Scenarios offer clarity for renewables

June 11, 2022 | 19:37
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Bringing together authorities and investors in a transparent manner on appropriate risk-sharing and design of a conducive regulatory framework are considered vital activities for developing new industries for offshore wind, attendees heard at the launch of a new national energy report.
Scenarios offer clarity for renewables
Vietnam is learning from nations like Denmark to bring investors and others together for efficient renewables progress, Photo: Shutterstock

The Vietnam Energy Outlook Report, developed in cooperation between the Danish Energy Agency (DEA), the Electricity and Renewable Energy Authority of Vietnam (EREA), and the Embassy of Denmark was unveiled in Hanoi last week, and provides a scenario-based foundation for policy action by shedding light on the development of the Vietnamese energy system towards 2050 (see box).

Sebastian Hald Buhl, Vietnam country manager at Danish multinational power company Ørsted, stressed that Vietnam is well-positioned to become a regional offshore wind powerhouse. “But to meet its 2030 targets, we need to get started now. We are encouraged to see agencies like EREA take leadership and engage in industry-government dialogue,” Buhl said.

He offered the key message that, with current fuel prices, offshore wind is already competitive with thermal power plants in Vietnam. “While the cost of thermal generation in Vietnam is rising and expected to plateau, that of offshore wind will fall as shown by its proven track record in markets across Asia, Europe, and North America,” he added. “Offshore wind is a large scale, reliable, and domestic energy source that brings significant economic and system benefits.”

Stuart Livesay, general director of the La Gan wind power project, noted that Vietnam has set a target of 7GW by 2030, but there are problems with implementation, roadmaps, and power purchase agreements if there are no guarantees.

“In the draft Power Development Plan VIII, which implements the commitment to net-zero emissions by 2050, coal-fired power sources are to be stopped and liquefied natural gas (LNG) gas power development is also restricted. Thus, renewable energy, including offshore wind power, will play an important role,” Livesay said.

Driven by larger and more efficient wind turbines, lower capital and operating costs, and other technology advancements, the price of electricity generated by offshore wind energy has come down globally, which is vital and a great incentive for the rapid and widespread growth of the industry.

Denmark has been a pioneer in offshore wind energy since 1991, when it commissioned the world’s first offshore wind energy farm. Today, Denmark also leads in reducing the cost of offshore wind power. An auction for a 1,000MW offshore wind energy project completed by the end of 2021 set a new record and demonstrated the competitiveness of the technology, given conducive regulatory framework conditions.

The benefits of cooperation between authorities and investors in clear dialogues on risk-sharing and creating a suitable regulatory framework are being felt in Denmark, the report launch heard. Without the creation of similar competitive investment conditions in Vietnam, it may be difficult to attract the huge investments needed.

Nevertheless, DEA director-general Kristoffer Böttzauw said Vietnam has already come a long way with its green transition, highlighted by its net-zero pledge at COP26.

“With this report, we aim to display how this target can be reached in time and at the lowest cost possible to the benefit of the country, its people and, not least, the global climate,” Böttzauw said.

Key findings and recommendations

It is possible to reach a net-zero emissions energy system in 2050 at an extra cost of only 10 per cent compared to the baseline scenario if carried out correctly. Early actions are required to make emissions peak no later than in 2035 to avoid paying excessive costs.

To reach net-zero emissions by 2050 at the lowest cost, renewable electricity should be the main substitute for fossil fuels, either directly or indirectly through the production of electro-fuels. The power system is expected to satisfy 70 per cent of the total energy demand in 2050. The primary sources of renewable-based power production are solar (75 per cent) and wind (21 per cent).

The green transition of the power system will be very capital-intensive and could require annual investments of up to $167 billion in 2050, corresponding to around 11 per cent of the projected national GDP in 2050, depending on the scenario. Power system costs will shift towards fewer fuel costs and much more capital investment costs.

Capital investment costs are around 50 per cent of total power system costs in 2030 in all scenarios, while towards net-zero in 2050, it increases to 90 per cent of the total power system costs. Therefore, it is crucial to access cheap financing options.

Vietnam should stop planning new coal-fired power plants and refurbish existing plants to become more flexible to better integrate renewables. Furthermore, it is recommended to limit the expansion of gas and LNG-fired power plants as the current planned 25GW capacity is more than sufficient to reach net-zero emissions in 2050.

To reach net-zero in 2050, storage systems should play a central role, but only after 2030 are batteries necessary and cost-efficient. Batteries are still expensive today and not needed in Vietnam in the short term as balancing can be provided by existing hydro and thermal power plants.

In the coming 10 years, reinforcement of transmission capacity is urgently needed, especially to connect the best renewable resources in the south with demand in the north. The analysis shows that transmission is actually not very expensive. It is needed sooner or later, and since it is already a mature technology, it should be chosen first.

Nuclear power is only cost-efficient if the implementation of renewable energy, particularly solar energy, is severely constrained. The analysis shows that current nuclear power technologies are not cost-competitive with the combination of solar, wind, storage, and transmission.

Only when these technologies are prevented from being fully utilised, for example, because of constraints on access to land, can nuclear power be competitive towards net-zero in 2050.

Early action is needed to decarbonise the transport sector. Additional benefits are much less air pollution and less dependency on fuel imports. Direct electrification is key – around 80 per cent and 50 per cent of passenger and freight demand respectively should be electrified in 2050. Vietnam should start phasing out vehicles using fossil fuels from 2025, switch to collective transport modes, shift freight transport towards railways from 2030, and electrify all land transport.

Reaching net-zero will make Vietnam independent of fuel imports. Its import dependency is expected to increase significantly in the next decade and by 2050, the share of imported fuels can reach 70 per cent in the baseline scenario with imported fuel costs corresponding to $53 billion.

The analysis shows that a price increase of 20 per cent leads to a 50 per cent reduction in the use of LNG in the power sector in the baseline scenario. An even higher LNG price will lead to an even lower need for LNG. By reaching net-zero emissions in 2050, the long-term energy security can be substantially enhanced by greatly reduced reliance on fuel imports and lower import costs. Source: Vietnam Energy Outlook Report

By Nguyen Thu

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