What is Behind the Green Energy Boom in Vietnam?

The total capacity of the non-hydroelectric clean energy (like wind, solar, and biomass gasification) in Vietnam peaked at 109 megawatts (MW) in the year 2014, one-third of the 1% of the total installed capacity of about 34,079 MW in the world. Hydropower (46%), coal (29%) as well as natural gas controlled Vietnam’s energy mix at the moment (22%). At the end of the year 2019, 5,700 MW of installed power was accounted for by solar and wind, around 10 percent of the overall supply. That implies that Vietnam sees wind and solar power go from virtually zero to 10% of its supply in just five years. What’s behind this boom in green energy?

Vietnam’s exponential pace of growth is the main catalyst. Since 2014, Vietnam’s economy has expanded by 6% or more a year, hitting 7% in 2018 and 2019, as per the Asian Development Bank. This exponential growth drives the use of resources at an extraordinary pace. Vietnam Electricity (EVN), the electric utility which is owned by the state, has seen the quantity of energy sold rise from around 128.6 terawatt-hours (TWh) in the year 2014 to around 209.4 TWh in 2019. Electricity consumption has risen or more 11% each year, increasing at a rate far higher than the GDP. This is driving a virtually insatiable desire for further production and investment in energy.

The historical dependency of Vietnam on the hydroelectricity puts it in a vulnerable position here. The viability of river-damming power production is minimal, and the geopolitics of the region’s shared hydropower resources are already complicated. Certainly, Vietnam cannot forever regulate this degree of economic development by hydroelectricity. But what about coal as well as, natural gas the two big sources of power generation? Vietnam is a net coal importer as of 2015, importing 43.7 million tonnes in 2019. Natural gas, as well as crude oil imports, have both been increased sharply since 2014.

In 2017, EVN was approved by Vietnamese authorities to pay a competitive rate of 9.35 cents per kilowatt-hour to buy solar power from independent developers.  This form of feed-in tariffs has been shown to be, under some circumstances, effective inducements for the purpose of jump-starting renewable energy expansion. Usually, a high tariff alone would not get the task done. It must be supported by administrative and political support, particularly from the implementation body, the EVN, which is a state-owned utility, in this case. EVN dominates the transmission as well as the distribution of electricity in Vietnam via its subsidiaries and has traditionally controlled about 60% of the generation industry.

Apart from the possibility that imports of coal, as well as natural gas, are pushing up output costs (that cannot be easily recovered by higher retail prices, as the government carefully regulates Vietnam’s energy demand prices), this is part of a much broader attempt to drive through market changes and make Vietnam increasingly investment-friendly. This includes reducing the state’s position in key industries and showing that Vietnam is a location where healthy yields can be produced by private capital.

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