At the Conference of Parties in Glasgow in 2021, Vietnam committed to reducing its carbon emissions to net-zero by 2050 a big part of which was reducing the burgeoning Southeast Asian nation’s dependence on coal. Three years on, however, and Vietnam’s de-coalification appears to have stalled with coal power and coal imports both on the rise. So what’s changed? Why has it changed? And what might happen next?
At COP26 in November of 2021, the Prime Minister of Vietnam, Pham Minh Chinh, stood before the assembled nations and declared Vietnam would strive to reduce its carbon emissions to net-zero by 2050.
Indeed this was ambitious for one of the fastest-growing emerging economies in the world. Vietnam was in the midst of a huge surge in demand for electricity, a good portion of which was coming from coal-burning power plants.
Realising this goal, therefore, would mean that coal power plants would need to be replaced with cleaner means of power production, but this would come at a cost.
“…To this end, we will make use of our own domestic resources,” Chinh told the assembled world leaders at COP26, but stressed would also require “the cooperation and support of the international community, especially from developed countries, in terms of finance and technology…”
In short, Vietnam was keen on reducing its carbon emissions but it would need help paying the bill. And, to this end, the wheels had already begun turning among the G7 and a handful of other developed countries. Specifically, they were pursuing Just Energy Transition Partnerships–or JETP agreements–through which they would finance green energy transitions of developing nations.
These were, however, to be formed around negotiations and Vietnam was to prove a shrewd negotiator. Whereas the EU and UK in particular had been pushing for peak coal use of 25 gigawatts by 2025 for US$5 billion, Vietnam held out only finally agreeing, at the end of 2022, to peak coal use of 30.2 gigawatts by 2030 for US$15.5 billion in grants, loans, and private investment.
This agreement was then followed up with the approval of Vietnam’s Power Development Plan 8–more commonly known as the PDP8–in May of 2023 with a subsequent implementation plan coming a little under a year later in April of 2024.
Two crucial pieces of legislation, the PDP8 laid out the broad strokes for Vietnam’s power sector development including said peak-coal target of 30.2 gigawatts by 2030. The implementation plan, on the other hand, detailed the specific power projects to be developed.
Long delayed–coming three and four years after the PDP8 should have been approved and implemented, respectively–these announcements were met with general enthusiasm providing clarity for power developers and investors alike. This was, however, to be short-lived as reality came to bear on the plan’s ambitious goals.
For example, a six-year time frame to develop 6 gigawatts of offshore wind power, pundits were quick to point out, was far too short for projects of that size even under the best conditions. Furthermore, 30,000 megawatts of gas power spread across 23 projects also seemed unlikely with just one project coming online this year but the other 22 facing delays on the back of legal problems and financial challenges.
Moreover, coal was to be phased out by converting existing coal power plants to run on ammonia. Technology that is still yet to be proven at scale.
But there were bigger problems on the horizon. Specifically, northern Vietnam would experience blackouts across the summer of 2023 that would impact several big-name manufacturers and cost the country’s economy an estimated US$1.4 billion.
This proved to be a jolt in the arm for the managers of Vietnam’s electricity supply. Shocked into action, to avoid further blackouts moving forward, the decision was made to prioritise burning coal and to save water in hydropower catchments for the summer months when electricity demand was at its highest.
As a result, coal use began to grow rapidly and by the end of 2023, had accounted for about 46 percent of Vietnam’s total power supply in that year up from 32.5 percent in 2022. This was the equivalent of 26,757 megawatts, drawing uncomfortably close to the 30.2 megawatt peak agreed to in the JETP.
That said, coal use was set to climb even higher in the first half of 2024. On the back of a 12.4 percent surge in power demand, power generated by burning coal reached 86.34 billion kilowatt hours, an increase of 30 percent over the first half of 2023. This jump was also reflected in coal imports which were up by 38.6 percent year-on-year at the end of June.
But whereas this might have caused problems for Vietnam’s JETP commitments, the reality was that the agreement appeared to have stalled back in 2023 when British diplomatic cables leaked to Politico elucidated an agreement that seemed to be going nowhere fast.
“The diplomats complained that Vietnam’s environment ministry — which led talks with the international donor group — was ‘politically weak,’ and that the final deal did not ‘reflect the limited engagement and buy-in’ from the ‘sceptical’ energy, finance and planning ministries in Hanoi,” according to the publication.
Furthermore, a big part of the problem looked to be the funding arrangements, with the US$15.5 billion mostly market-rate loans and only US$300 million worth of grants, outlined in a JETP Resource Mobilisation Plan also made public at the end of last year. This was not what Vietnam wanted–it was looking for more grants and less loans and in this light, though it might be agreed on paper, it’s not clear exactly how it might play out in reality.
That is to say, Vietnam’s electricity sector has a lot of moving parts, and conflicting goals and objectives, and these are all interacting in an environment where demand for electricity is surging. Coal, however, is a known and proven quantity, it is relatively easy to come by, it can be scaled quickly, and subsequently very difficult for Vietnam to quit.
That said, Vietnam is developing rapidly and the business environment, including the energy sector, has the potential to change quickly. With this in mind, foreign firms doing business in Vietnam looking to keep track of these changes should make sure to subscribe to the-shiv.