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Power sector – Gearing toward green

Sector note 08/12/2022    200

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  • Vietnam’s power sector is eagerly waiting for the official announcement of the PDP8 and renewable energy (RE) price mechanism to start a new development phase.
  • Thermal power plants likely benefit from the downturn of hydropower into 2023-24F. RE power plants wait for a policy boost.
  • Our stock pick including: PC1 and POW.

The PDP 8 and new RE price policy to start a new development phase
Vietnam’s power development picture became clearer after several iterations. The Nov-22 draft stressed more intense wind power growth of 16% CAGR in 2022-45F; additionally erasing 6,800MW coal-fired power and stopping developed gas-fired power after 2035F with hydrogen switch condition after 10 years of operation. The new version addressed the continuation of only 726MW solar power that have chosen investors to avoid legal risk, while encouraging rooftop solar development for self-use purpose.
We see the PDP8 to be published at soonest 3Q23F, creating a premise for RE price mechanism to follow up. We see these two policies play a crucial role, opening up a playground for enterprises in the new development phase of Vietnam power segment. With an enormous potential and green nature, we see wind power to be the main highlight in 2022-30F, and gas-fired power – a stable energy source to be the companion, ensuring the system’s safety.

2023-24F energy outlook and our stock picks
For 2023-24F, we estimate the remained high coal price to hamper coal-fired power output. However, we see lighter pressure for domestic coal-fired power plants in the North thanks to lower ASP and fast power demand growth of this region. We see hydropower will come out of its peak with the La Nina phase to end in 2023F. We expect gas-fired output continues to rise in 2023-24F, trailing the strong power consumption growth, and lower hydropower output. We believe POW, and NT2 will ride on this trend. For RE power, we see the untie of policy bottleneck to open up a big playground for large institutions. We think PC1, REE and BCG to be beneficial in this development phase. Our stock picks are PC1, POW.

Downside risks include: 1) Power consumption grows lower-than-expected, 2) The increasing trend of input price, putting pressure on thermal power plants, 3) The publishing of PDP8 and RE price mechanism are longer-than-expected; 4) Duo effect from interest rate and exchange rate loss hindered profit growth
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