Vietnam's power delivery concerns have been a significant issue since 2020, when electricity demand began outpacing generation capacity. In 2023, consumption rose to 241.8 billion kWh, an 8.1% increase, while generation capacity only increased by 3.9% to 79.3 GW. This has led to power disruptions, affecting major manufacturers like Foxconn and posing a threat to Vietnam's reputation as a reliable manufacturing hub. The power crisis is impacting the broader economy, with the industrial production index and export growth slowing down in April 2024. Foreign direct investment and the stock market have also been affected. Despite efforts to increase power generation capacity, including a significant increase in coal imports, delays in power plant construction and grid expansion projects have hindered these efforts.
Source: Southeast Asia Link
On May 21, sources revealed that Foxconn, a major Apple supplier and one of the largest employers in Vietnam, along with other manufacturers in northern Vietnam, was asked to reduce power consumption by up to 30%.
"We have received notices from local authorities to cut power usage during peak hours to help stabilize the grid. This will inevitably affect our production schedules and outputs," a Foxconn representative said.
Vietnam Electricity ("EVN") has denied instructing foreign companies to cut power usage.
"We have not requested any company to reduce their power usage. We are simply managing the power supply based on the current situation," stated Ngo Son Hai, EVN's Deputy General Director.
Despite this denial, multiple sources within the manufacturing industry continue to confirm receiving such requests, creating confusion and uncertainty among businesses operating in the country.
Looking beyond the he-said, she-said, the power disruptions pose a significant threat to Vietnam's reputation as a reliable manufacturing hub, potentially driving investors and businesses to seek more stable environments elsewhere.
Power Situation in Vietnam
Power delivery concerns in Vietnam have been a significant issue affecting the country's manufacturing sector since 2020. The issues mainly stem from increased demand for electricity, which has outpaced the nation's power generation capacity.
In 2023, Vietnam's electricity consumption rose to 241.8 billion kWh, an increase of 8.1% compared to the previous year. The country's power generation capacity, however, only increased by 3.9% to 79.3 GW in the same year.
Hydropower once accounted for nearly half of Vietnam's power mix, but by 2023, it only accounted for 30%. The decline is due to underinvestment in hydropower, despite significant potential remaining untapped. In 2021, Vietnam experienced one of its worst droughts on record, which further reduced hydropower generation.
Vietnam is under strong pressure from advanced economies to increase reliance on less stable power sources such as wind and solar, instead of investing more in stable energy-producing technologies like gas, coal, and hydropower.
In response, Vietnam has had to increase coal imports significantly. In 2023, Vietnam imported 34.55 million metric tons ("mmt") of coal, a 54.8% increase year-on-year (YoY) from January to August. In Q1 2024, coal imports, mostly from Australia and Indonesia, were up by roughly 88% as of March 15 compared to the same period last year, according to customs data. The government projects coal imports to reach approximately 73 mmt by 2030 and peak at 85 mmt by 2035.
In 2012, the government amended the Electricity Law to attract private sector investment and enhance the efficiency of power delivery. However, bureaucratic hurdles and inconsistent policy implementation have hindered these efforts. Vietnam's communist and authoritarian government has struggled with private sector cooperation.
Several planned power plants and grid expansion projects have faced delays. For example, the Long Phu 1 coal plant, with a capacity of 1,200 MW, has been delayed multiple times due to financial and regulatory issues. Construction of the Nam Dinh 1 thermal power plant, with a capacity of 1,200 MW, has been delayed due to slow site clearance and difficulties in securing financing.
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Economic Implications
The power shortages have substantial economic implications. According to the General Statistics Office of Vietnam, the country's industrial production index (IPI) increased by only 2.7% in April 2024, down from 5.1% in March 2024. The manufacturing sector, which accounts for over 70% of the total IPI, has been hit hard by the power shortages. Export growth has also slowed, with the Ministry of Industry and Trade reporting a mere 1.2% increase in exports in April 2024 compared to the same month last year. This slowdown could significantly impact Vietnam's economy, which relies heavily on manufacturing and exports for growth.
The power shortages have also led to a decline in foreign direct investment (FDI) in Vietnam. According to the Ministry of Planning and Investment, FDI in Vietnam fell by 11.7% year-on-year in April 2024, to $2.3 billion. Moreover, the power shortages have impacted the country's stock market. The VN-Index, Vietnam's benchmark stock index, fell by 1.9% in April 2024, reflecting increasingly negative investor sentiment caused in part by concerns over power delivery in Vietnam.
