How to Solve the Energy Challenges in Industrial Real Estate

How Extreme Weather Disrupts Manufacturing

Draughts in the north of Viet Nam have caused an energy shortage. The water levels at hydropower plants were below the level required to generate power, which has resulted in power cuts. Several coal-fired power plants in the north also had to stop for maintenance and repair. These interruptions have resulted in a power shortage, which has influenced production and delivery timelines for several manufacturers.

Thomas Rooney, Senior Manager of Industrial Services, Savills Ha Noi commented: “The recent power cuts have severely impacted manufacturing operations in notable provinces in northern Viet Nam. While some IPs have backup power there is still a short-term concern of the potential frequency of cuts.”

Production interruptions have influenced productivity and have created financial pressure for tenants. An unstable power supply can also damage production equipment if there are no fail-safe measures in place. Disruptions, of course, also add additional costs and impact profitability. Small and medium companies are particularly at risk because they often lack the resources to deal with such disruptions.

Although industrial parks do offer backup power, capacity can be a challenge. Heavy machinery requires significant levels of power, which might pressure in the long run. Given these conditions, tenants and investors are diversifying their manufacturing locations. “Occupiers and investors are considering attractive Tier 2 provinces such as Vinh Phuc, Ha Nam, Thai Binh and Nam Dinh for their relocation and investment strategies” Thomas added.

Sustainable Energy Solutions

Faced with the challenges of power supply disruptions, manufacturing businesses and industrial park investors need short and long-term solutions. In the short term, raising backup capacity will support seamless production processes. Thomas expects enhanced backup systems will provide the necessary relief.

In the long term, renewable energy development will be essential and will be an alternative to hydropower in case of drought. Renewable sources in abundance in Viet Nam include solar and wind. Thomas shared: “Viet Nam has enormous renewable potential and is already one of the largest solar producers in the region. While the potential is great, grid infrastructure and administration remain an issue and are hindering the integration of renewables.”

According to a report by Viet Nam Electricity in April 2023, renewable energy reached 13.31 billion kWh, accounting for 15.6% of the total electricity production. Notably, Viet Nam’s proposed power plan aims for renewable energy sources to deliver between 30.9% to 39.2% of electricity production by 2030. The goal is to achieve a renewable energy ratio of 47% according to the commitment to equitable energy transition with Viet Nam (JETP).

Renewable energy is a sustainable solution and will play a part in solving the issues related to power shortages.

Conclusion

Are you looking to invest in industrial products or need industrial properties for your enterprise? Contact Savills Industrial Services for support. The team offers comprehensive consultancy services backed by the latest market research from across Viet Nam and the APAC region. Contact Thomas Rooney for more information.