Rising global coal prices a threat to budget

Vietnam may have to spend an additional US$1.27 billion each year on the fuel to 2021, given the global price of coal has doubled since the beginning of 2016, new analysis reveals.

The current market price of thermal coal has risen to $100 per ton, double the figure early last year, according to research from the Australia-based Institute for Energy Economics and Financial Analysis (IEEFA).

Vietnam imported a net 12 million tons of coal last year, a staggering increase of 131% against 2015, and the country’s net coal imports will stand at 35 million tons per year by 2021, according to the International Energy Agency (IEA).

At current market prices, that would cost Vietnam US$3.5 billion per year. Compared with projections made last year, which said Vietnam would have to spend US$2.8 billion at a predicted price of US$80 per ton, the country will end up spending an extra US$1.27 billion every year on importing foreign coal by 2021, the IEEFA calculated.

According to the institute, rising coal imports create commodity price and currency risks for Vietnamese electricity consumers that have a negative impact on the current account deficit.

“The doubling of the coal price from US$50 in January 2016 to almost US$100 today is largely as a result of a Chinese policy aimed at an orderly coal market transition by maintaining a degree of profitability for domestic Chinese coal miners, while the central government forges ahead with an accelerating transition to clean energy,” it said. “China is set to install 50 gigawatts of solar in 2017 alone; a global record for a single country in a single year.”

“The fluctuating market in 2017 illustrates the extent to which coal is a major threat to the health of Vietnam’s budget,” Mr. Tim Buckley, Director of Energy Finance Studies at the IEEFA, was quoted as saying in a statement released this week by the IEEFA.

“For countries experiencing significant sustained economic growth, it also further validates the imperative to diversify Vietnam’s electricity sector generation base to incorporate more alternative sources of domestic supply, namely renewable energy infrastructure, which continues to see cost reductions of more than 10% every year.”

In Vietnam, which has switched from a coal exporter to a coal importer over the years due to over-exploitation, the development of green-power projects has only just started and investors are still struggling due to low purchase prices.

The Ministry of Industry and Trade in September asked the government to raise the purchase price for wind power in an effort to help investors cover high input costs, suggesting the price be lifted to 8.7 cents per kilowatt-hour (kWh) for wind energy projects on land and 9.95 cents per kWh for offshore projects.