Socioeconomic Context and Sector Performance. Viet Nam's economy grew at an average rate of 6.3% per annum and gross domestic product per capita increased from $699 to $1,755 during 2005-2012. Economic growth was accompanied by an average electricity demand growth of 12.5% per annum during 2005 2012, while per capita consumption increased from 156 kWh in 1995 to 1,187 kWh in 2012. Viet Nam has also made notable achievements in increasing the household electrification rate from 50% in 1995 to over 97% by 2012, while reducing the poverty rate from 15.5% in 2006 to 11.1% in 2012.
Institutional Arrangement. The Ministry of Industry and Trade has policy and supervisory responsibilities for the energy sector, both as the line ministry and as the ministry with oversight responsibility for the state-owned energy enterprises. Vietnam Electricity (EVN), the main power utility in Viet Nam, is organized as a holding company with a series of wholly owned subsidiaries including the three Power Generation Corporations, the National Power Transmission Corporation responsible for the 500 kV and 220 kV transmission system, and the five Power Corporations responsible for the distribution and retail of electricity at voltage levels below 110 kV but also developing and operating 220 kV assets in their respective licensed areas. Hanoi Power Corporation (EVN HANOI) and Ho Chi Minh City Power Corporation (EVN HCMC), in particular, are the Power Corporations responsible for the largest load centers. Ha Noi and Ho Chi Minh City account for 16% of the total population.
Sector Challenges and Opportunities
Technical. Expanding the power system capacity in a sustainable manner to meet the rapidly growing electricity demand is a key priority of the government. According to the National Power Development Plan between 2011 and 2020 with Orientation Towards 2030 (PDP7), demand is expected to continue growing rapidly from 120 TWh in 2012 to 330 TWh in 2020 and potentially up to 700 TWh in 2030. To meet the growing demand, generation capacity is to be strengthened from 26.5 GW in 2012 to 75 GW in 2020. Nearly 44,000 km of 500 kV and 75,000 km of 220 kV lines will also be constructed to effectively transmit the generated power to the load centers. Total investment for the power sector up to 2020 is estimated to be $48.8 billion, of which $16.3 billion is for grid augmentation.
In the distribution subsector, particularly in Ha Noi and Ho Chi Minh City, their combined peak load of over 6.1 GW in 2012 or 23% of the total domestic load, is expected to nearly double to 11.2 GW by 2020. The investment needs up to 2015 for EVN HANOI and EVN HCMC are $987 million and $997 million, respectively.
Financial. The foremost challenge of the power utilities is to mobilize the vast financing needed to meet the above investment requirements while maintaining their financial sustainability. Although there are some non-EVN domestic and foreign investments in power generation, a large share of EVN's investments are financed by loans from commercial banks and development partners. The external borrowings of EVN HANOI and EVN HCMC are projected to be about $130 million and $80 million, respectively, per year on average during 2014 2015.
The retail tariff schedules are set by the government uniformly across the whole country. While the average retail tariff has increased by 79% in nominal terms during 2007 2013, it has decreased by 15% in real terms. Moreover, the current average retail tariff of about D1,500/kWh ( 7.14/kWh) is much lower than the long-run marginal cost estimated to be in the range of 8-9/kWh. Adequate and gradual tariff increase is required to ensure the long-term financial sustainability of the power sector.
Power Sector Reform and Modernization. Viet Nam's sector reform program process dates back to 1995, while ADB has supported the reform through six technical assistances between 1995 and 2009. The 2004 Electricity Law provided the legal basis for the ongoing reform being implemented in accordance with the roadmap for establishing an electricity market in three phases: (i) Phase 1 competitive generation market until 2014; (ii) Phase 2 pilot competitive wholesale market from 2015, and full implementation from 2017; and (iii) Phase 3 competitive retail market from 2021. Phase 1 was launched in July 2012 with the legal unbundling of the three Power Generation Corporations. The Electricity Regulatory Authority of Viet Nam (ERAV) is currently preparing Phase 2 with the support of development partners, whereas ADB will dispatch resident advisors to assist ERAV through an existing technical assistance. Further technical assistances to prepare ERAV and the market participants are also being discussed and coordinated with the development partners.
The government aims to reduce its energy intensity and increase reliability of power supply through system modernization and removal of constraints in the power grid. Viet Nam's elasticity ratio of electricity demand growth rate against gross domestic product growth rate has averaged around 2.0. PDP7 calls for reducing it to 1.5 by 2015 and to 1.0 by 2020. EVN has made a steady reduction of system losses from 12.2% in 2003 to 9.2% in 2012. At the distribution level, EVN HANOI targets reducing its losses from 7.1% in 2012 to 6.0% by 2020, while EVN HCMC plans to reduce it from 5.6% in 2012 to 5.0% in 2020. To further improve system reliability, both Power Corporations target reducing their respective system average interruption duration indexes by 30 40% by 2014 compared to 2012 levels. The present indexes are very high compared to developed country utility standards, due to antiquated equipment and inadequate capacities of the networks causing overloadings and short-circuits.