The reality of Vietnam’s energy transition – The Diplomat

The Reality of Vietnam's Energy Transition

Vinh Tan Thermal Power Plant in Binh Thuan Province, Vietnam.

Credit: Depositphotos

Earlier this fall, US climate envoy John Kerry shone spotlight about Vietnam, urging the Southeast Asian nation to “do what’s smart” and refocus its energy sector by investing in renewables and moving away from fossil fuels. His speech coincided with a deal between the European Union and the United Kingdom that was reached last week. $11 billion in the green transition of Vietnam. The Fair Energy Transition Partnership (JETP) aims to cancel new coal-fired power plant projects and create 60 GW of renewable energy capacity 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 funding, technology transfer and technical assistance.

JETP is not the first deal of its kind. Over the past decade, investors have shown a growing interest in expanding renewable energy technologies in Southeast Asia. But for the Vietnamese government, the transition to green energy is less about a passion for saving the planet than it is about stimulating economic growth by any means possible. Vietnam is taking care of decarbonization and renewables could indeed be the cheapest energy option available. But many political, regulatory and financial challenges remain in the way of this goal. Ultimately, Vietnam will act in its own interest in deciding its energy future, but it must be careful not to get too ambitious in its commitment to a green economy transition by taking on debt and accepting capital for projects that are premature, ill-advised. or ineffective. advised. An “energy transition” could be dangerous for any developing country that doesn’t have the same risk tolerance as richer countries, and Vietnam could fall into that trap.

Simply following the energy roadmaps of developed countries is unlikely to succeed in the case of Vietnam. The country’s overabundance of solar energy and investments in next-generation technologies such as hydrogen are diverting attention from the development of its energy sector. Viet Nam should prioritize an energy adaptation strategy to address existing vulnerabilities before prematurely phasing out fossil fuels in favor of riskier green investments that could derail and delay its transition to energy in the long term.

In an attempt to move away from fossil fuels in the past, Vietnam has expanded its presence in wind and solar energy through a series of government-supported feed-in tariffs. The region has some natural environmental benefits in terms of renewable energy, so early explosive growth led to a boom. Vietnam’s electricity grid, originally built on traditional resources, is extremely underdeveloped and unable to supply solar power on a large scale. In addition, the lack of regulation and an insufficient power purchase plan led to an oversupply of electricity, forcing Vietnam Electricity (EVN) cut renewable energy production in 2021, bankruptcy solar companies and the cessation of new renewable energy projects.

The expansion of LNG production is another important component of Vietnam’s energy plan, which is experiencing growth difficulties. Vietnam’s current National Energy Development Plan VIII (PDP8) provides for an increase in LNG capacity over the next 10 years. Vietnam is already considered a reliable and committed partner in the global fight against climate change, giving it access to exclusive and lucrative sources of capital. But PDP8-backed LNG projects have struggled to get funding from investors who are silent on its true return on investment. Like JETP, FDI opportunities are often focused on renewables as climate-focused investors prioritize decarbonization strategies. Carbon-intensive resources such as LNG are seen as less attractive for investment, especially when environmentalists believe it is advantageous compared to renewables. peak in 2037. But there is still a need to develop LNG as an important base fuel to support Vietnam’s industrial growth and close the gap with more environmentally harmful fuels such as coal.

Do you like this article? Click here to sign up for full access. Only $5 per month.

Vietnam cannot afford to be left out of the green revolution, but at the same time, a glut of solar projects and a mismatch between LNG policy and financial commitments are forcing domestic producers to embrace next-generation technologies. Left with limited options, investors are now promising to develop and expand the use of hydrogen in 30-year LNG deals as a companion technology that will make gas more affordable to finance in the long term and more attractive to climate-conscious investors.

This spring, the Vietnamese company TGS Green Hydrogen announced its intention to build the country’s first green hydrogen plant in the southern province of Ben Tre. Phase 1 of $840 million deal nearing completion construction The deadline for completion is 2024. Early innovators like TGS believe that hydrogen can be used to solve some of these domestic problems and open up an export market for neighboring countries.

But hydrogen power generation is more risky than its most optimistic proponents would like to admit. Today, more energy is consumed for production than is generated. Hydrogen is an energy carrier, meaning 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 the current conditions, large-scale expansion of hydrogen production is inefficient, expensive, and uncoordinated globally, making it an unviable short-term solution to Vietnam’s overproduction problem.

We need Vietnam to continue to set the tone for decarbonization in the region, but its well-intentioned energy transition roadmap does not take into account the long-term implications of its strategy. An over-reliance on renewables and a move away from low-carbon fossil fuels such as LNG could threaten its progress. Gas infrastructure is expensive and durable. Countries that invest in this infrastructure will rely on LNG for much longer than the government’s plan suggests. Vietnam has a long and chaotic road ahead in terms of energy transition. The cost of change will need to include the use of low carbon fossil fuels such as LNG, and this should not be considered a disadvantage in developing countries such as Vietnam.

Investors in Vietnam’s energy sector must take off their rose-colored glasses and understand the harsh realities of its short and long term energy future. Innovation in this sector has become difficult to track and even more difficult to predict. Vietnam is better placed to address political issues and infrastructure shortcomings before spending recklessly on renewables and becoming hostage to new and risky technologies like hydrogen. Vietnam will continue to be the clean energy leader in Southeast Asia, but it must first build a strong foundation by addressing existing vulnerabilities before forging ahead with new and misguided ventures.