After a dozen draft versions, Vietnam in mid-May finally released its 2021–30 national energy plan – dubbed PDP8. While PDP8’s targets are encouraging, significant implementation challenges loom.
Draft versions of PDP8 have been kicking around since as early as 2016. Bureaucratic wrangling was one factor behind persistent delays. Having been schooled in a central planning model where coal was king, elements of the country’s Ministry of Industry and Trade vigorously resisted directives to expedite coal’s phase-out.
Further confounding variables were Vietnam’s surprise net-zero pledge at the November 2021 COP26 climate conference, and the energy market dislocation caused by Russia’s invasion of Ukraine. An ongoing anti-corruption investigation into the renewables sector even led to speculation that PDP8 wouldn’t be approved until 2024.
The signing in December 2022 of a Just Energy Transition Partnership (JTEP) with G7 countries may have helped facilitate matters. PDP8’s release was a prerequisite for any progress on the US$15.5 billion plan, which is targeting the release of a resource mobilisation plan by November.
However, the US$15.5 billion is only a modest part of the estimated US$135 billion that PDP8 will require and comes with added sensitivities around foreign loans. It is equally possible that Hanoi realised that the delay’s chilling effect on investment was simply untenable.
PDP8 marks a step-up in ambition, especially considering the youthful nature of Vietnam’s coal fleet. Vietnam’s 2030 target for coal capacity is just over 30GW – down from as high as 55GW in draft iterations and 37GW early this year. Renewables excluding hydropower (around 30 per cent of the current grid) are targeted to increase to around 30 per cent of the energy mix, up from 5 per cent in 2020. Vietnam will lean heavily on gas as a transition fuel, with its share rising to 38GW by 2030 – 25 per cent of total installed capacity.
PDP8 also sets preliminary targets for 2050, by which time the grid will be dominated by renewables.
The broad contours of Vietnam’s transition are now much clearer. However, PDP8 is only a first step. Some of its assumptions may prove flawed.
Take coal. PDP8 commits to funding five new coal plants. If financing can’t be secured before June 2024, these projects will be cancelled. Meeting this ambitious deadline will be more challenging because of the commitment by Vietnam’s traditional financiers – Japan, China and South Korea – to cease funding new coal projects.
Just to meet projected energy demand by 2030, Vietnam will double installed capacity to 150GW. If coal projects are scrapped, Vietnam will need to increase reliance on gas and renewables.
Gas may prove problematic. Liquified natural gas (LNG) will feed 60 per cent of Vietnam’s gas-fired plants, and possibly more given the depletion of existing fields and escalating Chinese encroachment complicating offshore exploration.
LNG will obviously be more expensive than traditional domestic supply. This is a problem in a country where market forces only play a limited role in determining electricity prices. State-owned Vietnam Electricity (EVN) – which has a virtual monopoly on transmission and distribution – requires approval to increase electricity prices by more than 10 per cent. Facing political pressure to keep prices low, EVN has recently recorded sizeable losses because of higher input costs. This may complicate EVN’s ability to operate and maintain its vast portfolio (accounting for approximately 55 per cent of Vietnam’s current installed capacity) and pay for much-needed grid upgrades.
Ideally, these factors would serve as a fillip to efforts to develop Vietnam’s abundant renewables potential.
Unfortunately, the legacy of haphazard policy implementation means that solar power’s growth will be limited for the immediate future. From 2017 to 2021, Vietnam offered attractive solar feed-in-tariffs (FiTs) of US$0.09 per kWh. An uncontrolled surge of projects, allegedly expedited by corruption, culminated in the approval of significantly more projects than were authorised. Meanwhile, EVN failed to make the requisite investments in transmission and grid expansion.
The result has been significant curtailment. During Vietnam’s recent heatwave, only 10.5GW of the country’s more than 20GW of solar capacity was used on average at peak time. This, combined with lower hydropower output and grid constraints, has led to widespread loadshedding – when electricity companies reduce consumption by cutting off supply to certain customers – across Vietnam’s north.
Nor is it clear that wind can do the heavy lifting. As of March this year, 60 onshore projects with a cumulative capacity of 3.5GW were sitting idle. Covid disruptions meant that these projects failed to achieve grid connection by November 2021, the deadline for securing favourable FiTs.
Developers remain locked in negotiations with EVN. EVN is hardly a disinterested player, as the FiTs that it pays renewables developers are progressively eroding its own market share.
Vietnam has favourable offshore wind potential, and PDP8 is targeting at least 6GW by 2030. However, legislative and policy gaps remain. Hanoi’s bruising experience with FiTs also means that it is unclear when or if similar incentives will be offered to new offshore wind projects.
Looking further ahead, PDP8 is targeting the burning of up to 29GW of hydrogen and 32GW of ammonia at converted gas and coal plants by 2050. This may prove excessively costly, especially if imports are involved.
Individually, none of these challenges is insurmountable. When combined, they are a formidable policy challenge. Getting it right will be crucial to meeting Vietnam’s development goals and maintaining its status as Southeast Asia’s leading emerging manufacturing hub.