By Khanh Vu and Henning Gloystein
HANOI/SINGAPORE (Reuters) - Vietnam has become a hot spot for energy investors eying a spend of up to $150 billion over the coming decade to meet surging power demand, with coal set to dominate despite signs of a government effort to go green.
With a population nudging 100 million and annual GDP growth around 7%, Vietnam has forecast power generation will need to rise from about 47,000 megawatts (MW) currently to 60,000 MW by 2020 and 129,500 MW by 2030.
(GRAPHIC: Vietnam power generation capacity - https://tmsnrt.rs/2X1Vzar)
To meet these targets the country will need to add more than neighbor Thailand's total installed capacity by 2025 and its electricity sector will likely be bigger than Britain's by the mid-2020s.
"Vietnam is a big growth story for the coal industry. Coal demand will be extremely strong," said Pat Markey, Managing Director of Sierra Vista Resources, a Singapore-based commodity advisory.
Once largely reliant on hydropower, the production hub for global companies such as Samsung Electronics has turned to cheap but polluting coal to boost electricity generation.
Vietnam's coal use in the five years to 2017 grew 75 percent, faster than any other country in the world, according to a research paper by the Harvard Kennedy School's Ash Center on Vietnam.
The country's current Power Development Plan (PDP 7) puts coal front and center to meet new demand.
While generation is set to double, PDP 7 forecast coal-fired generation would grow rapidly to 2030, with its share of the energy market rising from 33 percent to 56 percent.
But a change of emphasis that began in 2016 with a revised version of PDP 7 has started to embrace cheaper renewable energy, and analysts expect PDP 8, due later this year, to further adjust policy.
"One of Vietnam's priorities is to develop renewable energy sources to gradually reduce its reliance on traditional sources of electricity to protect the environment," Deputy Minister of Industry and Trade Cao Quoc Hung said in a statement posted on the ministry's website earlier this month.
(GRAPHIC: Vietnam's changing power generation mix - https://tmsnrt.rs/2VOCz1K)
Facing a rapid rise in pollution, the Ministry of Industry and Trade has started to offer incentives for renewables, which so far only play a marginal role in Vietnam's energy sector.
According to a draft law planned for June, state-owned utility Vietnam Electricity (EVN), which distributes all of the country's power, will pay solar projects between 6.67 and 10.87 cents per kilowatt-hour (kWh).
"There is very strong interest in solar due to the high level of feed-in-tariffs," said Dieter Billen of consultancy Roland Berger.
One of the first developers into Vietnam's solar sector has been Gulf Energy from neighboring Thailand, which this year has entered several long-term projects that will benefit from feed-in-tariffs.
Billen said there was also "growing interest in wind power thanks to attractive feed-in tariffs" of 8.5 cents per kWh for onshore and 9.8 cents per kWh for offshore facilities.
The Global Wind Energy Council (GWEC) in June will hold meetings in Vietnam's capital Hanoi, as it looks to drive growth in a new market.
Should government policy continue to support renewables and wind and solar become cheaper and better, Roland Berger's Billen said renewables could even challenge coal as Vietnam's biggest electricity source by 2030.
(GRAPHIC: Vietnam oil & coal imports - https://tmsnrt.rs/2LvIQeF)
COAL STILL KING
But whatever the long-term plans under PDP 8, Vietnam still needs quick fixes to meet demand.
"Vietnam is a country in the midst of massive economic growth, so they will need to expand their power capacity as fast as possible at manageable costs," said Sierra Vista's Markey, who sees projects already in the pipeline adding an extra 2.7 gigawatts (GW) of coal-fired capacity by 2020 to the 15 GW of coal-fired power already in place.
Power consumption hit a record 36,000 MW this month, close to the maximum available capacity, according to government data, while the government this week asked consumers not to set air-conditioners too low to help avoid blackouts.
The World Bank has said Vietnam needs to invest up to $150 billion by 2030, almost twice the $80 billion already spent on its power sector since 2010.
While Vietnam may struggle to finance the energy growth it needs and corruption remains a problem, businesses are anxious to enter the market.
Germany's Siemens, one of the world's biggest makers of gas-fired power turbines, in April signed a Memorandum of Understanding with the government that outlines future collaboration.
Gregor Frank, Siemens' Vice President for Large Gas Packages and Solution Businesses in Asia/Pacific, said the company was in "early development and financing of equity or debt" for large power projects.
In one of the country's most recent large energy deals, a consortium around Japan Bank for International Cooperation (JBIC) in April approved a $2-billion loan for a coal-fired power plant in Vietnam.
Sabyasachi Mishra, head of mineral sales at commodities trader Tata International expects Vietnam's annual coal imports to grow from 20 million to 30 million tonnes "in the next one year or so", particularly with domestic reserves in decline.
In the first four months of this year, Vietnam's coal imports more than doubled from a year earlier to 13.34 million tonnes, according to Vietnam customs data.
Markey said imports are forecast to peak at 80 million to 110 million tonnes between 2030 and 2040, against current demand of 63 million tonnes.
Such a surge would make Vietnam one of the last boom markets for what many otherwise see as a sunset industry.
(GRAPHIC: Corruption Perceptions Index 2018 - https://tmsnrt.rs/2LvOX2v)
(Reporting by Khanh Vu in HANOI and Henning Gloystein in SINGAPORE; additional reporting by James Pearson in Hanoi and Mai Nguyen and Koustav Samanta in Singapore; Editing by Richard Pullin)