As a net exporter of indigenous coal, natural gas and oil, Vietnam currently relies on fossil fuels for 80% of its primary energy mix.
The Government of Vietnam has clearly outlined its intention to increase the share of renewables using natural gas as a lower carbon transition fuel to help meet its commitments under the Paris Agreement and reduce environmental damage from coal and hydropower.
It has a National Action Plan to implement the Paris Agreement for which it has committed to reduce unconditionally 9% of total greenhouse gas (GHG) emissions from 2014 by 2030, or 27% with international support.
With the Power Development Plan 8 (PDP8), issued by the Ministry of Industry & Trade in draft in 2020, this approach is changing. It is now expected that coal capacity will increase by only 180% to 2030, with no new coal plants beyond those already under construction or approved. PDP8 has become a pivot to renewables and gas and calls for a 320% increase in gas-fired capacity between 2020 and 2030 and aggressive increases in solar and wind. This further demonstrates the synergies between renewables and gas in a rapidly growing emerging market transitioning away from coal.
However, Vietnam has yet to develop its strategic planning, policy and regulatory frameworks to grow the share of renewables and natural gas, backing out not only fossil fuels but reducing its growing dependence on hydropower which currently generates a quarter of the country’s electricity supply at a cost of deforestation, landslides and floods that have also disrupted capacity through changing hydrological conditions.
Increasing non-hydro renewable energy’s share of the energy mix will need tax incentives and a more comprehensive regulatory and policy environment. With the upcoming first Law on Renewable Energy (to be drafted in 2021-2025) and updated renewable energy incentives (to be drafted in 2020-2022), investors will have a clearer legal and regulatory framework to guide their investments. The plan for a competitive and transparent energy market by 2030 (to be drafted by Ministry of Industry and Trade in 2021) is aimed at market liberalization, eliminating subsidies, monopoly and unfair competition.
Coal is taking up the shortfall from hydropower and will continue to dominate the electricity energy mix through to 2030 (53%), though the next new Power Development Plan (PDP-8), due to be released in 2021, is expected to cut this to 40% in 2030 and to 31.8% by 2045.
The share of gas will increase from 22% in 2030 to more than 26% in 2045. Imported LNG for power generation will triple from 10-13 million cm in 2030 to 32-42 million cm in 2045, with imported LNG expected to account for almost 90% of installed capacity for gas by 2045.
Renewable energy development remains limited by high investment costs and constrained capacity. EVN, the sole buyer of electricity, has little motivation to purchase electricity from renewable energy generators at a higher price and is reportedly selling at a loss. It is also reluctant to incorporate a large volume of solar PV due to the limitations of a system based on hydropower and coal. It will need to update its operational systems for handling intermittency.
The development of natural gas as a transition fuel is challenged by country priorities for energy security. Domestic natural gas demand is expected to overtake production in 2021, triggering LNG imports from 2021 onwards. The government has prioritised imports over further exploration and production of domestic offshore, complex gas fields, which are capital-intensive and politically sensitive often in, or close to, disputed territory in the politically charged South China Sea. The government estimates that by 2030 it will need to import 10 million tonnes of gas annually.
Domestic gas production is subject to high corporate tax rates (32-50%) and a natural resources tax (from 6% to 29%), which makes imported LNG (subject to 5% or lower import tariff) more price competitive. More investment in domestic gas infrastructure will be required to increase its contribution to the energy mix, such as regasification plants, transmission and distribution networks, and gas power plants.
Investments are planned for 22 new gas-based power plants (including LNG, natural gas and Combined Cycle Gas Turbine – CCGT) with the first to be in operation by 2023, import terminals and integrated LNG-to-power projects, which include cooperation with General Electric, ExxonMobil, AES Corp, Jera and Murphy Oil.
While gas-fired power plants have environmental and efficiency advantages, the biggest constraints are high capital investment and operating costs, which would put pressure on current electricity price levels.
The government now plans to divest national PVN subsidiaries, both in core and non-core businesses to raise financing, bring in private sector capital and expertise, and create a more efficient gas market.
Given the sensitivity of the sector, the government will be deliberate and prudent in its decision-making, considering the socio-economic impact of rising energy prices and the ability of consumers to afford them. This will further slow change.