Finding the spark to ignite energy goals

Vietnam achieved decent growth in the first quarter despite global geopolitical instability. The socioeconomic statistics report for the first quarter of 2022 of the General Statistics Office published on March 29 stated that GDP in the first quarter was estimated to increase by 5.03 per cent over the same period last year.

A day before the report, Fitch Ratings forecast that Vietnam’s growth would recover to 6.1 per cent in 2022 and 6.3 per cent in 2023 thanks to increased domestic consumption, exports, and investment inflows.

For the nation’s economic progress, the Power Development Plan VIII (PDP8) is the basis to guarantee the stability of Vietnam’s power source system.

According to the Ministry of Industry and Trade (MoIT), by the end of 2021, the total installed capacity of renewable energy sources reach around 20,670MW, accounting for 27 per cent of the total installed capacity of the whole system (76,620MW).

Finding the spark to ignite energy goals, illustration photo

Renewable energy sources have had a strong development in Vietnam with impressive numbers. The National Assembly may pass the amended Law on Electricity during its next session, allowing the private sector to join activities for the transmission grid to increase renewable energy capacity and sell electricity directly to customers.

According to the MoIT, Vietnam’s electricity consumption demand is forecasted to continue to increase at a high rate of about 8.5 per cent per year up until 2030 and 4 per cent over year by 2031-2045. It is forecast that in 2045 commercial electricity output must reach 886 billion kWh.

A new national plan will give a great impetus to Vietnam’s economic recovery, as the government commits to converting coal power to clean energy and reduce methane emissions by 30 per cent by 2030 compared to 2020.

Carolyn Turk, World Bank country director for Vietnam, on April 27 commented that keeping energy supply and demand in balance is not easy, especially for a developing country with great energy demand like Vietnam. “The international community is now looking forward to participating in investment cooperation and technical and resource support to promote the sustainable development of Vietnam’s energy industry,” Turk said.

“The World Bank is willing to support Vietnam in terms of technology, human resources, and resources in implementing the above contents, and at the same time, seek more cooperation opportunities with enterprises operating in the sector under the management of the Commission for the Management of State Capital at Enterprises.”

Vietnam’s growth recovery process, judging from the World Bank’s data at the Fourth Summit of the Vietnam Energy Partnership Group in January, showed that difficulties will be even more complex than before. If Vietnam needs to continue to develop the energy sector rapidly to meet the growing demand, the capacity of the whole system needs to double in the next 10 years.

“Vietnam must better manage the impacts of climate change by significantly cutting carbon emissions from the energy sector, which currently accounts for 65 per cent of Vietnam’s emissions. The government must mobilise the financial resources needed for the energy transition while upholding equity and affordability, which requires further reform,” Turk suggested.

Challenges in the energy transition will bring new opportunities for Vietnam, provided that the government reconsiders policies and sector planning, most importantly PDP8, as the core goal of development.

This would mean choosing the right energy structure, focusing on phasing out coal-fired power, managing the impact of this transition on people and businesses operating in the coal industry, and considering the appropriate role of converted fuel sources, such as natural gas.

But for this, Vietnam would need to remove barriers to renewable energy deployment. The country has abundant resources when it comes to solar and wind power, and pushed their development with preferential feed-in tariffs, but the scheme also created challenges related to rampant development which led to cuts, unwanted power shortages, and instabilities in the system.

Experts, therefore, suggested that Vietnam urgently needs to expand and modernise the power grid to keep pace with the development of new clean energy technologies. In addition to ensuring transmission capacity, the grid also needs to improve its flexibility with battery systems and energy storage solutions.

Measures to promote energy efficiency and regulate consumer demand are likely to promise success. These interventions not only could reduce the need to expand supply but are also highly cost-effective. Increased use of small-capacity renewable energy sources and distributed power generation can play a complementary role in a centralised power system.

The World Bank’s data suggests that Vietnam will need a systematic approach to mobilise a large amount of finance needed for the energy transition, which is about $12-14 billion per year.

Timely innovations in the sector-specific investment climate could spur private sector participation, helping to attract the bulk of the required investments. The government would also need to issue regulations to facilitate public finance, said the World Bank, including the allocation of official development assistance and climate funds to support and promote the private sector.

A clean energy transition would also require “a holistic approach to the economy, not just individual solutions,” stated the World Bank. The key would be to turn these recommendations into effective policy actions for the energy sector to become a powerful force to realise Vietnam’s development and climate ambitions. The structural adjustments proposed by the World Bank could reactivate Vietnam’s key export industry and make the country’s transformation target more difficult. However, together with sensible post-pandemic responses that pave the way for an economic recovery, such adjustments to the economy could pave the way to becoming a high-performing country.