Analysis - Vietnam Seeks Greener Energy but Relies on Coal to Avoid Blackouts - Latest Global News

Analysis – Vietnam Seeks Greener Energy but Relies on Coal to Avoid Blackouts

By Francesco Guarascio and Khanh Vu

HANOI/HOA BINH, Vietnam (Reuters) – The lights are out and the air conditioning is down at the headquarters of Vietnam’s state-owned electricity company EVN. The country’s largest energy supplier is trying to “set a good example” to avoid a repeat of last year’s crippling blackouts, an official told visitors.

But many businesses around Vietnam’s capital Hanoi seem to ignore the call to save electricity and leave the decorative but otherwise useless neon lights on the outside of their high-rise buildings burning all night long.

The difficulties in curbing consumption highlight the challenges facing Vietnam a year after sudden power outages caused hundreds of millions of dollars in losses to multinational manufacturers with investments in the Southeast Asian country.

According to government sources and interviews with officials and experts, Vietnam is pursuing a patchwork of energy-saving measures, grid improvements, regulatory reforms and a massive increase in coal-fired power to prevent electricity shortages.

But Trinh Mai Phuong, EVN’s communications director, said during a media visit that even the biggest infrastructure improvement currently underway – a new $1 billion transmission line connecting the country’s center with the highly industrialized north, which was hit hard by power outages last year – may not be enough.

“I wouldn’t say it’s a game-changing change,” he said of the line, which could be completed as early as this month. He pointed out that electricity consumption is expected to reach record highs in the coming weeks as the country braces for more heatwaves.

Rapidly rising electricity demand is making it increasingly difficult for Vietnam to meet its climate change commitments while providing enough power to satisfy major investors such as Samsung Electronics, Foxconn and Canon.

Foreign investors and analysts say more comprehensive, sector-wide reforms are needed in the long term.

EMERGENCY MEASURES

In the short term, Vietnam is relying primarily on coal to generate sufficient and reliable electricity. This may or may not be enough, but in any case it could represent a setback for the country’s commitments to reduce its dependence on fossil fuels.

Coal consumption rose massively in the first five months of 2024: According to EVN data, coal-fired power plants covered an average of 59 percent of electricity production, and on some days the share was even over 70 percent.

This is up from nearly 45% in the same period last year and 41% in 2021, when Vietnam began developing coal reduction plans that convinced international donors to provide $15.5 billion to phase out coal use.

Thanks to a new coal-fired power plant that will come online in 2023, coal’s share of total installed capacity was 33 percent last year (down from 30.8 percent in 2020), moving Vietnam further away from its goal of reducing this share to 20 percent by 2030.

Energy saving is another important pillar of the plan. EVN and its local units have encouraged energy-hungry customers, including foreign manufacturers, to save electricity, especially during peak times, through tailored measures.

But this jeopardises Vietnam’s reputation as a reliable investment destination and could affect future expansion plans in the manufacturing sector, say foreign investors who wished to remain anonymous because they are not authorised to speak to the media.

The problem must be addressed by solving production and distribution problems, not from the consumption side, said two foreign investors.

The Vietnamese Ministry of Industry did not respond to a request for comment.

CLEANER OPTIONS

Vietnam uses only a fraction of its installed solar and onshore wind capacity, mainly due to bureaucratic hurdles.

It has failed to adopt regulations to allow offshore wind projects to begin and is delaying the construction of power plants that run on imported liquefied natural gas, which is cleaner than coal.

According to government plans, the four energy sources together will account for more than 40 percent of installed capacity by 2030, but analysts remain skeptical.

The share of hydropower in installed electricity generation is forecast to decline from over 30% in 2020 to less than 20% by the end of the decade.

However, some capacity will be added in the north, where demand is higher.

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

The Hoa Binh power plant, together with the new transmission line supplying the north with electricity from separate power plants, could increase the capacity of the power-hungry north by 8 percent.

NECESSARY REFORMS

The energy crisis cannot be solved without the long-awaited reforms, say experts. However, progress has been slow so far.

In April, the Ministry of Industry published an updated methodology for setting electricity prices, a move that could potentially revive projects that had been stalled for years due to a lack of clarity on tariffs.

However, this method could impose too much risk on project developers and make it difficult for them to access financing, said a Vietnam-based official who asked not to be identified because he was not authorized to speak to the media.

A separate draft regulation that would allow manufacturers to buy electricity directly from producers is close to being adopted after years of internal debates, according to several analysts.

By using direct power purchase agreements (DPPAs), multinational companies could more easily avoid higher export tariffs and increase the use of renewable energy to meet environmental, social and corporate requirements.

However, the DPPA rules would need to be combined with other reforms, such as clearer provisions for the direct connection of factories to power generation projects, the official said.

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

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