Vietnam Pursues Green Energy but Relies on Coal to Prevent Blackouts: Analysis

Vietnam's Struggle with Energy Conservation Amid Rising Power Demand

At the headquarters of Vietnam's state-run electricity provider EVN, efforts are in place to conserve energy by turning off lights and reducing air conditioning. This initiative aims to prevent a repeat of last year's severe blackouts. However, many businesses in Hanoi continue to use neon lights unnecessarily at night, highlighting the challenges of reducing energy consumption in Vietnam.

Last year's unexpected power outages cost multinational manufacturers significantly. Now, Vietnam is implementing various measures such as energy-saving initiatives, grid enhancements, regulatory reforms, and a substantial increase in coal power to avoid future shortages. Despite these efforts, EVN's communications director, Trinh Mai Phuong, remains cautious about the effectiveness of a new $1 billion transmission line, emphasizing that it may not fully address the rising power demand during upcoming heatwaves.

Emergency Measures and Short-Term Dependence on Coal

In the short term, Vietnam is relying heavily on coal to provide stable electricity. Coal usage surged in early 2024, with coal-fired plants producing up to 70% of the country's electricity on some days. This reliance on coal challenges Vietnam's commitments to reducing fossil fuel dependence. A new coal plant that became operational in 2023 increased coal's share in total installed capacity to 33%, moving further away from the goal of reducing it to 20% by 2030.

Foreign manufacturers have been encouraged to adopt energy-saving measures, but this strategy could harm Vietnam's reputation as a dependable investment destination, potentially affecting future manufacturing expansions. According to some foreign investors, the solution lies in addressing generation and distribution issues rather than consumption restrictions.

Cleaner Energy Options and Administrative Hurdles

Vietnam is underutilizing its installed solar and onshore wind capacities due to administrative challenges. Offshore wind projects lack regulatory approval, and delays plague projects for power plants using imported liquefied natural gas (LNG). The government plans for these cleaner sources to comprise over 40% of installed capacity by 2030, but analysts remain skeptical. Hydropower’s share is projected to drop significantly, although capacity is being added in northern regions where the demand is higher.

The Hoa Binh hydropower plant is expanding its capacity by adding new turbines from General Electric, potentially increasing the plant's capacity to 2.4 gigawatts by the second half of 2025. This addition, coupled with the new transmission line, could boost capacity in the power-intensive north by 8%.

Long-Term Reforms and Sector-Wide Changes Needed

Experts argue that resolving Vietnam's power crisis requires significant reforms. Progress has been slow, but the industry ministry's updated electricity price methodology is a step towards reviving stalled projects. However, this methodology could impose excessive risks on developers, complicating their access to finance.

A draft decree allowing manufacturers to buy electricity directly from producers is nearing approval. This Direct Power Purchase Agreement (DPPA) could help multinational companies avoid higher export tariffs and increase renewable energy use. However, DPPA rules need to be integrated with other reforms, such as clear provisions for connecting factories directly to power-generation projects.