The Reality of Vietnam’s Energy Transition – The Diplomat

Earlier this fall, U.S. local weather envoy John Kerry shone a highlight on Vietnam, urging the Southeast Asian nation to “do what is smart” and refocus its power sector by investing in renewables and retiring fossil fuels. His remarks coincided with a deal between the European Union and the UK that made headway final week, which can see the 2 powers make investments no less than $11 billion in Vietnam’s inexperienced transition. The Simply Vitality Transition Partnership (JETP) seeks to cancel tasks for brand new coal vegetation and construct out 60GW of renewable power capability by 2030. Anticipated to be finalized at an Affiliation of Southeast Asian Nations (ASEAN) assembly subsequent month, the formidable bundle will embrace private and non-private financing, know-how transfers, and technical help.

JETP will not be the primary deal of its sort. The final decade has seen buyers present a rising curiosity in increasing renewable know-how in Southeast Asia. However for Vietnam’s authorities, the inexperienced power transition is much less a couple of ardour for saving the planet and extra about driving financial development by any means potential. Vietnam cares about decarbonization – and renewables do have the potential to develop into the lowest-cost accessible power possibility. However many political, regulatory, and financing challenges nonetheless stand in the best way of this purpose. Vietnam will in the end act in its personal finest curiosity when deciding its power future, however it have to be cautious of not getting overly formidable with its commitments to the inexperienced transition by taking over debt and accepting capital for tasks which might be untimely, imprudent, or ill-advised. An “power transition” will be harmful to any creating nation that doesn’t have the identical danger tolerance as wealthier nations, and Vietnam is prone to falling into this lure.

Merely following the power highway maps of developed international locations is unlikely to achieve success in Vietnam’s case. The nation’s photo voltaic power overcapacity and funding in new technology applied sciences like hydrogen are distractions in advancing its power sector. Vietnam ought to prioritize an power adaptation technique that addresses its current vulnerabilities earlier than prematurely discontinuing fossil fuels in favor of riskier inexperienced investments that might derail and delay its power transition over the long term.

In an try and wean itself off fossil fuels previously, Vietnam developed an expansive footprint in wind and photo voltaic power by means of a sequence of government-backed feed-in tariffs. The area has some pure ecological benefits in renewables, so explosive early development led to a increase. Vietnam’s electrical energy grid, initially designed for typical assets, is vastly underdeveloped and unable to ship photo voltaic at scale. Moreover, a scarcity of regulation and an inadequate energy buying plan led to excesses in electrical energy technology, forcing Vietnam Electrical energy (EVN) to chop renewable power manufacturing in 2021, bankrupting photo voltaic firms and halting new renewable tasks.

The growth of LNG is one other essential part of Vietnam’s power plan that’s experiencing rising pains. Vietnam’s present Nationwide Energy Growth Plan VIII (PDP8) tasks a rise in LNG capability over the following 10 years. Vietnam is already seen as a trusted and prepared accomplice within the international combat towards local weather change, affording it entry to unique and profitable sources of capital. However LNG tasks supported by PDP8 have struggled to achieve financing from buyers reticent of its true return on funding. Very like JETP, overseas direct funding alternatives are sometimes geared towards renewables, as climate-focused buyers prioritize decarbonization methods. Carbon-intensive assets like LNG are seen as much less enticing investments significantly when the environmental neighborhood believes its profitability towards renewables will peak in 2037. However there may be nonetheless a must develop LNG as an essential baseload gas in supporting Vietnam’s industrial growth and to shut the hole on extra environmentally damaging fuels like coal.

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Vietnam can’t afford to be left behind within the inexperienced revolution, however on the identical time, the over-saturation of photo voltaic tasks and the misalignment between coverage and financing commitments for LNG are forcing home producers to supply new technology applied sciences. Left with restricted choices, buyers at the moment are promising the event and growth of hydrogen as a part of 30-year LNG offers as a companion know-how to make fuel financeable over the long run and extra enticing to climate-conscious buyers.

This previous spring, the Vietnamese firm TGS Inexperienced Hydrogen introduced its intention to construct the nation’s first inexperienced hydrogen plant within the southern province of Ben Tre. Part one of many $840 million deal is beneath building with a completion deadline scheduled for 2024. Early innovators like TGS imagine hydrogen could possibly be used to fulfill a few of these home challenges and open an export market to neighboring international locations.

However hydrogen power technology is riskier than its most sanguine supporters want to admit. As we speak, it consumes extra power to provide than it generates. Hydrogen is an power service, which means that its uncooked kind have to be transformed to secondary power by splitting hydrogen and oxygen molecules from water in a course of referred to as electrolysis. However beneath present situations, wide-scale growth of hydrogen is inefficient, expensive, and never globally coordinated, making it a non-viable short-term resolution to Vietnam’s overproduction points.

We’d like Vietnam to proceed to set the tone for decarbonization within the area however its well-intentioned roadmap for power transition doesn’t take note of the long-term ramifications of its technique. Over-commitment to renewables and the disavowal of low-carbon fossil fuels like LNG may threaten its progress. Gasoline infrastructure is dear and long-lasting. Nations that make investments on this infrastructure will depend on LNG for a lot longer than the federal government’s plan intends. Vietnam has an extended and chaotic highway forward of it by way of its power transition. The price of change must embrace low-carbon emitting fossil fuels like LNG, and this shouldn’t be thought-about a unfavourable in creating international locations like Vietnam.

Buyers in Vietnam’s power sector should take off their rose-colored glasses and perceive the tough realities of its quick and long-term power future. Innovation within the sector has develop into troublesome to trace and even more durable to foretell. Vietnam could be higher suited to handle coverage challenges and infrastructure insufficiencies earlier than recklessly spending on renewables and being held hostage by new and dangerous applied sciences like hydrogen. Vietnam will proceed to be a clear power chief in Southeast Asia, however it should first construct a robust basis by addressing current vulnerabilities earlier than forging forward with new and misguided ventures.