Asian Development Bank backs 750MW O Mon 4 CCGT power plant project in Vietnam

Source: Asian Development Bank

The project is to construct a 750 megawatts (MW) combined cycle gas turbine (CCGT) power plant number 4 at the O Mon thermal power complex hence, the name O Mon IV - situated in O Mon district, Can Tho city, about 250 kilometers (km) south of Ho Chi Minh City, Vietnam. The project's objective is to help Vietnam to achieve adequate generating capacities to meet the fast growing demand for electricity so as to foster socio-economic development and industrialization in the south, and particularly in the Mekong delta area. The project is part of the least cost Sixth Master Power Development Plan (PDP VI) approved by the Government in 2007.

Meeting the demand
In Vietnam, high economic growth (averaged 7.5% per annum during the past decade), accelerated industrialization, expansion of business and services, and increased household consumption have resulted in a very high growth rate of electricity demand. Between 2000 and 2009, electricity consumption grew at 15% per year in average. Even during the economic slowdown in 2008-2009, electricity consumption grew at 13.5%. Projection of the electricity demand growth in the future remains high: 13% per annum for the period 2011- 2015; 11% per annum and 9% per annum for the period 2015-2020 and 2020-2025, respectively.

The strong economic growth allowed increasing household access to electricity and reducing poverty. Between 1995 and 2009, the household access to the grid increased from 50% to more than 94% and the capita consumption increased during the same period from 156 kilowatt hours (kWh) to about 900 kWh. The rapid economic growth has contributed to Vietnam’s success in bringing down the share of population below poverty line from 58% in 1993 to 13% in 2009.

To meet this rapidly growing demand, the Government of Vietnam plans to expand the national electricity supply system, particularly build up more generating capacities utilizing the country energy resources, such as hydropower throughout the country, coal in the north and natural gas in the south. Despite continuous construction of new generating capacities, power shortage today still occurs in the country as demand outstrips generation. In order to address the electricity deficit and improve the quality and reliability of electricity supply to consumers, an increase of the generating capacity from 15,060 MW in 2008 to 35,000 MW in 2015 and 60,000 MW in 2020 is planned under PDP VI. The Government Taskforce’s review of the implementation of PDP IV in 2010 revealed that among 35 power projects under construction, 17 of them are delayed by more than 8 months. Such a delay in commissioning of new generating capacities exacerbates the inadequacy of system capacities to meet demand.

In the south, owing to available natural gas, a number of gas based power complexes have been built, e.g., Phu My (4,000 MW); Nhon Trach (1,500 MW) and Ca Mau (1,500 MW). Currently, a consortium comprising Chevron, Vietnam Oil and Gas Group (also known as Petro Vietnam - PVN) is in the process of producing natural gas at Block B/52 in the Gulf of Thailand and transporting it to O Mon for power generation in O Mon power complex, which comprises four power plants. O Mon IV is one of the power plants to be developed in O Mon power complex to utilize natural gas for electricity generation to meet fast growing demand of the southern Vietnam and Mekong delta.

In this context, the project directly contributes to achieving the Government's planned generation expansion in order to meet the electricity demand in a timely and reliable manner. In addition to the core value of meeting electricity demand with optimal utilization of the national resources, there are a number of added values that ADB financing of O Mon IV project brings along, namely: (i) the need to mobilize large capital resources for funding system expansion to meet rapid growth in electricity demand; (ii) facilitate private sector development in the O Mon power complex; and (iii) promote the use of cleaner technology for power generation.

Meeting investment requirements
To build sufficient system capacities (including generation, transmission and distribution), Vietnam must mobilize about $44 billion for the period 2010-2015, out of which about $27 billion for new generation facilities and $17 billion will be invested in transmission and distribution (T&D) facilities. Vietnam Electricity (EVN) is expected to mobilize $32.7 billion. It is expected that non-EVN local investors and foreign direct investors can invest about $11.3 billion in a form of Independent Power Producers (IPP) and Built Operate and Transfer (BOT) schemes. In this context, ADB financing support for O Mon IV power plant is critical for EVN and the Government in meeting its investment requirement.

Promoting cleaner technology
ADB's assistance in the O Mon power complex is not limited to financing the O Mon IV power plant. ADB played active role in a number of studies, which demonstrated various scenarios of gas supply, consumption and a range of gas pricing. With ADB assistance, Petro Vietnam will be able to mobilize funds for the Block B - O Mon gas pipeline which supplies gas to the O Mon power complex. With gas made available, a 3,600 MW power complex will generate electricity using gas a cleaner fuel than the coal alternative. According to the calculation by the ADB Technical Support Facility, the 750 MW O Mon IV power plant will save approximately 600,000 tons of CO2 per year. ADB is assisting EVN to harvest the benefit of CO2 reduction under the Clean Development Mechanism of the United Nations Framework Convention on Climate Change (UNFCCC).

Linkage to ADB strategy and sector roadmap
ADB's strategy in Vietnam is to help develop infrastructure essential for promoting economic efficiency and enabling business environment. ADB strategy also promotes private sector investment in the country. ADB energy policy emphasizes increase access to electricity for all, increase cleaner energy production and use. The output of this project will be a cleaner (less Greenhouse Gas (GHG) emission) power generation plant, which contributes to meeting electricity demand in a more reliable and environment benign manner, thus is in line with ADB strategy.

The Energy Sector Assessment Strategy and Roadmap (SAR) identified several key areas for future development of the sector and for cooperation with ADB and other partners. These are: (i) optimal utilization of domestic energy resources (natural gas, hydro, coal) for meeting country energy need ensuring better energy security; (ii) increase use of renewable energies and promotion of energy conservation and higher efficiency for energy security; (iii) continue sector reform and restructuring to enable more competition in production and services; (iv) diversification of financing sources for meeting investment requirements, promoting cleaner technologies and more environment friendly practices in energy sector; and (v) increase regional cooperation. Hence, the project is in compliance with the sector assessment.

The proposed Project will enable EVN to significantly increase its installed generating capacity to be able to reliably supply electricity.

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