Vietnam’s Power Development Plan Draft Incorporates Renewables, Reduces Coal

Posted by Written by Pritesh Samuel Reading Time: 3 minutes

Vietnam’s Power Development Plan 8 (PDP VII) draft for the 2021-2030 period with a vision towards 2045 has been significantly delayed, however, a finalized draft is expected to be submitted to the Prime Minister in May 2022 for approval.

While the PDP8 has gone through several drafts, the latest revision proposes increasing electricity capacity to 146,000 MW by 2030 and incorporate the use of diversified sources of power in renewable energy as well as other fuel sources such as hydrogen and ammonia. This is significant as Vietnam made a commitment to be carbon neutral by 2050 at the UN’s COP26.

The time taken for approval and several revisions to the PDP draft shows that government agencies have found it challenging to come to a common ground with negotiations ongoing to develop a clear plan forward for the country’s energy security.

Vietnam’s rapidly growing economy has increased energy demand

Vietnam has become a manufacturing hub, increasing its energy needs rapidly. Power demand has increased by approximately 10 percent per year over the past decade. Vietnam went from a net oil exporter to a net oil importer in 2015, owing to its increasing demand for energy with greater dependence on coal.

In fact, Vietnam imports a significant amount of coal from Australia and Indonesia. Coal is responsible for approximately a third of electricity output in Vietnam. State-owned electricity provider EVN in March 2022 warned of electricity shortages due to limited coal supplies. To deal with the shortage Vietnam planned to increase imports from Australia while it also was in talks with South Africa to diversify its coal imports.

Therefore, Vietnam will need to slowly wean off coal and diversify its energy imports to meet supply shortages. And with external factors and geopolitical tensions, the government will need to secure adequate supplies and plan for any future shocks in its energy security.

As per EVN, Vietnam produced around 76,620 MW power generation capacity at the end of 2021. Out of this wind and solar energy made up 27 percent of capacity.

Significant opportunities in renewables but infrastructure needs to keep up

While Vietnam earlier was at the forefront of solar power, leading the Southeast Asian region, the industry has been forced to slow down. The country’s transmission lines have not been able to keep up, resulting in production losses. At times EVN has also told solar companies to cut electricity production as the power grid has not been able to keep up.

In contrast, however, wind capacity has been able to surpass solar and as per Fitch Solutions, this trend is likely to continue in the short to medium term.

PDP draft calls for diversifying energy sources, increasing renewables, reducing coal dependency

While precise details of the PDP8 draft are limited, the government said that it has worked with several agencies on data on renewables, net-zero emissions, and diversifying energy sources, which have been incorporated in the draft. The draft is also in line with Resolution No 55 on the national energy development strategy by 2030 with a vision towards 2045.

Vietnam plans to forego building any new coal-fired power plants. This would mean coal would reduce to 9.5 percent share of the capacity by 2045 compared to 15 to 19 percent previously. In addition, Vietnam is aiming for a 50 percent share of wind and solar power by 2045 compared to the previous target of around 40 percent.

As per S&P, for this target to be reached, Vietnam would need to have 42.7 GW of onshore wind capacity, 54 GW of offshore wind, and 54.8 GW of solar capacity by 2045. This will be a challenge, but something the government will need to implement if it wants to meet such a target.

The rapid expansion has also opened up opportunities for investors. Trungnam Group recently finished a 152 MW wind warm, the largest in Vietnam, in Ninh Thuan province. While Denmark-based Orsted, has proposed building a US$13.6 billion offshore wind project off Hai Phong.

Challenges ahead

The PDP draft is an ambitious target to meet Vietnam’s COP26 goal. This will be challenging as Vietnam strives to move towards renewable and diversified energy sources while balancing its need to become a production powerhouse.

The government will need further reforms; the limited grid capacity is in need of upgradation, and this has stifled the renewable energy sector. EVN maintains a monopoly over electricity transmission, and this could possibly be opened up to private investors to enable further development. The grid system will also need to cater to a mix of renewable energy sources such as solar and wind power.

Reducing dependency on coal will not be easy as Vietnam wants to achieve high growth. While the pandemic slowed some demand, with Vietnam now open, demand is only expected to further increase. Thus, the government will need to balance its priorities using a phased methodical approach as implementation to meet these goals will be key.

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