Vietnam power plan approved but problems remain

Vietnam’s Power Development Plan 8 (PDP8) to help the Southeast Asian economic powerhouse generate more energy to drive its growth has finally been approved. The US$134.7 billion plan is also designed to help the country of some 100 million people reach its sustainability goals.

The plan was approved on May 16 after more than two years of delays, political bickering and a dozen various draft versions.

It envisions US$134.7 billion of funding for new power plants and grids across both fossil fuel and renewable energy power project development. Much of this money is anticipated to come from foreign investors.

Many in the country’s energy sector, along with a plethora of potential international investors, had become restless waiting for the plan to finally be passed.

Yet, at the end of the day, decision makers in Hanoi may have been motivated by a G7 move in December that pledged US$15.5 billion in initial funds to help Vietnam pivot away from coal usage.

Vietnam’s renewable energy projections

Renewable energy in the PDP8 will see healthy spikes. Solar power, both residential and commercial, will increase from 8.9% in 2020 to an impressive 23.8% by 2030.

Onshore wind power will spike from 0.8% in 2020 to 14.5% in 2030, while offshore wind power will increase from 0% to 4%. Vietnam is pushing long term offshore wind development to take advantage of its vast coastline of 3,260 km (2,030 miles) along with favourable wind conditions. Notably, it’s earmarked 70 gigawatts (GW) of offshore wind capacity by 2050.

Hydropower will decrease from 30.3% of Vietnam’s power generation mix in 2020 to 19.5% by 2030.

However, problems remain since Vietnam’s power plan still isn’t in line with G7 goals and will remain overly reliant on fossil fuels for the rest of the decade and beyond.

By 2030, Vietnam’s coal usage will decrease from 30.8% of its energy mix in 2020 to 20% by the end of the decade – still a problematic overreliance on the world’s dirtiest burning fossil fuel.

Vietnam’s LNG quandary

Gas and LNG together will still make up nearly 25% of the country’s energy mix by 2030, representing some 37.33 GW of capacity. That’s four times more than in 2020.

Domestic gas will decrease from 13.1% in 2020 to 9.1% in 2030, while LNG will rise from 0% in 2020 to some 14.9% in 2030.

It also should be noted that PDP8 sees no new LNG-to-power plants being developed after 2035 while there’s a call to transition to using hydrogen for LNG-to-power plants to 2050.

Notably, LNG’s targeted share by 2030 in PDP8 has been lowered slightly from earlier drafts. This shift comes as the government tries to reduce over-reliance on imported fossil fuels amid a much different global LNG market than just a few years ago.

Some still see LNG as the ideal transition fuel and an opportunity for Vietnam to both wean itself from an historic dependency on coal and to help reach its climate change mitigation goals. A Vietnam Briefing report called LNG the “cornerstone of Vietnam’s future power production.”

Others see gas and LNG as a hurdle that will prevent the country from reaching its sustainability goals, especially trying to reduce emissions from its power sector.

LNG has also earned a bad reputation in the region, according to the Institute for Energy Economics and Financial Analysis’ Global LNG Outlook 2023-2027.

“Southeast Asia’s [LNG] demand growth faces challenges related to high prices, limited LNG contract availability and infrastructure constraints,” it said.

It added that “long-term contracts with deliveries before 2026 are reportedly sold out globally, meaning price-sensitive Southeast Asian buyers risk high exposure to volatile, expensive spot markets.”

As such, Vietnam’s fledgling LNG import projects will be over-reliant on spot market procurement and these uncertainties until at least the mid part of the decade.

Furthermore, the International Energy Agency in October advised that all oil and gas exploration projects need to be halted to achieve net-zero emissions by 2050, which is a prerequisite to limit global warming to 1.5°C per the 2015 Paris Climate Accord.

The problem with gas is that it emits at least half of the harmful emissions as coal – the world’s dirtiest burning fossil fuel. Methane from gas is also more than 25 times as potent as carbon dioxide at trapping atmospheric heat. This is a problem that COP26 addressed in 2021, resulting in the Global Methane Pledge. 

Vietnam power sector emissions

The growing share of gas in Vietnam’s power mix will increase its overall power sector emissions, Dr. Nandini Das, energy analyst at Climate Analytics, told Gas Outlook.

“Our current policy projections of Vietnam’s power sector emissions come in at 209 metric tons of carbon dioxide (MtCO2), with economy wide emissions at 603-692 MtCO2 in 2030,” she said. Vietnam’s power sector currently accounts for around 30% of total emissions.

This is where Vietnam’s renewables development has room to grow even more. “The country’s renewables energy power generation target should be at least 47% by 2030, compared to 31% (non-hydro) under PDP8,” Das said.

She added that a Just Energy Transition partnership (JETP) declaration found that Vietnam will reduce its emissions by 45% from the 2010 level, but its increasing share of gas capacity to 25% will actually lead to an increase in emissions.

A recent Fitch Solutions report agrees. It states that Vietnam’s longstanding dependence on conventional thermal power generation will not wane significantly this decade.

“It ended 2022 with coal and gas producing 50% and 12% of its power generation needs respectively, and we forecast it will reach 47% and 19% in 2032,” it said.

The way out for Vietnam, according to the report, includes relying less on gas imports, increasing electricity trade with neighbouring Laos and ramping up the deployment of additional renewable power projects. This will alleviate some pressures stemming from its dependence on fossil fuels in its power sector.