4 minute read
Sector analysis
Vietnam forging forward, deeper into energy transition
Nasheena Laing
Historically, Vietnam’s energy sector has been heavily reliant on coal, hydro and gas but the country is now tapping into its vast potential in the solar and wind sectors, to curb the downside of over reliance on these resources. Furthermore, Vietnam’s pledge in the Paris Agreement to reduce its greenhouse gas emissions by 8% by 2030 is driving the country’s need to provide cleaner, more sustainable energy to feed its growing energy demand which is estimated to increase by 8% per year from 2021 to 2030. Consequently, Vietnam has set forth a renewable target of up to 20% of the country’s energy mix by 2030 with a long-term goal to achieve 40% by 2040.
Vietnam’s revised Power Development Plan 7 (PDP 7) had targeted to add 43GW of coal power capacity between 2017 and 2030 but it is estimated that nearly half the capacity might be suspended or cancelled. Hence, the government has taken the initiative to raise the renewable energy capacity instead, squarely on the rapid deployment of solar and wind power as well as enhancing grid capabilities to feed the rising demand and shift away from fossil fuel as seen in the upcoming Power Development Plan 8 (PDP 8). PDP 8 covers the period from 2021 to 2030 with a vision towards 2045 and encapsulates a new strategy, moving towards energy transition.
Vietnam is blessed with a long coastline and good wind speeds. Hence the country’s offshore and onshore sectors have been under the limelight, both domestically and internationally, with massive exploitable potential of 217GW and 160GW, respectively. In June 2020, 91 wind projects with an overall capacity of nearly 7GW were added to the PDP 8, setting it on track for a total wind power generation capacity of nearly 12GW by 2025. Based on the assessment by the World Bank and Danish Energy Agency for the PDP 8 development, Vietnam is targeted to achieve 10GW of offshore wind energy by 2030. To facilitate the growth of the sector, the need to mandate a nodal regulatory body to act as a single point of contact to streamline the permitting and consent processes for projects has been elicited.
The current wind feed-in-tariff (FiT) is set to expire in November 2021 and the sector will transition to a competitive bidding auction scheme instead, which will create a downward pressure on costs, with more transparency benefits for better planning purposes. However, the Ministry of Industry and Trade (MOIT) has proposed a two-year extension, which if approved, will enable more onshore wind projects to meet the 2023 FiT deadline. The impact on the offshore wind segment will be relatively less significant due to the longer time frame required for development. Regardless, this extension will allow the industry to gain more experience and establish a stronger local supply chain before shifting to the auction scheme. Vietnam is also known as the new leader in South East Asia’s solar photovoltaic (PV) market, noting that its solar PV installation made up nearly half of the region’s total capacity in 2019. The country’s accumulated installed solar capacity of more than 5GW has far exceeded its previous 850MW by 2020 target. Nevertheless, Vietnam continues to aim higher, with a 12GW target set for 2030 which is expected to increase further, with the deployment of the PDP 8. According to BP’s Statistical Review of World Energy, solar power generation in Vietnam surged from 0.1bn kWh in 2018 to 4.2bn kWh in 2019. Vietnam’s success in the sector can be mainly attributed to its FiT scheme which promotes investment by guaranteeing above-market pricing for power producers. However, the solar FiT scheme will soon be ending in December 2020. In the future Vietnam intends to shift to a bidding mechanism to achieve more competitive pricing for solar power. Following in the wake of the COVID-19 pandemic, numerous power generation projects have suffered delays which could lead to severe power shortages in the next five years. To further promote the rapid growth of the renewables sector, the MOIT has also proposed a two-year pilot programme for direct power purchase agreement mechanisms, enabling power producers to sell and supply electricity to corporate consumers instead of going through a state-owned electric utility company. Ultimately, this will create a more competitive environment and open doors for private entities to invest in enhancing grid capabilities which is crucial to bolster the country’s fuel mix target. The unveiling of the final form of PDP 8, targeted for March 2021 is expected to generate a roadmap to end Vietnam’s over reliance on fossil fuels and redirect its focus towards decarbonising the grid. The country’s push towards providing cleaner energy to meet its growing energy demand will lead to the creation of an abundance of opportunities for energy players while also helping the country meet its energy transition targets.
