Financial powers scratch heads over coal shift

Coal-fired power plants are still an important part of Vietnam’s development. Photo: Shuttlestock

The 2020 UN Climate Change Conference, also known as COP26, will be held over the first two weeks of November in Glasgow, Scotland. At the conference, the Asian Development Bank (ADB) and Prudential Insurance Group plan to present an ambitious plan to reduce carbon emissions in Asia.

According to a statement from the financial institutions, they are planning to raise $9-17 billion to buy back a number of coal-fired power plants that are currently operating in Vietnam. After acquiring these facilities, the partners will allow them to retire 30-40 years earlier than their average life cycle, which means after just 15-20 years of operation.

“This is a very positive and drastic move by these financial institutions,” said Vu Chi Mai, technical advisor at the German Corporation for International Cooperation GmbH (GIZ), in an interview with VIR.

Vietnam has committed to reducing its greenhouse gas emissions by 8 per cent by 2030, but global organisations do not consider the goal to be very ambitious. Emission mitigation measures for the next 10 years have been identified for the energy sector, including in energy production and sectors like industrial production and construction, transportation, agriculture, and commercial services, as well as residential projects.

The impacts are poised to make a positive contribution to reducing emissions and combating climate change. However, environmental problems are largely being created by coal power. Among the drivers of climate change, the generation of electricity and heat – mainly by thermal power plants – accounts for a quarter of all emissions. Buying and selling coal power plants is a business that is not yet very popular in Vietnam.

“We have not received a specific proposal from the ADB for the acquisition of coal-fired power plants in Vietnam,” said Hoang Tien Dung, director of the Electricity and Renewable Energy Department under the Ministry of Industry and Trade.

Dung believed that financial institutions would not buy thermal power plants for business. If so, they would finance the acquisition for developers to then close and switch to cleaner sources of electricity. “At some meetings related to energy transition, some British and Japanese partners also mentioned this idea,” Dung said, adding that experienced overseas investors could help the energy industry develop eco-friendly power sources.

Coal has long been considered a massive problem for the environment. In Vietnam, however, coal-fired power plants remain an important part in the development of the electricity market, despite the fact that many facilities have not been deployed on schedule due to a lack of capital arrangements.

Coal-fired power is still considered cheap and with a competitive price while offering stable operation. As Vietnam’s electricity demand increases rapidly, these objective factors remain to be considered.

In the country’s National Power Development Plan VIII, it is expected that by 2025 the total capacity will increase to over 118,000MW, of which hydropower accounts for up to 19 per cent; coal power up to 29 per cent; gas – including liquefied natural gas (LNG) – up to 13.7 per cent; and renewables like small hydroelectricity, wind, solar, and biomass account for up to 43.8 per cent; with a small remainder of up to 4 per cent in imported electricity.

This master plan also envisages that by 2030, the total capacity will be increased to 167,000MW, of which hydropower would make up around 15 per cent; coal power about 27 per cent; gas-fired power around 20.9; and renewables up to 41.4; with imported electricity accounting for about 4 per cent.

Thus, coal power is still one of the preferred energy forms in Vietnam, and one of the fastest growing in the region. Since 2015, more than half of the current capacity of 20.4GW has been newly added, now accounting for about 30 per cent of the power structure.

According to Mai of GIZ, as coal-fired power remains important in Vietnam’s electricity system, the gradual reduction needs a roadmap, ensuring national energy security and the reduction of property entanglements, as well as a roadmap for job transitions.

“If they buy out coal-power plants, global financial institutions must take this into account, along with supporting the stabilisation of the power system amid the penetration of renewables,” Mai advised.

In addition, Mai said, “The negotiation process will not happen overnight. Financial institutions hope to spend less than a year raising funds for piloting and demonstrating successful acquisitions at the COP27 event in 2022. However, Vietnam must calculate carefully.”

LNG has a quarter of the emissions of coal-fired power, but the cost of infrastructure development as well as other price and supply factors must be carefully considered, ensuring energy security. For many European countries, LNG is seen as a form of transitional energy for a certain period of time, and they do not see it as a permanent solution.

Mai, who has been researching clean energies for more than 20 years, added, “Vietnam needs to be alert as it is gradually reducing coal-fired power and replacing it with new technologies for sustainable energy like hydrogen, which is a stable, safe, and clean example.”