Transition to Renewable Energy in Viet Nam: Overview of recent developments
Introduction
At the COP26 in November 2021[1], Viet Nam unexpectedly[2] pledged to meet the net zero CO2 emissions target by 2050 and signed the “Global coal to clean power transition statement”[3]. The government subsequently tasked national ministries to develop programs and plans to implement Viet Nam’s COP26 commitments with a focus on: (i) transition to renewable energy; (ii) reduction of greenhouse gas emissions; (iii) reducing methane emissions; (iv) moving to electric vehicles; (v) offsetting carbon emissions; (vi) alternative construction materials; (vii) increased awareness; and (vii) the digital economy.
Viet Nam has considerable renewable energy resource potential and already has one of the highest rates of installed solar panels in Southeast Asia[4]. National development strategies recognize that achieving the net-zero target will need require accelerated action to reduce CO2 emissions and improve energy efficiency[5]. The National Climate Change Strategy[6], approved in April 2022[7], aims to “turn Viet Nam into one of the role models with regards to green growth”, calling for divestment from fossil fuel-intensive and polluting activities, and an increased share of renewable energy in the energy mix, combined with measures to improve energy efficiency. Reduced reliance on fossil fuels is also a target in national commitments to reduce methane emissions[8].
The World Bank (June 2022) reports that the installed capacity of coal power plants quadrupled from 5 GW in 2010, to 20 GW in 2020, “making the power sector the largest source of GHG emissions in Viet Nam”[9]. The government has committed to not approving new coal-powered plants from 2030 and securing external financing for new coal fired power stations in Viet Nam[10] is increasingly difficult. Nevertheless, past commitments mean that additional coal capacity will continue to be added for some time (e.g., the USS2.8 billion Nghi Son 2 thermal power plant (a Japanese and Korean joint-venture) was inaugurated in August 2022.) [11],[12].
Need for increased power supply
Growth in demand for power in Viet Nam has exceeded 11% per year over the last decade due to strong economic growth (fuelled by growth in trade and investment), a rising middle class, and expanded access to power. Improved supplies of, and access to, power has contributed significantly to Viet Nam’s remarkable success in improving living standards and reducing poverty.
Robust growth in power demand is expected to continue. Electricity demand is projected to increase by an average annual rate of 9.1% between 2021 and 2025, and by 8% annually between 2026 and 2030[13]. The Viet Nam Energy Outlook Report (VNEOR) recognizes that the transition to greener energy will be capital intensive, and that total capital investment requirements for renewable energy, storage and transmission are likely to soar up until 2050[14].
Driving the transition to renewable energy
The push for renewables reflects both national pressures for improved environmental outcomes, and global commitments to reduce carbon emissions. As reflected in the national green growth and environmental protection strategies[15], Vietnamese policy makers recognise that environment-oriented policies are critical to sustaining strong economic growth, job creation, and improved living standards. Viet Nam aims to meet future power demands with renewable energy (especially wind and solar), and by switching from coal to natural gas, biomass, and hydrogen resources. Earlier plans for nuclear power[16] generation appear to have been shelved because of more cost-effective renewable options and safety concerns[17].
Some provincial authorities have rejected new power projects because of their environmental implications. Viet Nam’s relatively low rates of fossil fuel subsidies (US$3 in 2019 compared with US$8 in Thailand, US$57 in Malaysia, and US$71 in Indonesia) also helps encourage investments in more efficient alternatives.[18] Environmental and other non-government organizations are proactively promoting shifts toward wind and solar power.
Health concerns have also been a significant driver of change. Past efforts to meet Viet Nam’s growing energy demand by boosting the capacity of coal fired power stations increased air pollution resulting in higher incidence of respiratory and cardiovascular infections. Air pollution in Viet Nam (as measured by fine particle matter (PM2.5) concentrations) peaked at 34.1 μg/m3 in 2019. Manufacturing activity, increasing private motor vehicle travel and household demand for power, and a construction boom are major contributors to air pollution in Viet Nam’s major cities. Following the COVID-induced slowdown in economic growth and strengthened efforts to control air pollution, average concentrations of PM2.5 fell to 24.7 μg/m3 in 2021. Despite this improvement, all 15 Vietnamese cities included in IQAir’s 2021 World Air Quality report exceeded the WHO’s average annual PM2.5 guideline concentrations of 5 μg/m3 [19]. Reducing fossil fuel use is seen as essential to achieving better health outcomes.
Arguments have also been made that, with well-designed complementary policies (e.g., for community solar projects[20]), renewable energy can also contribute to decentralized development with more equitable economic opportunities by supplying more reliable power to remote and poor regions of Viet Nam with limited alternative economic opportunities.
Accelerating transition to renewables
Growth in non-hydropower renewables has accelerated in recent years. The introduction of the fixed-rate “feed-in tariff” of up to 9.35 US cents per kilowatt-hour in 2017, resulted in the share of electricity generated by solar increasing from negligible levels to almost 11% in the four years to 2021. However, supply response exceeded transmission capacity, and generated solar power could not always be efficiently used. This pilot policy is now being reviewed, slowing new investments in solar power.[21]
During recent discussions on PDP8 (August 2022) the Ministry of Industry and Trade proposed that the Government exclude another 14 GW of coal-fired power from the plan. Most proposed reductions were from State invested projects[22], but some foreign investors (e.g., Samsung and TATA have agreed to withdraw from past commitments for coal fired power plants)[23].
Those pushing the transition to renewables do, however, continue to face some resistance from vested interests. Approval of the Power Development Plan VIII (PDP8) has been repeatedly delayed as differing views on the pace of change and about potential commercial implications of changing past commitments to proceed with specific coal fired power plants. Minutes of the August 2022 inter-government meeting to discuss the PDP8 provide insights into the internal debates and the challenges in moving towards consensus on critical policy issues in Viet Nam[24]. Final approval of PDP8 should help reduce ongoing investor uncertainty about future power generation targets and priorities, including a clearer commitment to transition to renewables.
Challenges in implementing the transition to renewables
Effective implementation of actions to achieve “net zero” will require sustained efforts, and substantial investments. Official Communist Party media reports that MOIT has proposed the total capacity of power plants to reach 120 to 148 GW by 2030, with hydropower accounting for 19.5-22.1%, coal-fuelled power 25.3-31%, gas-fired power 24.7-26.3%; renewable energy 17.9-23.9% and imported electricity 3.3-3.4%.[25] The share of coal in total power supply is targeted to fall to about 10% in 2045[26].
Achieving these targets will require stronger institutional capacity to better regulate and stimulate competition in the broader energy market, while also ensuring that price policies are adequate to attract increased levels of private investment. Developing efficient and accountable national energy markets and institutions for increasingly diverse and decentralized sources of power supply will not be easy, as Australian experiences have shown. Policy reforms, such as reforms to reduce and regulate EVN’s monopoly powers to allow private domestic and foreign investors to compete in power generation; adjusting prices to better reflect costs; promoting private investment in power generation; and building a strong Electricity Regulatory Authority may help. Current uncertainties regarding roof-top solar power system policies also need to be resolved.
Solar and wind power potential is concentrated in central and southern provinces, and transmission infrastructure is inadequate to meet large demands in the north and around HCMC. Legal changes adopted in 2022 allow private investors to build and operate power grids[27], with the aim of increasing Viet Nam’s transmission capacity[28].
The government has called for reviews of mechanism for transitional wind and solar power projects, and of pilot mechanism for direct electricity trade between renewable energy generators and large electricity users. It will be important to establish effective institutional arrangements to allow renewable energy producers to sell electricity directly to end-users, and to implement enforcement mechanisms to protect consumer and investor rights.
More work is needed to ensure adequate backup sources and storage systems to effectively integrate renewable energy. Using information technology to facilitate time-of-day price flexibility and managing energy storage will be important in effectively utilizing intermittent solar and wind generation supply.
A recent study argues that the introduction of even a relatively low initial carbon price (US$1.85 to US$3.86/tCO2) could help to significantly reduce Viet Nam’s greenhouse gas and local air pollution emissions.[29] A carbon tax could also help finance some of the public investment needs.
National Assembly amendments to strengthen the Law on the Environment (enacted from January 2022) provides legal impetus for further action. The Government subsequently approved a roadmap for reducing GHG emissions, measures to mitigate the use of ozone-depleting substances, plans to establish a domestic carbon market, and a decision emphasising the need to restore the right of citizens to live in a clean and safe environment. Such measures should help sustain pressures for the transition to renewables.
Trade and business investment implications
Viet Nam has benefited from a growth model intricately linked to international transfers of goods, services, technology, and capital. Joining the World Trade Organization (WTO) in 2007, and participation in regional economic cooperation agreements, has helped Viet Nam to enhance its competitiveness and boost trade and investment. Exports and imports of environmental goods and services (notably solar panels and waste management products[30]) have increased sharply in recent years. New opportunities to boost trade in services (including environmental services) are emerging under regional agreements such as CPTPP and RCEP.
But trade has also added substantially to the national carbon footprint, increasing environmental damage and increased pressures on the country’s natural resources. Climate change is impacting Viet Nam’s competitiveness by increasing production and logistics costs. Investing in renewable energy will help mitigate adverse trade related environmental impacts. Developing supporting policies to developed encourage industries to invest in green technology and remain competitive could provide new opportunities for increased trade in environmental goods and services.
Building and maintaining a green image is likely to be increasingly important for foreign investors in Viet Nam in terms of accessing high value international markets. For example, the LEGO Group recently announced that it will invest more than US$1 billion in the construction of its first-ever carbon neutral factory in Binh Duong province. The capacity to source renewable energy is likely to be an increasingly key factor in attracting commercial investments in manufacturing and services with a high international profile.
Large investments in renewable energy, slowing growth in new coal powered generation capacity, and accelerated growth in the use of Liquified Petroleum Gas (LPG)[31] for power generation are expected in Viet Nam over the next decade and beyond. Growing foreign investment interest in renewable energy is reflected in recent mergers and acquisitions by Japanese group JERA acquisition of a 35% share in Gia Lai Electricity, and Thailand’s Banpu NEXT acquisition of 49% of SolarESCO.[32] Domestic firms have been an important element of market entry strategies of regional developers and investors with “tens of businesses owning renewables portfolios with sizes in the range of 50 to 100 megawatts”[33]. Strong private interest was also reflected in the broad-based business representation at Viet Nam’s Electricity & Power exhibition (7-9 September 2022)[34].
The rapid pace of policy and regulatory change provides opportunities but is also a source of investor risk. Investor cooperation with multilateral and bilateral development cooperation partners may help reduce investor risks in some cases. Australia’s collaboration with ADB, JICA and private financiers, to provide a US$32 million (A$41 million) loan for the USD 173 million syndicated financing of the Lotus Wind Power Project (3 wind farms) in Viet Nam’s central highlands is a recent example.[35] The USA government has been particularly visible in promoting foreign investment to support the transition to green energy in Viet Nam[36].
Conclusion
Community and investor pressures to provide more environmentally and public health friendly energy sources have reinforced the government’s commitment to boost investment in renewable energy generation. Strong internal pressures to ensure equitable outcomes from development and international commitments to cut emissions have also been important. Attractive pricing and investment incentives, combined with relatively low fossil fuel subsidies, have spurred investment in renewable energy.
Investors should recognize the increasing risks of investing in, and providing other inputs, to coal fired power stations in Viet Nam. Several investors have negotiated to withdraw from earlier commitments to develop coal powered plants. Others may follow suit.
Large increases in public and private investments in storage, transmission and distribution are needed. Building independent and accountable power regulators, and environment management enforcement capacity, will be crucial to mobilizing such investments. The transition to renewables will generate new opportunities for suppliers of environmental related goods and services, and could provide Australian firms with an opportunity to boost their green image[37]
Most importantly for Viet Nam, the shift to renewable energy can help improve national health and economic outcomes, while also efficiently increasing economic resilience by reducing Vietnamese dependence on external energy sources. This could especially benefit poorer households who are most adversely affected by air pollution and other environmental impacts and who also stand to benefit from improved access to more stable energy supplies.
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Raymond Mallon is an Economist and a Visiting Fellow at the Australia Vietnam Policy Institute (AVPI). The views, thoughts, and opinions expressed in the text are the author’s own and do not necessarily reflect the position or views of the AVPI or its partners.
Kim Lan Mallon is a Research Fellow at Evidence for Policy Design at the Harvard Kennedy School. The views, thoughts, and opinions expressed in the text are her own and do not necessarily reflect the position or views of Harvard.
[1] UN Climate Change Conference in Glasgow. See https://moit.gov.vn/en/news/ministerial-leaders-activities/vietnam-energy-outlook-report-2021-launched.html
[2] At least to segments of the international investor community https://www.eceee.org/all-news/news/vietnam-targets-net-zero-but-struggles-to-break-coal-dependence/
[3] https://ukcop26.org/global-coal-to-clean-power-transition-statement/
[4] https://www.sciencedirect.com/science/article/pii/S097308262100096X
[5] Communist Party energy sector development strategies also target further development of renewable energy and reduced dependence on coal fired power stations https://english.luatvietnam.vn/resolution-no-55-nq-tw-dated-february-11-2020-of-the-political-bureau-on-orientation-of-vietnams-national-energy-development-strategy-through-2030-180801-Doc1.html
[6] https://english.luatvietnam.vn/decision-no-450-qd-ttg-approving-the-national-environmental-protection-strategy-to-2030-with-a-vision-tow-219565-Doc1.html
[7] https://en.baochinhphu.vn/national-green-growth-strategy-for-2021-2030-vision-towards-2050-11142515.htm
[8] The action plan targets methane emissions in cultivation, animal husbandry, solid waste management, waste-water treatment, oil and gas exploitation, coal mining and fossil fuel consumption. https://en.vietnamplus.vn/action-plan-issued-to-reduce-methane-emissions-by-at-least-30-by-2030/235052.vnp
[9]https://openknowledge.worldbank.org/bitstream/handle/10986/37618/CCDR%20Full%20report_01.07_FINAL.pdf?sequence=1&isAllowed=y
[10] https://moit.gov.vn/en/news/ministerial-leaders-activities/vietnam-energy-outlook-report-2021-launched.html
[11] https://en.baochinhphu.vn/viet-nam-puts-us28-billion-thermal-power-plant-into-operation-1112208282210242.htm
https://www.sciencedirect.com/science/article/pii/S097308262100096X
[12] Most recent coal imports have been sourced from Australia and Indonesia. https://www.vietnam-briefing.com/news/vietnams-power-development-plan-draft-incorporates-renewables-reduces-coal.html/
[13] https://ens.dk/sites/ens.dk/files/Globalcooperation/vietnam_energy_outlook_report_2021_english.pdf p. 52.
[14] https://ens.dk/sites/ens.dk/files/Globalcooperation/vietnam_energy_outlook_report_2021_english.pdf
[15] https://english.luatvietnam.vn/decision-no-450-qd-ttg-approving-the-national-environmental-protection-strategy-to-2030-with-a-vision-tow-219565-Doc1.html and https://en.baochinhphu.vn/national-green-growth-strategy-for-2021-2030-vision-towards-2050-11142515.htm
[16] https://policy.asiapacificenergy.org/sites/default/files/1208.2011.QD_.TTg__0.PDF p. 4.
[17] Nuclear power remains an option under the Communist Party energy strategy http://vepg.vn/wp-content/uploads/2020/03/CPCs-Resolution-55.NQ-TW-on-Energy-Development-Strategy-to-2030-and-outlook-to-2045.pdf, p. 12 and p. 15.
[18] https://www.sciencedirect.com/science/article/pii/S097308262100096X
[19] https://www.iqair.com/world-most-polluted-cities/world-air-quality-report-2021-en.pdf
[20] https://www.wri.org/insights/how-community-solar-can-benefit-low-and-moderate-income-customers
[21] https://www.aljazeera.com/economy/2022/5/18/after-renewables-push-vietnam-has-too-much-energy-to-handle#:~:text=In%202019%2C%20Vietnam%20overtook%20Thailand,the%20government’s%20target%20of%20850MW
[22] The relative share of SOEs in power generation has declined in recent years with the share of independent power producers (IPPs) increasing from 18.4% to 41.3% in 2021. SOEs now account for less than 50% of power generation capacity. (see Thu Vu (2022), “The Quiet Rise to Prominence of Vietnam’s Renewable Energy Corporates” https://ieefa.org/media/3028/download?attachment)
[23] https://vietnamnews.vn/economy/1276410/power-plan-viii-to-remove-more-than-14-gw-of-coal-fired-power.html
[24] https://vietnamenergy.vn/the-conclusions-of-the-standing-government-on-power-development-planning-viii-29378.html
[25] https://en.nhandan.vn/ministry-reviews-draft-national-power-development-plan-viii-post117659.html
[26] https://e.vnexpress.net/news/economy/remove-14100-mw-of-coal-plants-from-plan-ministry-4493012.html
[27] https://english.luatvietnam.vn/law-no-03-2022-qh15-dated-january-11-2022-of-the-national-assembly-amending-and-supplementing-a-number-of-articles-of-the-law-on-public-investment-216275-Doc1.html
[28] Prior to this, EVN was fully responsible for Viet Nam’s grid system. https://www.aseanbriefing.com/news/vietnam-s-amended-electricity-law-sparks-new-opportunities-for-foreign-investment/
[29] https://www.anu.edu.au/files/document-collection/Do%20TN%20%26%20Burke%20PJ%202021%2C%20Carbon%20pricing%20in%20Vietnam%20-%20Options%20for%20adoption%20%28ZCWP06-21%29_0.pdf
[30] https://documents1.worldbank.org/curated/en/185721641998618600/pdf/No-Time-to-Waste-The-Challenges-and-Opportunities-of-Cleaner-Trade-for-Vietnam.pdf p. 64-65. Viet Nam’s exports could be further boosted by the June 2022 USA decision to waive tariffs on solar panels from Viet Nam and selected other countries. https://asia.nikkei.com/Economy/Trade/U.S.-waives-tariffs-on-solar-panels-from-Thailand-Vietnam.
[31] LPG has a lower CO2 emissions factor than coal, and is thus less polluting than coal, but it is also a fossil fuel and pollutant.
[32] https://vir.com.vn/new-energy-tie-ups-lean-to-greener-business-ambitions-96162.html
[33] See Thu Vu (2022) for a discussion of some of the domestic firms involved in renewables. https://ieefa.org/media/3028/download?attachment.
[34] https://vir.com.vn/electric-power-vietnam-2022-gathering-of-international-state-of-the-art-technologies-96130.html
[35] https://www.exportfinance.gov.au/customer-stories/lotus-wind-power-project/
[36] https://theinvestor.vn/us-seeks-to-elevate-vietnam-ties-cooperate-in-clean-energy-d1676.html and https://vn.usembassy.gov/united-states-and-viet-nam-determine-to-accelerate-energy-transition-and-enhance-cooperation-in-climate-change-adaptation/
[37] This would be consistent with a recent Australian Climate Council’s submission for Australia to develop and implement a “clean energy diplomacy program” and expand clean energy outreach to support energy transition in regional countries. https://www.climatecouncil.org.au/wp-content/uploads/2022/07/Reenergising-Indo-Pacific-Relations-Australias-Clean-Energy-Opportunity.pdf p. 23.
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