The Reality of Vietnam’s Energy Transition – The Diplomat

The Vinh Than Thermal Power Plant in Binh Thuan Province, Vietnam.

Credit: Depositphotos

Earlier this fall, US climate envoy John Kerry highlighted Vietnam, urging the Southeast Asian country to “do what makes sense” and refocus its energy sector by investing in renewables and turning off fossil fuels. His remarks coincided with a deal between the European Union and the United Kingdom made progress last week that would see the two powers invest at least $11 billion in Vietnam’s green transition. The Just Energy Transition Partnership (JETP) seeks to cancel projects for new coal plants and build 60 gigawatts of renewable energy by 2030. It is expected to be finalized at the Association of Southeast Asian Nations (ASEAN) meeting next month. The ambitious package will include public and private financing, Technology transfer, technical assistance.

JETP is not the first deal of its kind. The past decade has seen increasing investor interest in expanding renewable technology in Southeast Asia. But for the Vietnamese government, the green energy transition is less about a passion for saving the planet than it is about driving economic growth by any means possible. Vietnam is interested in decarbonizing – and renewables have the potential to become the lowest-cost energy option available. However, many political, regulatory and financing challenges still stand in the way of this goal. Vietnam will ultimately act in its own interest when deciding its energy future, but it must be careful not to become overambitious with its green transition commitments by taking on debt and accepting capital for projects that are premature, ill-advised or ill-advised. advised. An “energy transition” can be dangerous for any developing country that does not have the same tolerance for risk as richer nations, and Vietnam is vulnerable to falling into this trap.

Simply following developed countries’ energy roadmaps is unlikely to succeed in the case of Vietnam. Excess solar capacity in the country and investment in new generation technologies such as hydrogen are distractions in the development of the energy sector. Vietnam should prioritize an energy adaptation strategy that addresses current weaknesses before an early cessation of fossil fuels in favor of riskier green investments that could hamper and delay the energy transition in the long term.

In an effort to wean itself off fossil fuels in the past, Vietnam has developed an extensive footprint in wind and solar power through a series of government-backed tariffs. The region has some natural environmental advantages in renewables, so explosive early growth led to a boom. Vietnam’s electricity grid, initially designed for traditional resources, is largely underdeveloped and unable to provide solar energy on a large scale. In addition, the lack of regulation and insufficient power purchase plan led to excesses in electricity generation, which forced the Electricity of Vietnam (EVN) to reduce renewable energy production in 2021, bankrupt solar energy companies and halt new renewable energy projects.

LNG expansion is another important component of Vietnam’s growing pains energy plan. Vietnam’s current Eighth National Energy Development Plan (PDP8) foresees an increase in LNG capacity over the next ten years. Vietnam is already seen as a reliable and willing partner in the global fight against climate change, giving it access to exclusive and lucrative sources of capital. But the LNG projects supported by PDP8 have had difficulty getting financing from investors eager for their real return on investment. Like JETP, FDI opportunities are often geared towards renewables, as climate-conscious investors prioritize decarbonization strategies. Carbon-intensive resources such as LNG are seen as less attractive investments especially when the environmental community believes their profitability versus renewables will peak in 2037. But LNG is still needed to be developed as an important primary fuel to support Vietnam’s industrial expansion and close a gap In more environmentally harmful fuels such as coal.

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Vietnam cannot be left behind in the green revolution, but at the same time, the oversaturation of solar energy projects and the mismatch between policy and financing commitments for LNG are forcing domestic producers to source new generation technologies. Left with limited options, investors are now promising the development and expansion of hydrogen as part of 30-year LNG deals as a companion technology to make the gas bankable in the long term and more attractive to climate-conscious investors.

Last spring, Vietnamese company TGS Green Hydrogen announced its intention to build the country’s first green hydrogen plant in the southern province of Ben Tre. The first phase of the $840 million deal is under construction with an established deadline for completion in 2024. Early innovators like TGS believe hydrogen can be used to address some of these local challenges and open up an export market to neighboring countries.

But hydrogen power generation is more dangerous than its most optimistic proponents would like to admit. Today, it takes more energy to produce than it generates. Hydrogen is an energy carrier, which means that its raw form must be converted into secondary energy by separating hydrogen and oxygen molecules from water in a process called electrolysis. But under current conditions, large-scale expansion of hydrogen is inefficient, costly, and not globally coordinated, making it an unviable short-term solution to Vietnam’s overproduction issues.

We need Vietnam to continue to set the tone for decarbonization in the region, but its bona fide energy transition roadmap does not consider the long-term ramifications of its strategy. Overcommitment to renewables and abandonment of low-carbon fossil fuels such as liquefied natural gas could threaten its progress. Gas infrastructure is expensive and long-term. Countries that invest in this infrastructure will depend on LNG for a much longer period than the government plan intends. Vietnam has a long and messy road ahead in terms of its energy transition. The cost of change should include low-carbon fossil fuels such as LNG, and this should not be seen as a negative in developing countries such as Vietnam.

Investors in the Vietnamese energy sector should take off their rose-tinted glasses and understand the harsh realities of the energy future in the short and long term. Innovation in this sector has become difficult to track and even more difficult to predict. Vietnam would be better suited to addressing policy challenges and infrastructure deficiencies before spending recklessly on renewables and becoming hostage to risky new technologies such as hydrogen. Vietnam will continue to be a leader in clean energy in Southeast Asia, but it must first build a strong foundation by addressing existing weaknesses before moving forward with new and disruptive projects.

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