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Vietnam Faces Challenges in Pursuit of Clean Energy Transition

5 Sept 2023

Vietnam is on a path to reduce its reliance on coal and achieve a cleaner energy mix by 2050 through its Power Development Plan VIII (PDP8). This ambitious plan aims to phase out coal plants and increase the share of renewable energy to 67.5%–71.5% by 2050. While this represents a significant step towards clean energy, it also presents economic and technological challenges, leading to what experts are calling an "expensive pathway" to sustainability.

The approval of the PDP8 by the Government of Vietnam is seen as a strong commitment to energy transition and carbon neutrality. However, this commitment may come at a high cost, both economically and technically.

Converting Coal Plants: A Complex Task

Under the PDP8, coal thermal power capacity is expected to reach around 30 megawatts by 2030, comprising 20% of the total power plant capacity. However, by 2050, Vietnam aims to cease electricity generation from coal power plants altogether. This means that existing coal-fired power plants will need to be repurposed to burn biomass or ammonia for lower carbon emissions, or they risk being shut down after their lifespans expire.

Coal currently accounts for 34.2% of Vietnam's energy mix, according to data from PDP8. Funding new coal plants is becoming increasingly challenging as financial institutions are moving away from coal-related investments. Additionally, Vietnam's commitment to the Just Energy Transition Partnership with the Group of Seven countries and the approval of the PDP8 will likely pose more challenges for new coal projects.

The Cost of Transition: An "Expensive Pathway"

The transition outlined in the PDP8 comes with a hefty price tag. An estimated investment capital of around $134.7 billion will be required for power sources and transmission grid development between 2021 and 2030. For the period from 2031 to 2050, Vietnam will need between $399.2 billion and $523.1 billion, with the majority allocated to power sources.

While the plan aligns with global decarbonization efforts, it may still face technical, economic, and regulatory hurdles. Technical challenges include upgrading the grid and incorporating energy storage, which requires substantial investments. Economic challenges involve attracting foreign direct investment and international support, as well as encouraging domestic investors to participate.

Regulatory barriers may also arise, especially concerning the inclusion of hydrogen and ammonia in the energy mix. Without a robust regulatory framework, financing such projects may be difficult due to safety and other associated risks.

Meeting Targets and Attracting Investors

Meeting the 2030 target will be challenging, with stranded wind projects and concerns about timely gas power capacity completion. Handling increased generation costs from larger LNG plants while ensuring energy security adds another layer of complexity.

Attracting investors for renewable and gas projects requires providing assurances for project off-take. Power purchase agreements for wind or solar projects must be secure, and the government should identify projects eligible for renewable energy certificates or carbon credits to enable green financing.

Vietnam and other ASEAN members need to accelerate the development of a regional taxonomy to indicate regionally appropriate technologies and solutions, including nuclear and carbon capture and storage.

As Vietnam embarks on its clean energy transition, it faces a formidable journey ahead, navigating economic, technical, and regulatory challenges to achieve its ambitious sustainability goals.

In Conclusion

Vietnam's pursuit of a cleaner energy mix represents a significant commitment to reducing carbon emissions and embracing renewable energy. However, the transition away from coal and towards sustainability is not without its challenges. The country must find solutions to technical, economic, and regulatory obstacles to achieve its clean energy targets and attract the necessary investments. As Vietnam treads this "expensive pathway," the world watches to see how it balances its energy strategy with the imperative of lower carbon emissions.

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