Clean Energy Transitions in Vietnam: Opportunities and Challenges

March 21, 2023

Vietnam is undergoing clean energy transitions at an accelerating rate and is considered as the leader of clean energy transition in Southeast Asia. Clean energy constitutes 25.31 per cent of total energy generation in the country.1 Vietnam has Southeast Asia's largest installed solar and wind power capacity, having surpassed Thailand in 2019. Given the rapid rate of economic growth in Vietnam—the Vietnamese economy increased by 6 per cent annually since 2014, hitting 7 per cent in 2018 and 2019—energy use is increasing at an unprecedented rate.2 Domestic fossil fuel production cannot keep up with rising consumption, prompting Vietnam to look towards international energy sources to power its grid. Vietnam's historical reliance on hydroelectricity is insufficient to meet the energy demand. Hence, the country is diverting its focus towards renewables to meet its energy demands. With population reaching 100 million soon and economy booming, renewable energy could play a potential role in generating sufficient energy to suffice the needs of the nation.

Vietnam has increased its solar and wind capacities in the last four years, with the share of solar power in electricity generation rising from practically nothing four years ago to 11 per cent in 2021.3 The nation's overall solar power capacity reached 16,500MW by 2020, much higher than its official target of 850MW.4 Vietnam saw a far quicker pace of growth in the share of solar and wind energy in the country's electricity mix than the rest of the globe. It has become the tenth biggest solar power generator in the world.5 While solar power has experienced the most significant growth, installed wind power capacity has also increased rapidly, reaching 600 MW by the end of 2020, placing it second to Thailand among Southeast Asian nations.6 The country has huge potential for hydropower, which currently makes up 33 per cent of the total energy generation.7

The government of Vietnam implemented various plans and policies to exacerbate the process of clean energy transitions. Among the most notable policy incentives include National Development Strategy, Feed-in Tariff (FiT) scheme and National Development Power Plans. The first-ever National Development Strategy for Renewable Energy was unveiled in 2015, with the goal of having 32 per cent of electricity generated by renewable sources by 2030.8

A feed-in tariff (FiT) is a policy apparatus implemented in 2017 which benefits renewable energy providers. The FiT requires the producers to enter into a long-term contract that ensures they receive an above-market price for the energy they create and inject into the electricity grid. For example, Vietnamese officials granted Vietnam Electricity (EVN), state-owned power company, permission to buy solar energy from independent providers in 2017 at an enticing rate of 9.35 cents/kilowatt hour.9 The FiT scheme yielded positive results and enlarged instalments of solar panels by paying suppliers a fixed rate tariff. Vietnam has among the lowest FiTs in the world. At present, FiTs are in place for solar, wind, biomass, and waste-to-energy projects.

The National Development Power Plan, the country’s primary energy outlook published once a decade, outlines how the country will generate energy. The recent plan, which came in 2021 and applicable till 2030, has prioritised the growth of renewables, particularly offshore wind energy. The plan provides a list of incentives to enhance clean energy transitions, like tax exemptions on raw materials imports, equipment, and finished clean energy products. Furthermore, it also lowered the interest rate for lending and investments in the renewable energy sector.

Other major policy incentives include the waiving or lowering of tax on leasing and land usage for solar and wind projects. Tariffs on imported goods required as inputs for installing solar power plants were also exempted. In December 2022, Vietnam established a US$ 15.5 billion Just Energy Transition Partnership with foreign partners, including the UK, the US, the EU and Japan.10 The partnership aims to hasten the reduction of carbon emissions and boost the use of renewable energy. According to the Just Energy Transition Partnership Plan, Vietnam is expected to achieve peak emissions in 2030 and net zero emissions by 2050, with the aim to generate 60 GW of renewable energy in 2030.

Challenges

Even as Vietnam’s energy demand has increased in the past decade, most of it is completed through coal, despite the nation having a high potential for clean energy. The share of electricity generated by fossil fuels in the past five years, for instance, increased from 33 per cent to 51 per cent.11 Vietnam has relied primarily on coal-fired power plants to generate its electricity.

According to Vietnam's Power Development Plan (2021–30), coal will continue to be the country’s primary source of energy till 2030, with more than 36 GW of installed capacity and up to 11 new coal-fired power plants to be built during the phase.12 Furthermore, the plan states that several coal projects are in development or in the advanced phases of planning. Hence, it is evident that coal is a significant contributor to the energy mix of Vietnam and it cannot be disregarded easily.

Moreover, switching of existing coal-fired power plants to alternative fuels (such as LNG or natural gas) will be expensive and time-consuming. As per the power development plan, renewable energy output will only reach 60 GW by 2030. Concerns that Vietnam cannot rely on LNG as the main supply for its thermal power plants have been reinforced by the global volatility in the LNG price this year. LNG, coal and crude oil are mainly used for the generation of thermal power. Hence, the low supply of LNG will create discrepancies in the functioning of thermal power plants.

Transmission lines that link solar and wind projects to the national grid are not equipped to handle sudden increases in energy supply. As a result of the overloaded national grid systems, renewable generators frequently struggle to sell all of their energy to EVN.13 The laying of new transmission lines to cope with increasing supply requires private financing as EVN is under pressure to keep power costs low due to the impact of the COVID-19 pandemic and to combat inflation. Vietnam needs smart grid equipment and the capacity to intensify the renewables transition. The energy distribution network is also seen as unreliable.

Vietnam’s energy systems are also frequently challenged by climatic hazards like typhoons and floods. In the past decade, Vietnam transitioned from an energy exporter to an energy importer, creating concerns for its energy security. There is a mismatch between energy supply and demand, with many power projects running behind schedule. For Vietnam to continue to lead Southeast Asia in sustainable energy, it must tackle these challenges effectively.

Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.