How to develop new energy sources?

Dr. Ta Dinh Thi, Deputy Chairman of the National Assembly Committee on Science, Technology, and Environment

Under the National Strategy for Climate Change until 2050, by 2030, total greenhouse gas (GHG) emissions are to fall by 32.6 per cent compared to a business-as-usual scenario, with a cap of 457 million tons of CO₂ (carbon dioxide) equivalent (CO₂e). By 2050, emissions are to fall by 91.6 per cent, with a cap of 101 million tons of CO₂e.

In 2023, the National Assembly Standing Committee conducted specialized supervision on the implementation of policies and laws regarding energy development from 2016 to 2021. The goal was to evaluate achievements, identify limitations, determine causes, and assign responsibility to relevant agencies for policy and legal implementation.

As a result, the Standing Committee issued Resolution No. 937/NQ-UBTVQH15 on December 13, 2023, which outlined comprehensive tasks and solutions to be completed by the end of 2025, with medium and long-term goals set for 2030 and a vision extending to 2050. Key areas include improving mechanisms and policies for power development, such as amending the Law on Electricity and the Law on Efficient Energy Use, national energy development strategies and plans, energy market mechanisms and policies, pricing for electricity, coal, gas, and petroleum, investment in various energy sub-sectors, ensuring feasibility, investment efficiency, and funding for energy projects, and promoting efficient energy use.

Energy transition is a long-term process requiring the participation of the entire political system and especially businesses. Three main issues must be addressed to achieve an effective transition.

Firstly, it is crucial to continue introducing policies and amending certain laws to align with practical reality, while attracting resources for energy development that ensures energy security and the growth of renewable energy.

Secondly, energy transition will require significant investment while minimizing the impact on electricity costs. To meet this financial demand, a combination of resources is needed, including international financial support, private investment, and State budget funds.

Thirdly, it is important to enhance the development and implementation of social policies and job transition policies, to ensure that citizens benefit from this energy transition without impacting their livelihoods.

Mr. Nguyen Anh Tuan, Vice Chairman and General Secretary of the Vietnam Energy Association

From 2021 to 2030, the electricity sector will need approximately $134.7 billion in investment, or around $13.4 billion each year. However, over the past three years, only some $30 billion has been invested, or around $8.5 billion each year. This leaves $105 billion, or approximately $16.1 billion each year, to be invested over the remaining six and a half years, which presents a significant challenge.

Moreover, existing power infrastructure cannot support the high integration of variable renewable energy sources such as solar and wind, due to a lack of flexible resources and energy storage systems, leading to operational difficulties. There are no legal regulations on developing offshore wind power, and difficulties exist in negotiating power purchase agreements for LNG power projects. The electricity market has been slow to develop, with a single main buyer, and electricity prices remain inflexible despite Prime Ministerial Decisions No. 24/2017/QD-TTg and No. 05/2024/QD-TTg on flexible electricity price management. Implementation has not been effective.

Additionally, green technology and fuel for industry and transportation are still in the experimental stages, are not yet market-ready, and are costly. Carbon capture and storage technology also faces many challenges.

Thus, we need to quickly establish a legal framework to support the implementation of baseload power sources to replace coal and renewable energy. This includes promptly issuing mechanisms to encourage the self-production and self-consumption of rooftop solar power, aiming for 50 per cent of public buildings and 50 per cent of households using self-produced and self-consumed rooftop solar power by 2030. Regulations on mobilizing flexible power sources and establishing a pricing framework for power purchase from battery energy storage systems (BESS) and pumped-storage hydropower are also needed.

Regarding implementation, ministries and sectors should support localities in promoting renewable energy projects. Early pilot projects in offshore wind power should be carried out with special mechanisms, as well as sea surveys and wind measurements in designated marine areas in the draft national Marine Spatial Plan (MSP), and assigning State-owned enterprises (SOEs) to lead investment in a few projects.

We should increase baseload power sources, replacing coal power, pilot power purchase agreements with some LNG power projects, monitor and expedite the progress of the Block B - O Mon gas-power chain, and promote the Ca Voi Xanh (Blue Whale) gas-power project.

Strict implementation of the mechanism for flexible electricity price adjustments, as stipulated in Decision 05 on the mechanism for adjusting the average retail electricity price, is necessary, as is the study of and pilot investment in new energy production facilities such green hydrogen, green ammonia, and synthetic biofuels.

Mr. Pham Van Tan, Deputy Director of the Department of Climate Change, Ministry of Natural Resources and Environment

Vietnam is one of four countries participating in the Just Energy Transition Partnership (JETP). The primary aim of the JETP is to assist Vietnam in transitioning its power network towards decarbonization, ensuring national energy security and moving towards net-zero emissions. Partners have committed to mobilizing an initial $15.5 billion over the next three to five years to address Vietnam’s equitable energy transition needs.

In December 2023, Vietnam, alongside its international partners, announced plans to mobilize resources for implementing the JETP, outlining opportunities for developing the electricity network and negotiating a cessation of investments in new coal-fired power plants.

Regarding specific financial strategies, international partners group (IPG) will support public financial funds at lower interest rates compared to private enterprises and international commercial banks within the Glasgow Financial Alliance for Net Zero (GFANZ) as private financial funding. Especially for projects involved in the JETP, GFANZ banks have recognized Vietnam’s priority, ensuring additional security for commercial loans. Due to their secure nature, forward-thinking approach, and focus on achieving net-zero emissions, these projects also benefit from favorable loan terms and interest rates.

Within the resource mobilization plan announced in December 2023, six categories and six priority areas have been identified. Since the announcement and resource mobilization, three key areas have been implemented in 2024.

Firstly, establishing a monitoring and evaluation framework for JETP implementation.

Secondly, implementing the primary policy framework for JETP action, identifying necessary policy adjustments and regulations to be implemented in 2024 and 2025 to accelerate equitable energy transition in Vietnam.

Thirdly, within the resource mobilization plan, approximately 220 investment projects and 60 technical support groups have been identified to 2030. However, initial steps involve prioritizing the identification of projects for immediate implementation.

International partners such as IPG have committed to supporting $7.7 billion in the action plan and are prepared to invest in seven projects immediately. International banking partners like HSBC have signed numerous agreements with organizations, committing up to $11.8 billion, surpassing the $7.7 billion pledged by international partners.

I believe that the committed $7.7 billion in support from international partners is crucial for establishing mechanisms and facilitating financial resources for businesses to invest in this sector.

The JETP is a nascent issue, with Vietnam leading the charge. Nonetheless, this reflects a global trend towards equitable transitions, with a central focus on energy transformation. Being at the forefront, Vietnam will encounter challenges and procedural hurdles, but this also presents numerous opportunities for the country. In particular, effective implementation by Vietnam could catalyze financial resources for broader transition and national development.

Associate Professor Pham Hoang Luong, former Vice President of the Hanoi University of Science and Technology (HUST), Director of the Vietnam-Japan International Institute for Science of Technology at HUST

Without timely solutions to address climate change, Vietnam may lose 13-14 per cent of its GDP by 2050. I believe investing now will reduce costs in the future, which is crucial.

Fossil fuels such as coal, oil, and gas currently account for about 77.8 per cent of Vietnam’s energy sources, while renewable energy constitutes 20-21 per cent. This imbalance underscores its heavy reliance on fossil fuels, which are significant sources of greenhouse gas emissions and CO₂.

In terms of primary energy intensity, based on 2022 data, Vietnam needs around 284 kg of oil equivalent to generate $1,000 of GDP (at 2021 prices), which is higher compared to neighboring countries. For example, Singapore uses about 89 kg of oil equivalent, Indonesia 186 kg, and Thailand 278 kg to produce the same GDP value.

High energy intensity indicates inefficient energy use in Vietnam, contributing to emissions challenges. According to calculations, producing $1 in 2021 (at 2015 prices) results in emitting 0.76 kg of CO₂ in Vietnam, compared to 0.13 kg in Singapore, 0.54 kg in Indonesia, and 0.61 kg in Thailand.

These realities highlight the significant reliance on fossil fuels and the urgent need to enhance energy efficiency. Therefore, efforts in energy transition must focus on increasing the proportion of renewable energy and improving energy efficiency to mitigate greenhouse gas emissions. This poses a significant challenge for Vietnam, necessitating a clear roadmap.

Regarding the variability of renewable energy, despite its cost-free nature, its instability is a factor we must acknowledge.

To address this issue, enhancing forecasting capabilities is crucial for the proactive development of renewable energy within our energy network. This is a complex task. Additionally, developing more flexible grid systems is essential. However, grid development requires considerable time and investment. Energy storage capabilities therefore need to be prioritized.

If Vietnam can effectively store energy during periods of renewable energy variability, it can contribute to grid stability, load balancing, and the development of distributed energy systems, thus reducing reliance on new investments in renewable energy sources.

To achieve significant progress in energy transition by 2030, I believe this period is pivotal for planning, implementing, and directing strategic activities. Failing to act swiftly and decisively could hinder our path to achieving net-zero emissions by 2050.

To reach the net-zero target, we must reshape our energy mix and increase the share of renewable energy. However, to expand this share, we must embrace and address the variability inherent in renewable sources.

Mr. Stuart Livesey, EuroCham Board Member and Co-Chair of the EuroCham Green Growth Sector Committee

There have been some delays globally, but from 2017 to 2022 Vietnam showed a robust commitment to renewable energy.

It has achieved a lot in a short period of time, but there is still more potential to explore. Vietnam’s economy and future generations can benefit significantly from focusing on renewable energy, energy efficiency, and storage.

There is currently a focus on implementing stronger regulations. Key laws, like the Law on Electricity, need to be passed soon, along with mechanisms for offshore wind pilot projects, to provide certainty for investors.

When it comes to FDI, for EuroCham members, the Vietnam Business Forum (VBF), and many chambers globally, what Vietnam needs to do now is deliver certainty in the market, to show that this is not a risky environment to be in. That this is where it is worth putting capital in. Unlike other sectors, such as manufacturing, where regulations are clearer, the energy sector remains somewhat uncertain.

Vietnam needs to issue some strong, competent messages, top-down from the government, saying: “We will control this energy landscape for you, we will make sure it’s clear, it’s transparent, and we will make sure you can understand how your projects are going to get delivered.” It is also key to make sure that this is not just for foreign investors and national investors wanting to generate green electricity and transmit it, but that there is also huge demand to actually take in and consume green energy.

And this is what Vietnam really needs to capitalize on right now. There are so many investors in the country and others wanting to come into Vietnam who say we can only stay and be here if you give us clean energy. That’s not just because they think it’s ethically what they should do, but because it’s what their shareholders are telling them to do, what their board is telling them to do. If they cannot consistently access green energy, they are going to have to look at other markets. So, it’s really a strong message for Vietnam, saying that if you want FDI, if you want good, capable, strong FDI, you need to focus on the environment.

Regarding the Just Energy Transition Partnership (JETP), this is a very exciting opportunity for Vietnam. I understand there is quite a bit of hesitancy at the beginning of the partnership. For those who don’t understand, the JETP is a blend. There is $15.5 billion, which is a mix of public and private funding. Most of this comes in the form of loans, with some grants also available. One of the major concerns from foreign industry is that the government may take on public debt. There is a worry that the public will assume a significant amount of debt through loans intended to justify the green transition. It is true, however, that Vietnam will incur debt if it participates in this energy transition partnership.

We should recognize two aspects of this. Firstly, Vietnam has extremely low debt equity globally and, in my opinion, can afford to take on this debt. And secondly, many global markets use debt to leverage future investments.

If managed carefully and properly, taking on debt in the short term is an excellent way to handle this for the long term. I believe that if this $15.5 billion is used strategically - for grid upgrades, improving electricity efficiency, enhancing ports and harbor logistics, etc. - it represents the best approach to advancing the green energy transition. Fragmenting this into individual projects won’t benefit anyone; it must be a strategic initiative that benefits Vietnam as a whole.

Mr. Abhinav Goyal. Director, Capital Projects and Infrastructure, PwC Vietnam

In terms of the energy transition, I think the current state of action that Vietnam has taken in setting up policies and vision are quite progressive and exhibit a shift in national policies and commitment. COP26 itself was a significant turning point in making ambitious pledges. With Vietnam aiming to be a high-income economy by 2045 and a net-zero economy by 2050, the structure of its energy sector must change to match those ambitions. That is where the action is seen in terms of thinking and strategy.

PwC conducted a study in 2023 to look at the net-zero index of different economies. Just to provide some perspective on numbers, the Asia-Pacific region needs to decarbonize by 70 per cent. It was far behind where it needed to be. However, when you look at the countries in the region, Vietnam was among the top 3 that decarbonized faster than needed to meet its Nationally Determined Contribution (NDC).

Of course, it is at a nascent stage and a lot still needs to be done. But Vietnam was decarbonizing faster than needed at that point in 2023. The only countries ahead of it in the Asia-Pacific region were Singapore and New Zealand.

But this didn’t happen overnight. There has been work done over the last five to six years. If you look closely, there has been a range of new policies. Much has happened in terms of thinking, but Vietnam should avoid the policy trap and start moving into the implementation of these visions and documents. If we look at the results of the energy transition, the deployment of renewables is phenomenal. In 2017, we were at 500 MW of renewables. In 2022, we are at 21 GW. That kind of scale-up in renewables in terms of installed capacity is among the highest in the region and the world.

What gets curtailed and what gets evacuated is a different story, and that needs to be resolved as well. But at least penetration on the supply side has happened. Now there is a phase-out timeline for coal as well. The pipeline of coal is shrinking, and the government is really considering removing it and replacing it with alternative fuels.

Of course, details must follow. Not much has been said, but there has been a discussion around a just energy transition. If you look at the NDC 2022 commitment, it talks about just transition - leaving no one behind and trying to make this a fair and just transition.

I think these count among the significant strides forward that have happened. The Law on Electricity and vision documents and the direct power purchase agreement (DPPA) mechanism are all very progressive steps. That is how we view performance so far and also the future outlook.

One other thing for Vietnam to consider is improving access to finance. Domestic capital markets and the banking sector have played a crucial role in scaling up solar investments, but much of it has been through corporate finance and balance sheet financing rather than project financing. For technologies like hydrogen, transition technology, and LNG, traditional finance products won’t meet needs. It is essential to address green taxonomy issues and consider bringing in access to climate finance and transition finance. What about bonds and renewable energy funds? These are key areas to focus on. There are also initiatives around concessional and more attractive financing.

At the end of the day, concessional finance can be effectively deployed. For example, financing a transmission grid in Vietnam is challenging due to its coal connections. India, however, addressed this by creating a green energy transition corridor, a transmission line evacuating renewable energy hotspots and balancing power between regions, turning them into energy management centers. This was financed through concessional finance from entities like the Asian Development Bank (ADB) and the Asian Infrastructure Investment Bank (AIIB), which are interested in such assets. This approach supports the goals behind the DPPA and other initiatives.

Mr. John Rockhold, Chairman of AmCham Vietnam’s Energy Group, Head of the Vietnam Business Forum’s Power and Energy Working Group

We have witnessed over the last three months a very active government implementing policies and making decisions. This is exactly what the private sector has been seeking: clear policies and decisive action that are crucial for foreign direct investors.

Energy security remains a critical issue for Vietnam’s economy. We are pleased that the government has prioritized energy security, aiming for portable, reliable, and sustainable energy to support socio-economic development. Most recently, we saw Prime Ministerial Decision No. 270, approving a list of important national programs, projects, and works in the energy sector.

Vietnam still heavily relies on fossil fuels, but is striving towards achieving energy security. Our current focus is on developing a robust transition policy effective in the years to come. Building policies for energy security is essential at this stage.

Seven years ago, we conducted a survey on FDI in the industry. Energy security ranked as a top priority then, and today is sixth among the top 10 priority issues. We now have the necessary tools and understand the government’s intended actions. It is encouraging to see the recent issuance of the direct power purchase agreement (DPPA) mechanism and progress in rooftop solar projects. Additionally, the commitment to develop several GW of offshore wind power is promising.

While offshore wind is costly, it provides valuable lessons for policy development and implementation. This preparation ensures that Vietnam is ready to operate when prices become competitive.

A robust Electricity of Vietnam (EVN) is crucial for implementing clear power purchase agreements. No further guarantees or loans are expected; the private sector must take charge. Therefore, EVN needs to strengthen its operations going forward. This requires avoiding cost burdens like subsidies, as seen during Covid-19, when it suffered losses exceeding $2 billion without full reimbursement.

Hence, it is important for EVN to manage price increases responsibly while protecting vulnerable populations in rural areas. Businesses in urban areas should start paying realistic prices, promoting energy efficiency initiatives.

Vietnam currently operates coal-fired and gas-fired power plants inefficiently, resulting in significant financial waste and environmental impact. Embracing cleaner technologies can reduce this carbon footprint and enhance efficiency. Redirecting savings from coal and gas expenditures towards renewable energy development could eliminate the need for external borrowing, utilizing Vietnam’s own resources effectively.

Mr. Nguyen Van Long, General Director, Hong Ha Petro

LNG has been utilized globally for a long time, especially in advanced countries such as those in Europe, Japan, and China. It primarily consists of  CH4 (methane), which makes up about 95 per cent of its composition, and it is liquefied by cooling it to -162°C. Using LNG as a fuel results in very low CO₂ emissions, making it an excellent solution for reducing greenhouse gas emissions.

The Vietnam Oil and Gas Group (PetroVietnam) has invested in Thi Vai Port in southern Ba Ria-Vung Tau province for importing and storing LNG. One LNG shipment has been imported so far, mainly to provide supplementary fuel for the province’s Phu My power plants. Looking ahead, demand for LNG in Vietnam is expected to be substantial. LNG will be used to support gas-fired power plants facing fuel shortages and to supply fuel for coal-fired power plants transitioning to gas.

To establish an LNG market for industrial use, we are awaiting policy frameworks from the government to distribute LNG from the Thi Vai LNG Terminal to factories and business units within private and foreign enterprise ecosystems.

Another potential use for LNG is in the transportation sector, where it can replace diesel. Currently, some bus routes in Ho Chi Minh City and Hanoi are using compressed natural gas (CNG), which is energy-efficient and emits low greenhouse gases, making it a clean fuel popular in the transportation industry.

LNG also has the potential to replace diesel in tractor-trailers. Vietnam has about 15-16,000 tractor-trailers, which consume a large amount of diesel and produce significant greenhouse gas emissions. Though Euro 5 standards are being implemented, few vehicles meet this standard. In the railway sector, all older locomotives do not meet any of the Euro standards. Thus, developing the LNG market quickly is essential to address emission issues in transportation engines.

Similar to the electric vehicle sector, building LNG fueling stations for transportation faces many challenges. Investing in an LNG station is much more expensive than a gasoline station because LNG storage requires cooling to below -162°C, resulting in high investment costs. The government has tasked PetroVietnam with investing in storage facilities to import LNG for the country’s three regions. Hong Ha Petro is proposing and advising the Ministry of Industry and Trade and the government to develop policies to promote the construction of LNG refueling stations nationwide.