Analysis: Vietnam Pursues Greener Energy but Relies on Coal to Prevent Blackouts, According to Reuters

By Francesco Guarascio and Khanh Vu

HANOI/HOA BINH, Vietnam – The lights are dimmed and air conditioning is reduced at the headquarters of Vietnam’s state-run electricity company, EVN, as the utility aims to set an example and prevent a recurrence of last year’s severe blackouts, an official shared with visitors.

Despite these efforts, many businesses in Vietnam’s capital, Hanoi, seem to overlook calls for energy conservation, leaving decorative neon lights adorning high-rise buildings illuminated throughout the night.

These challenges in reducing power consumption highlight the ongoing difficulties Vietnam faces one year after unexpected outages resulted in substantial financial losses for multinational corporations with investments in the country.

To prevent electricity shortages, Vietnam is implementing a range of energy-saving initiatives, grid improvements, regulatory changes, and a significant expansion of coal power, according to government reports and discussions with officials and experts.

Trinh Mai Phuong, EVN’s communications director, noted during a media tour that even the most significant current infrastructure project—a $1 billion transmission line connecting central Vietnam to the industrialized northern region—may not deliver the necessary impact. "I would not say it is a game changer," Phuong remarked about the soon-to-be-completed line, emphasizing that additional measures are vital as power consumption is anticipated to reach record levels amid more heatwaves.

The increasing demand for electricity complicates Vietnam’s ability to meet climate change commitments while ensuring sufficient supply for major investors like Samsung Electronics, Foxconn, and Canon.

Foreign investors and analysts emphasize that broader reforms across the sector are essential in the long term.

EMERGENCY MEASURES

In the short term, Vietnam is relying predominantly on coal to meet its electricity needs, potentially jeopardizing its commitments to reduce fossil fuel reliance. Coal consumption surged in the first five months of 2024, with coal-fired plants contributing an average of 59% to the country’s electricity output, and exceeding 70% on certain days, according to EVN data.

This represents a significant increase from nearly 45% during the same period last year and 41% in 2021 when Vietnam began laying plans to reduce coal reliance, which garnered $15.5 billion in international donor commitments to assist in the phase-out process.

Following the startup of a new coal-fired facility in 2023, coal now constitutes 33% of total installed capacity—up from 30.8% in 2020—further distancing Vietnam from its goal of reducing that figure to 20% by 2030.

Energy conservation is also a crucial component of the strategy. EVN, along with its local subsidiaries, has urged energy-intensive clients, especially foreign manufacturers, to adopt energy-saving measures, particularly during peak hours.

However, this approach risks damaging Vietnam’s reputation as a stable investment destination and could hinder future manufacturing expansion plans, as noted by foreign investors who preferred to remain anonymous as they were not authorized to speak to the press. They argued that the focus should be on addressing generation and distribution challenges rather than solely on cutting consumption.

The industry ministry did not respond to a request for comment.

CLEANER OPTIONS

Currently, Vietnam is utilizing only a small fraction of its installed solar and onshore wind power capacity, mainly due to bureaucratic obstacles. The country has yet to establish regulations needed to advance offshore wind projects, and delays persist in developing power plants powered by imported liquefied natural gas, which is a cleaner alternative to coal.

According to government plans, the combined use of these energy sources should cover over 40% of installed capacity by 2030, although analysts express skepticism about achieving this target. Hydropower generation is expected to decline to below 20% of total capacity by the end of the decade, down from over 30% in 2020, although some new capacity is being added in northern Vietnam, where demand is higher.

One of the nation’s largest hydropower facilities, Hoa Binh, is set to add two General Electric turbines to its existing eight, boosting its total capacity to 2.4 gigawatts by mid-2025.

The Hoa Binh plant, together with the new transmission infrastructure linking electricity from various plants to northern areas, may increase capacity by 8% in high-demand regions.

REFORMS NEEDED

Experts agree that the power crisis cannot be resolved without significant reforms, although progress has been slow. In April, the industry ministry issued a revised methodology for determining electricity prices, a move perceived as a potential pathway to revitalize projects stalled for years due to unclear tariff structures.

However, some believe this methodology may impose undue risks on developers, complicating their financing efforts. A draft decree allowing manufacturers to purchase electricity directly from producers is nearing approval after extensive internal discussions.

Implementing direct power purchase agreements could help multinational corporations avoid elevated export tariffs while promoting the use of renewable energy sources in line with environmental, social, and governance standards. Nevertheless, these DPPA rules must be supported by additional reforms to ensure straightforward connections between factories and power-generation projects.