Analysis by the IEEFA said the country's proposed plan for 2021 to 2030 failed to acknowledge the importance of developing a more flexible system that can accommodate a changing technology mix
Renewables should be the focus of the draft power development plan (PDP8) in Vietnam instead of coal and gas, according to a report.
The Southeast Asian country recently published its proposed plan for the period between 2021 and 2030, but analysis by the Institute for Energy Economics and Financial Analysis (IEEFA) said the nation has “failed to acknowledge the importance of developing a more flexible system that can accommodate a changing technology mix”.
Despite global efforts to reduce the world’s reliance on fossil fuels in recent years, coal-fired power and oil and gas held a combined 57% of Vietnam’s power mix in 2018, while renewable energy sources made up just a 7% share.
Vietnam has “opted for generation-centric decisions” in draft power development plan
Mellissa Brown, IEEFA director of energy finance studies in Asia and report author, said that after a decade “filled with disappointments from the fossil fuel industry”, planners had “successfully tested the dynamism of renewable energy in Vietnam’s fast-growing market”.
“Many conventional coal and gas-power projects failed to progress during the development process, only managing to meet half of the targeted capacity for 2016-2020,” she added.
“Solar power developers however over-delivered by five times, and they have done so in a fraction of the time. This evidence would surely inform the next stage of Vietnam’s power development.”
But that is not the case, as Brown points out that the planners have “instead opted for generation-centric decisions” in shaping the recently published draft PDP8.
“Instead of acknowledging the importance of developing a more flexible system, baseload coal and gas-fired power will continue to dominate 57% of the pipeline to 2030 in the draft PDP8,” she added.
“This strategy conflicts with the most important trends shaping global power markets as well as with the planners’ objectives to ensure energy security and minimise overall system cost including power costs, and health and environmental externalities.”
As the government reviews plans for the PDP8, the IEEFA’s report outlines four issues it believes “deserve attention” if Vietnam hopes to diversify its generation mix, meet new demand for sustainable power, and control power tariffs.
Four issues highlighted by the IEEFA of Vietnam’s draft power development plan
1. Technology cost assumptions face high forecasting risk
The report claims the PDP8’s usefulness as a roadmap will be “limited” due to the “rapid pace of energy transition globally”.
It said coal advocates that dismiss the ability of renewable energy and battery storage as a cost-competitive replacement for baseload coal power pipeline in the future are “incorrectly assuming that the technology and how it is deployed will remain static”.
“In order to manage forecasting errors and maximise the potential of new technologies, Vietnamese planners should opt to focus more on the architecture of the energy system – placing more focus on the strategic importance of both flexibility and grid development – in particular,” added Brown.
2. Baseload fossil fuel options come with risks
Vietnam’s high reliance on coal power projects, which are subject to frequent delays, has put the country on the brink of serious power shortages on more than one occasion, according to the IEEFA.
It highlights how coal-fired power has been the “biggest loser” in the energy transition to date and said these projects, although they may be optically “cheap”, have failed to deliver in the way planners in many energy growth markets had expected.
3. Failure to account for real costs of fossil fuel power will hurt rate-payers in the long-run
The analysis notes that one of the most important take-aways from the “rapid shift in global power markets” is that power sector planners are “increasingly vulnerable” to fatal design errors if they fail to account for the real costs associated with different technology and fuel choices.
It added that coal-fired power is a mature technology and there is “little prospect of meaningful cost improvements”.
The IEEFA points out that, on the other hand, LNG-fired power advocates have tended to “underestimate price volatility risks, the cost of associated infrastructure and to gloss over new geopolitical risks due to the vulnerable supply chain”.
“Meanwhile, renewable energy continues to benefit from dramatic technology-driven cost improvements that Vietnam is well-positioned to exploit,” said Brown.
“With modernised grid infrastructure and tailored incentives for storage, planners can reliably drive new renewable energy procurement costs down sharply and meet baseload-like supply goals.”
4. Underestimating the need for green power will threaten GDP growth
Over the past two years, Vietnam’s economic growth potential has diverged sharply from what the IEEFA has observed elsewhere in Southeast Asia.
As Indonesia has struggled to move away from fossil fuels, key supply chain companies have increased their commitments to decarbonise their supply chains. The report highlights that Vietnam is the one country in the region that has “worked hard to meet the needs of these key providers of foreign direct investment”.
“Vietnam must take bolder steps to win the confidence of high-value foreign investors that are working hard to meet the needs of their global customers,” said Brown.
“This is a period when Vietnam should want to send a message to global investors that Vietnam can meet their green energy needs and that new clean energy options will benefit in a market progressing towards competitive auction structures that can deliver cost-competitive outcomes.
“The market’s appetite for renewable energy investment is already there. Now it’s time to realise steady cost improvements.”