As a net exporter of indigenous coal, natural gas and oil, Vietnam currently relies on fossil fuels for 84% of its primary energy mix, dominated by coal at 51%.
Vietnam has committed to achieving a net zero carbon target by 2050 and reducing the proportion of coal in the primary energy mix to 30% by 2030 to be replaced by natural gas and non-hydro renewable energy. The country is at the same time reducing its historically high use of hydro energy which has badly impacted the environment. Hydro power’s contribution to electricity generation is expected to decline from 27.8% in 2020 to 12.4% in 2030.
Domestic natural gas demand is expected to overtake production in 2021, triggering LNG imports from 2022 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 fragile South China Sea. The government estimates that by 2045 it will need to import 15 billion cubic metres of gas annually and is planning three regasification plants in the south, with more likely to be announced.
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.
The Ministry of Industry & Trade’s (MOIT) Power Development Plan 8 (PDP-8) was still in draft at the end of 2021 but is expected to introduce tougher targets than PDP-7. It will bring significant changes that will further reduce the proportion of coal and hydropower capacity in the generation fleet and boost renewable energy.
Under PDP-8 there will be no new coal-fired power plants, with Vietnam relying on existing plants, and those already approved for development. Gas will continue to be viewed as a transition fuel as Vietnam looks to develop the renewables sector.
According to the Politburo’s Resolution 55 on the Orientation of the National Energy Development Strategy by 2030 with Vision toward 2045 (Resolution 55), renewable energy is expected to form 15-20% of the primary energy mix by 2030, rising to 25-30% in 2045.
Renewable energy’s increasing share of the energy mix will benefit from tax incentives and a more comprehensive regulatory and policy environment in the next few years after PDP-8 is issued. With the upcoming first Law on Renewable Energy (to be drafted in 2021-2025) and updated renewable energy incentives (being drafted in 2020-2022), investors will have a clearer legal and regulatory framework to guiding their investments. The plan for a competitive and transparent energy market by 2030 (to be drafted by MOIT in 2021) is aimed at market liberalization, eliminating subsidies, monopoly and unfair competition.
Though incentives are in place to encourage Electric Vehicles, no targets have been set by the government which has also not developed a hydrogen policy.
The country 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.
It will take a few more years for Vietnam to fully develop its strategic planning, policy and regulatory frameworks and put them into action. Meanwhile regulatory uncertainty and a lack of cohesion will discourage investors. Without further market liberalisation and improved administrative and regulatory frameworks, it will be challenging for the gas market to thrive.