arrangement, TotalEnergies ENEOS covers the installation and management costs of the solar array, while Golden Victory only pays for the electricity it consumes. Such agreements, particularly in the realm of renewable energy, are gaining popularity in Vietnam.
Solar power also offers the added advantage of stabilizing a firm’s electricity supply and reducing its carbon footprint, thus enhancing its corporate image.
However, a limitation of solar power is its reliance on sunlight. Energy storage solutions (ESS) may provide a solution to this issue.
As power shortages have plagued homes and businesses across northern Vietnam, battery-powered fans have flown off hardware store shelves. Likewise, industrial-scale portable power has also been thrust into the spotlight.
Battery storage, a crucial component of Vietnam’s energy security, is also emphasized in the PDP8, aiming to achieve 300 MW of stored power in industrial-scale batteries by 2030.
While battery storage can effectively mitigate the impacts of power outages, it comes with a high cost. Additionally, batteries rely on relatively scarce resources like lithium and cobalt and given the increasing demand for long-lasting batteries in applications, such as electric cars, it is unlikely that prices will significantly decrease in the near future.
Nevertheless, investment in battery manufacturing has gained traction in Vietnam in recent years. In May, a trial project worth US$3 million was announced for Khanh Hoa province. Moreover, Reuters reported earlier this month that two Chinese firms were contemplating the establishment of battery manufacturing plants in Vietnam, with a combined value exceeding US$1 billion.
If these projects materialize, it could potentially lead to easier and more affordable access to battery storage units. However, these are medium-term initiatives, and in the immediate future, acquiring battery storage might not be readily available.
Whereas the short-term solutions to power outages may be pricey, there is one incredibly cost-effective way that businesses can reduce their reliance on mains power: power conservation.
The Vietnamese government has been urging power consumers to limit their power use where possible. By raising the temperature of air conditioning or rearranging work schedules to use more power-intensive equipment during low-peak times, firms can contribute to limiting the impacts of power shortages more broadly.
Vietnam currently has one of the highest energy intensity ratings in Southeast Asia. In 2018, it took 1.64 kWh of electricity to generate US$1 of GDP. It was surpassed by only Laos (2.71kWh) and Singapore (2.44kWh). The point is, that there is ample room to improve energy efficiency.
Business preparation plan: Mitigating the impacts of power outages in Vietnam
What works best for one firm in terms of mitigating the impacts of power outages may not necessarily work as well for another.
By following a business preparation plan like the below, firms operating in Vietnam can enhance their ability to mitigate the impacts of power outages and ensure the continuity of their operations, while effectively leveraging the available power solutions to match their unique requirements.
1. Assessing business needs
a. Conduct a comprehensive analysis of the business’s operations, including critical processes, equipment, and power requirements.
b. Identify the potential impacts of power outages on various aspects of the business, such as production, customer service, data security, and financial performance.
2. Understanding available options
a. Research and evaluate the available solutions for mitigating power outages in Vietnam, considering factors such as reliability, cost-effectiveness, scalability, and compatibility with the business’s infrastructure.
b. Explore different power generation alternatives, including DPPAs, generators, solar power, and battery storage, to determine their feasibility and suitability for the business’s unique needs.
3. Location-specific considerations
a. Take into account the specific location of the business within Vietnam and assess the local power infrastructure, grid stability, and historical outage patterns.
b. Engage with local authorities, industry associations, and power providers to gain insights into any ongoing or planned infrastructure improvements, future power supply projections, and regulatory developments related to power resilience.
4. Tailoring solutions
a. Customize the chosen mitigation strategies to align with the business’s specific needs, available resources, and operational constraints.
b. Consider a combination of solutions to create a comprehensive and resilient power backup system, taking advantage of the strengths and advantages of each approach.
5. Financial planning
a. Evaluate the financial implications of implementing the chosen power outage mitigation measures, considering initial investments, operational costs, and potential return on investment.
b. Explore available financing options, incentives, and subsidies offered by the Vietnamese government or renewable energy programs to support the adoption of sustainable and resilient power solutions.
6. Implementation and testing
a. Develop a detailed implementation plan, including timelines, resource allocation, and coordination with relevant stakeholders.
b. Conduct thorough testing and simulation exercises to ensure the effectiveness and reliability of the selected mitigation measures in real-world power outage scenarios.
7. Monitoring and adaptation
a. Establish a monitoring system to track power supply performance, outage incidents, and the effectiveness of implemented solutions.
b. Continuously evaluate and adapt the mitigation strategies based on changing business needs, technological advancements, and evolving power infrastructure in Vietnam.
For support investing in renewable energy, battery power, or more information on DPPAs, contact the experts at Dezan Shira and Associates.