Analysis-Vietnam seeks greener energy, but bets on coal to avoid blackouts

By Francesco Guarascio and Khanh Vu

HANOI/HOA BINH, Vietnam (Reuters) – The lights are off and the air conditioning is turned off at the headquarters of Vietnam’s state electricity provider EVN as the country’s main power utility tries to “lead by example” to avoid a repeat of last year’s paralyzing situation. blackouts, an employee told visitors.

But many businesses around Vietnam’s capital Hanoi appear to be ignoring the call for energy conservation by keeping decorative but otherwise useless neon lights outside skyscrapers lit all night.

Difficulties in curbing consumption illustrate the challenges Vietnam faces a year after sudden outages caused multinational manufacturers with investments in the Southeast Asian country to lose hundreds of millions of dollars.

Vietnam is pursuing a diverse agenda of energy-saving measures, grid improvements, regulatory reforms and a massive increase in coal power as it seeks to avoid electricity shortfalls, according to government data and interviews with officials and experts.

But Trinh Mai Phuong, EVN communications director, explains during a press tour that even the biggest infrastructure upgrade underway, a new billion-dollar transmission line connecting the country’s center to the heavily industrialized north that was hit by blackouts last year, may not be enough.

“I wouldn’t say it’s a game changer,” he said of the line that could be completed as early as this month, noting that energy consumption is expected to reach record levels in the coming weeks as the country braces for more waves of heat.

Rising energy demand is making it increasingly difficult for Vietnam to meet climate change commitments while also providing enough energy to satisfy major investors such as Samsung Electronics, Foxconn and Canon.

Broader sectoral reforms are needed in the long term, foreign investors and analysts said.

EMERGENCY MEASURES

In the short term, Vietnam is relying mainly on coal to provide sufficient and reliable electricity. It may be enough – or it may not – but either way, it could signal a blow to the country’s commitments to reducing dependence on fossil fuels.

Coal use increased enormously in the first five months of 2024, with coal-fired power plants representing, on average, 59% of electricity production, surpassing 70% on some days, according to data from EVN.

This represents an increase from almost 45% recorded in the same period last year and 41% in 2021, when Vietnam began drawing up plans to reduce coal, which persuaded international donors to commit 15.5 billion of dollars to help phase out fuel.

Thanks to a new coal-fired power plant coming into operation in 2023, coal accounted for 33% of total installed capacity last year, up from 30.8% in 2020, moving Vietnam further away from its target of reducing that number to 20 % by 2030.

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Energy conservation is another fundamental pillar of the plan. EVN and its local units have been encouraging energy-hungry customers, including foreign manufacturers, to save energy with personalized measures, especially during peak hours.

But this puts Vietnam’s reputation as a reliable place for investment at risk and could affect future industrial expansion plans, according to foreign investors who declined to be named because they were not authorized to speak to the press.

The issue should be addressed through resolving generation and distribution issues rather than from the consumption side, two foreign investors said.

Vietnam’s Ministry of Industry did not respond to a request for comment.

CLEANING OPTIONS

Vietnam is using only a fraction of its installed solar and onshore wind capacity due largely to administrative hurdles.

It has not approved regulations to start offshore wind projects and delays projects to build power plants powered by imported liquefied natural gas, which is cleaner than coal.

The four energy sources together are expected to represent more than 40% of installed capacity by 2030, according to government plans, although analysts are skeptical.

Hydropower is expected to fall to less than 20% of installed energy production by the end of the decade, compared to more than 30% in 2020.

But some capacity is being added in the North, where needs are greatest.

One of Vietnam’s largest hydropower plants, in Hoa Binh, is adding two General Electric turbines to its existing eight, which will increase its total capacity to 2.4 gigawatts, from less than 2 GW currently, by the second half of 2025, Dao said. Trong Sang, production manager at EVN. expansion project, during a visit to the dam.

The Hoa Binh plant, combined with the new transmission line carrying electricity north from separate plants, could add 8% capacity to the energy-hungry north.

NECESSARY REFORMS

The energy crisis cannot be resolved without long-awaited reforms, experts say, although progress to date has been slow.

In April, the Ministry of Industry published an updated methodology for determining electricity prices, a step towards possibly relaunching projects stalled for years due to a lack of clarity on tariffs.

However, the methodology could force developers to take excessive risks, complicating their access to financing, said a Vietnam-based official who declined to be named because he was not authorized to speak to the media.

A separate draft decree allowing manufacturers to buy electricity directly from producers is seen as close to approval after years of internal debate, according to several analysts.

The use of direct power purchase agreements (DPPA) could make it easier for multinational companies to avoid higher tariffs on exports and boost the use of renewable energy to help them meet environmental, social and governance requirements.

But the DPPA rules need to be combined with other reforms, such as clearer provisions to directly connect factories to power generation projects, the official said.

(Reporting by Francesco Guarascio and Khanh Vu; Editing by Jamie Freed)