The global natural gas industry, including that of Canada, has high hopes for weaning Southeast Asia from coal dependency. Concurrently, low-cost renewables are swiftly changing the electrical power landscape in this part of the world. Vietnam, caught in the squeeze between the two competing types of power sources, is favouring a clean energy metamorphosis. The country now has the greatest installed solar energy capacity in Southeast Asia. Government policies are both supportive and handicaps. Grid infrastructure is woefully insufficient. International support is critical to solidify the transition to clean energy.
The stale natural gas narrative
Much of the hopes for future markets for liquified natural gas (LNG), shale gas and gas at-large are pinned on opportunities for growth markets in Southeast Asia.
The high expectations of the LNG export industry are misleading.
The rationale often used by the gas industry is that gas is cleaner than the coal widely used for electrical power generation in this part of the world. However, when shale gas upstream emissions enter the equation, including those of methane, it is not certain that the gas is a cleaner alternative to coal.
The other common theme of gas proponents is that gas is a transition fuel for cleaner power. That gas-powered plants have a 40 to 60-year lifecycle is conveniently ignored in this narrative. The lifecycle of new gas plants extraordinarily postpones the transition to clean energy.
These gas industry narratives dismiss the new realities in Southeast Area and other emerging economies.
These erroneous gas industry expectations are of great importance to Canada because of the export development projects in the province of British Columbia concerning shale gas production, a pipeline (Coastal GasLink) and a liquified natural gas facility (LNG Canada). These export-oriented projects are, like similar projects elsewhere, largely based on replacing coal in Southeast Asia, with Vietnam being a key target. The Coastal GasLink makes frequent headlines in Canada as a result of the Wet’suwet’en First Nation confrontations over the pipeline construction entailing frequent protest blockades accompanied with police arrests.
This eagerness of the LNG export industry for Southeast Asia is about to fall off the cliff due to renewables now being the less expensive sources of energy and the financial community simultaneously regarding fossil fuel projects as high risk while massively withdrawing support for coal.
At this point in time, international support for a Southeast Asian transition to clean energy is especially critical.
This is exemplified by the rapidly expanding economy and changing energy landscape of Vietnam.
The Vietnam energy metamorphosis
Vietnam, with an annual growth rate 11 percent, offers a glaring example of a radical energy metamorphosis from coal dependency to renewables.
It is true that coal currently is the principal power source in Vietnam. Coal represented 50 percent of the Vietnam power capacity additions since 2018 and constituted a 72 percent increase from 2010 to 2017.
Nonetheless, profound changes are underway.
The turning point came in 2015 when Vietnam became a net coal importer. The current 8.5 gigawatts (GW) of coal capacity cannot meet the country’s growing energy needs and the country wants to reduce its reliance of coal imports to become more energy independent.
Since gas production in Vietnam is expected to decline around 2025, the global LNG export industry has been viewing Vietnam for a direct hit access to Southeast Asia. The first Vietnamese LNG port in the Ba Ria-Vung Tau province will start importing LNG to the country in 2022.
Foreign LNG investors, including ExxonMobil, are showing strong interest in Vietnam.
The Son My LNG project, the largest LNG power project in Vietnam, has been approved.
This LNG industry enthusiasm competes head on with solar and wind energy potential.
Renewables offer the greatest potential for low cost solutions.
Hydro power is excluded since the country has pretty well fully exploited this limited resource. In some situations, hydro is caught up in the messy geopolitics of shared power with other nations.
The outcome is staggering. Wind and solar accounted for 0 percent of the Vietnam power pie in 2014. What a difference compared to the 2019 power supply picture when wind and solar combined amounted to 5.7 GW, or 10 percent of the supply.
By 2020, Vietnam had the greatest installed solar capacity in Southeast Asia. In 2020, solar capacity expanded by 11.5 GW, a 100-fold increase over the 2 previous years.
Vietnamese 2020 rooftop solar capacity additions represented the lion’s share of solar growth in the country, at 9 GW. On a global scale, Vietnam’s 2020 rooftop solar installations ranked as the third greatest growth in the world.
Regarding windpower, Vietnam has 3000 km of coastlines with higher than average wind speeds, 5.5 to 7.3 meters per second. Therefore, Vietnam has tremendous potential for offshore wind.
A World Bank estimate of Vietnam’s offshore wind potential pegs it at 500 GW. By comparison, Germany, one of the major offshore wind players, currently has 8 GW of offshore wind capacity.
Vietnam: The pluses and minuses of an emerging economy
As an emerging economy, Vietnam comes with both good news and bad baggage.
The good news starts with the Vietnam Electricity Law requiring 10-year master plans.
In compliance with the law, the proposed government renewables targets for 2030 are 18 GW for wind and 18.6 GW for solar. Over this decade, the Vietnam renewables sector capacity will be closing the gap with Hydro-Québec, the largest North American clean energy utility, that has an output of 47.5 GW!
Of special interest, 2021–30 national plans exclude any new coal plants, other than those already under construction. And it includes import duty relief for renewable materials imports, a reduced tax rate for renewable energy production and clean energy land use incentives. Some new investments in coal slipped through the cracks notwithstanding.
It is estimated that solar, wind and biomass will account for 32 percent of the country’s energy mix by 2030, a sharp climb from 10 percent in 2019. Coal is expected to represent 27 percent by then.
By 2045, PDP8 anticipates that half of the 277 GW required by 2045 will come from renewables sources.
This good news is amplified by a burgeoning domestic solar panel manufacturing sector.
The bad baggage encompasses Vietnam facing hurdles in terms of insufficient transmission capacity and government policy complexities.
An estimated US$52 billion is required for grid upgrading over the next 15 years. This challenge is, in part, being addressed locally and with foreign aid. Yet much more support is required.
The Vietnamese assent in solar installations has caused grid overloads for the state-owned monopoly Vietnam Electricity, the EVN, restricting how much solar power can be integrated into the grid.
Plus, the current grid system is not user friendly for local solar initiatives, such as micro grids and rooftop solar.
Making matters worse, it is a complex affair for negotiating Power-Purchase Agreements with EVN.
Beginning 2017, Vietnam offered a feed-in-tariff (FIT) subsidy for clean energy projects completed on schedule, but just-in-time additional grid capacity to accommodate the new sources is often unavailable. When this happens, developers don’t benefit from the FIT.
And the solar FIT program was terminated in 2020. Vietnam may replace FIT with an auction system. In addition, the country is reviewing its policies on rooftop solar.
To accommodate Covid-19 related logistical delays, the wind FIT program has been extended to March 31, 2022. Wind developers have sought a greater extension to no avail. An auction system may follow. That said, wind projects, especially offshore ones, come with higher cost installation requirements compared to solar. That means higher risks. Other wind barriers include domestic manufacturers are not capable of producing large turbines.
As if these barriers are is not enough, developers are paid in Vietnamese currency, meaning developers can lose out on currency value fluctuations.
These renewables disincentives are even further compounded with solar developers only earning revenues for energy transmitted by the grid. This impacts on solar financing. Since EVN is a monopoly, the private sector has been struggling to resolve the impasse.
Intertwined is the fact that the majority of renewables capacity additions since 2018 are attributable to the private sector, 45 percent, and foreign support, 35 percent.
The silver linings
The silver linings under the clouds come in several forms.
One such development is new Vietnamese legislation allowing for public-private partnerships.
With respect to domestic financing, since 2019 Vietnamese state-owned and private banks have been engaging in financing domestic renewables initiatives.
Internationally, the United States Agency for International Development (USAID) has provided US$66.25 million up to 2025.
Also, financing from China and cheap Made in China solar panels have helped alleviate some of the financial challenges.
Joint ventures and partnerships are part of the Vietnam clean energy transition too.
Ørsted, the world’s largest offshore wind developer, now has a Vietnamese office and intends to work with the T & T Group to develop large offshore wind projects in provinces of Bình Thuận and Ninh Thuận.
And a 1.4 GW Phu Cuong Soc Trang offshore joint venture wind project of the global company Mainstream Renewable Power and the Phu Cuong Group is planned by the provincial government, Soc Trang for completion in 2023.
Timing is everything: Opportunities for wealthy countries on COP26 follow-up
Presently, Vietnam’s target for reducing greenhouse gas (GHG) emission is 9 percent by 2030 based on business-as-usual projections. The Vietnamese government has indicated it could raise the GHG target to 27 percent with international support.
It is clear that the Vietnamese hurdles, such as restricted transmission capacity and government administrative complications, can be overcome with greater global public and private financial support for renewables projects in the country.
Time is running tight because the LNG industry avidity for Southeast Asian markets is intense. So intense, that the British Columbia, Canada LNG and related gas pipeline and shale projects are teetering on becoming white elephants.
Consequently, Vietnam is a good place to start for a follow-up to COP 26 to establish models for backing the transition of emerging countries towards full participation in a global green economy.