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Vietnam revs up plan for transition from coal to wind, solar

27 April 2022 Max Tingyao Lin

Vietnam is planning an aggressive switch from coal to wind and solar power from now through 2045, and industry analysts believe grid enhancements and policy incentives are required for the country to reach the ambitious goal amid rising domestic electricity demand.

Earlier in April, the Ministry of Industry and Trade briefed industry on the latest—and possibly the last—draft of the National Power Development Plan for the 2021-2030 period, with a vision to 2045 (PDP8), government-run Vietnam News Agency reported.

Full details of the proposal are not available, but some nuts and bolts shared by the report suggest the country wants to replace coal—the most carbon-intensive fossil fuel—with renewables more quickly in its utility sector.

Vietnam reportedly plans to build no new coal-fired power plants from now on, instead of allowing new construction through 2025 in an earlier draft. The latest targets would see coal with a 9.6% share of the country's capacity mix by 2045, versus 15.4-19.4% as proposed previously.

Also, the report said Vietnam is aiming for a 50.7% share of the generation stack for wind and solar power by 2045. It previously indicated a 40.1-40.7% share for renewables (hydropower is excluded).

According to data from S&P Global Commodity Insights, coal accounted for the largest share of Vietnam's installed capacity at 32% as of the end of 2020, and solar and wind capacity together amounted to almost 25%.

"Vietnam's latest draft PDP8 is targeted to significantly increase the share of renewable energy in the capacity mix," said Achmed Shahram Edianto, an electricity policy analyst at thinktank Ember.

"This is in stark contrast with the previous two [drafts] that attach higher priority to coal in meeting the country's rising demand for electricity. This change signals the intention of the Vietnamese government to expedite the decarbonization of its power sector," he told S&P Global Commodity Insights' Net-Zero Business Daily.

Vietnam pledged to phase out unabated coal power in the 2040s and to achieve net-zero emissions by 2050 during COP26 last November, and observers said the latest draft reflects that promise.

The industry and trade ministry is expected to spend the next few months finalizing PDP8 for approval by the State Appraisal Council before submitting it to Prime Minister Pham Minh Chinh.

Wind power expansion

For the 50.7% renewable capacity target to be reached, S&P Global Associate Director for Gas and Power Joo Yeow Lee estimated that Vietnam needs to have 42.7 GW of onshore wind capacity, 54 GW of offshore wind, and 54.8 GW of solar installed by 2045.

This suggests a major expansion in wind capacity is being planned. According to the International Renewable Energy Agency, wind capacity amounted to just 600 MW in Vietnam as of the end of 2020, or 1% of the total.

Last year, Trungnam Group, an energy, construction, and infrastructure company, completed all the phases of work on a 152-MW wind farm—Vietnam's largest—in Ninh Thuan province. The Association of Southeast Asian Nations, of which Vietnam is a member, predicted that the country will add 488 MW to its wind capacity in 2022.

Vietnam's wind capacity will expand by 2.2 GW in the next five years, the third largest expansion in Asia, according to the Global Wind Energy Council.

The rapid growth is garnering interest from major players in the sector. Among them is Denmark-based Ørsted, which proposes building a $13.6-billion offshore wind project with a capacity of 3.9 GW off Hai Phong, a port city in northeastern Vietnam.

Overall, Vietnam is aiming high for renewables, but Lee said "it is definitely possible" for the country to reach its target "if the right policies and grid enhancements are put in place to make the sector attractive to investors."

Work to be done

Vietnam has introduced a series of power market reforms lately, with a competitive wholesale market already in place and plans to liberalize the retail sector in the coming years.

But renewable power generators are negatively affected by the country's limited grid capacity. In a recent instance, the rapid expansion of solar capacity—which totaled 16.5 GW in 2019-2020—resulted in curtailments in southern Vietnam, affecting the income of some renewables projects.

"Grid enhancements are critical to facilitating renewable expansions, because in the current state, not all the renewable capacity can be utilized owing to grid congestion," Lee said. "Current operating projects have faced some unstable revenue streams, which is definitely a red flag for prospective developers."

While the country's power generation market is open to private investors, state-owned EVN still has a monopoly over electricity transmission—and it likely has lots of projects for the years ahead as the grid is expected to take in much more renewable generation.

"Central to this systematic change is improving the flexibility of the power system, to deal with the intermittency of wind and solar capacity," Edianto said. "Maintaining sufficient flexibility while dealing with rising operational complexity is the key to ensuring the renewable expansion can penetrate smoothly to the grid."

Quitting coal

The government intends to ramp up renewable generation while phasing out coal power—but this will take nuanced planning as Vietnam's manufacturing boom is driving up electricity usage.

Its power demand has grown by about 10% per year for the last decade, one of the fastest rates in the world. The COVID-19 pandemic slowed this trend slightly, according to the Asian Development Bank, but power demand nonetheless increased by 7.5% in 2020 to 225 TWh. An earlier S&P Global forecast showed Vietnam's electricity usage will again increase by nearly 10% per year to reach 335 TWh by 2025 and 491 TWh by 2030.

The task of reducing coal's share is set to be further complicated by a large construction pipeline. Global Energy Monitor data showed Vietnam had coal plants totaling 6.84 GW under construction as of January, about 30% of the current operating capacity, and those facilities are unlikely to be scrapped now.

"Early retirements of operating plants may need to take place," Lee said. "However, these need to be done while taking into consideration whether there is a sufficient supply of power."

Posted 27 April 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.


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