June 2021
As the climate keeps warming, many in the United States and Europe are taking a long list of actions and arguing for more. How hot the earth gets, however, more than anyplace else, hinges on the actions taken – or not taken – in Asia. Asia has the world’s largest population, the world’s fastest growing economy, and – for climate, more important than anything else – close to 80% of the world’s coal-fired generation. The path Asia takes – and takes in this decade – will do more to determine the path of climate change the rest of the century. The path Asia takes, in turn, depends on the path that its own large economies take. Infrastructure Ideas has previously examined the dynamics of the energy transformation, especially whether countries will or will not add yet more coal-burning electricity capacity, in India, Pakistan, Bangladesh, and Indonesia. Today we’ll look at another of the region’s critical economies: Vietnam.
Vietnam’s population of 97 million ranks 15th in the world, and its energy consumption growth of over 10% a year the last several decades has been one of the 5 highest in the world. As population and incomes continue to rise, the demand for electricity in the country is expected to more than double by 2030. Generation capacity is expected likewise to more than double, from the current 55 gigawatts to 130 GW, at an estimated cost of US$150 billion – and then to more than double again by 2045, to 277 GW. Coal-fired generation is the largest source of power in Vietnam, accounting for about 53% of demand. Aside from coal, hydropower accounts for about ¼ of capacity, according to the IEA. Natural gas makes up some 16% of demand, and non-hydro renewables about 7%.
Coal in Vietnam is not only the largest source of power in the country, it has also been the fastest growing, with capacity having increasing by nearly 15 times since 2005, to about 25 GW in 2019. As the ability to build more large dams along the Mekong River basin has become very constrained, the government increasingly has turned to new coal plants instead of hydropower. With the expected strong growth in future electricity demand, Vietnam’s earlier power sector plans called for building more than another 45 GW of new coal-fired generation capacity by 2030, which would nearly triple the country’s existing coal fleet. According to Bloomberg New Energy Finance, Vietnam’s coal-fired pipeline is the 4th largest in the world today, with some 17 GW under construction and another 29 GW in advanced planning stages. This comes to about 15% of the total planned new coal capacity worldwide, excluding China, and if built, these plants would contribute to adding annual emissions of some 500 metric tons a year of CO2. Enough to make the world significantly hotter.
Energy policy in Vietnam, fortunately, is in transition. The country continues to envisage rapid further growth in electricity consumption as it develops, but where that added electricity is to come from is changing fast. In the past two years, Vietnam has gone from almost entirely fossil-fuel and hydropower-based to a solar and wind powerhouse. With a different sequence than most of the world, Vietnam moved first to aggressively adopt solar generation, especially rooftop solar. From less than 2 GW of capacity in 2016, solar generation capacity now exceeds 11 GW – 5 GW of which was installed just in 2020. Vietnam even showed the third-biggest growth in rooftop solar installations globally in 2020. Yet the biggest energy headlines for Vietnam are now elsewhere – in offshore wind. Onshore wind plants in Vietnam have begun to appear, but sites are constrained by the lack of available land. The country has turned its eyes offshore, as the offshore wind sector has begun to mature worldwide (see Infrastructure Ideas’ Offshore Wind – the Next Big Thing). In 2021, Vietnam is forecast to install 1 GW of wind capacity, triple its existing capacity and surpassing Thailand—at present Southeast Asia’s front-runner in installed wind capacity. And in July 2020, the Vietnamese government approved the assessment of the area off the cape of Kê Gà in south Vietnam to build the world’s largest offshore wind farm with a capacity of 3,400 MW – larger than any existing generating facility in the country.
With – at last – renewables coming to Vietnam, the country’s planners are rethinking Vietnam’s large-scale plans for future coal-fired generation. Several factors are coming into play: (a) the government has seen that investors and banks will finance new wind and solar generation, and that this source of power is cheaper than it had expected; (b) internal demand is geographically uneven, with both demand and growth highest in the south of the country – where offshore wind potential is the greatest; (c) the communist government is also ill-at-ease with both recent demonstrations against coal-fired power station projects, and with the risk of electricity shortages – with fossil-fueled capacity taking much longer to bring online than wind and solar; (d) sources of external capital to finance new coal plants are getting harder to come by; and (e) Vietnam itself stands to be heavily impacted by sea-level rise, with its extensive low-lying urban and agricultural areas along the Mekong Delta.
The government’s evolving thinking has begun to take shape in the draft form of “PDP-8,” its eighth multi-year Power Development Plan. Released in February 2021, the draft calls for both wind and solar generation capacity to rise to about 20 GW each by 2030, with their share of generation jumping from about 7% today to 30% by 2045. Coal, as a share of the country’s generation mix, is projected to be cut in half, to about 27%. The National Steering Committee for Power Development has recommended eliminating about 15 gigawatts of planned new coal plants by 2025, according to the state-controlled news website VietnamPlus. The draft PDP-8 proposes no new coal-fired power plants except those already under construction or planned for completion by 2025 or sooner. This would still, however, leave almost 20 GW of new coal capacity to come online this decade. And the battle for how to meet yet another doubling of demand in the following decade has not been joined.
As the planners deliberate, the environment around Vietnam keeps changing as well. For one, financing for coal plants continues to get more complicated. Japan has been a big financier of the sector in Vietnam, but Mitsubishi – one of Japan’s largest players in coal — announced in February it would no longer support one 2 GW and $2B flagship coal project, Vinh Tan 3. Conversely, financiers are eager to finance renewable generation: two wind power plants, Phu Lac 2 and Loi Hai 2, just this month closed a financial package from the IFC. For another, Vietnam has not really seen yet how cheap wind and solar power have become around the world. A late-comer to renewables procurement, Vietnam still offers a feed-in tariff mechanism to project developers, at 8.5 cents per kilowatt-hour – more than triple what it costs to procure new wind power capacity in the United States. As it moves this year to more efficient auction mechanisms for new capacity, and assuming it improves its PPA framework, Vietnam should start seeing renewable prices far lower than what it has been paying to date. And thirdly, Vietnam has yet to dip its toes into energy storage. As costs continue to plunge and availability expand, battery storage could help Vietnam meet its growing electricity demand with significantly less future expansion of new generation capacity.
Vietnam completed its five-year general elections for the National Assembly in May. By the end of June, the government is expected to release the final version of PDP-8. In a largely state-controlled economy such as Vietnam’s, formal government plans rule the roost, and PDP-8 will determine whether Vietnam sticks to earlier plans to move full steam ahead with building large-volume and high-emission new coal generation, or whether it will continue to cut back on new coal plans and switch even more strongly in the direction of renewable energy. A great deal – of emissions and climate change – hinges on the decision, and on Vietnam’s continued energy transition.
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