Will the government pay for coal power exit in Vietnam?

The country’s coal power phase-out strategy sees renewables accounting for 67.7%–71.5% of the energy mix by 2050.

VIETNAM is planning to bid goodbye to coal-power generation by 2050. However, the government needs a clear plan on how to handle and compensate coal power plants that would be phased out ahead of their retirement schedule.

Under Vietnam’s Power Development Plan (PDP) VIII, coal power plants that have an operating life of over 40 years have to stop operations or convert to alternative fuels.

However, Tran Van Trung, director and head of Energy at KMPG, said most of the country’s coal-fired power plants are build-operate-transfer scheme projects, which means that the government has committed to the operation of these plants for approximately 25 to 30 years.

Some of them would still be within their working life by the end of 2050.

“The government has to do some compensation to phase out the coal-fired power plant. Right now, that policy is not clear yet,” Tran told Asian Power.

“That is a challenging mission for the government. Currently, the government is building a legal framework for boosting renewable and liquefied natural gas-to-power. This means there is potential for Vietnam to phase out coal-fired power plants by 2050,” he added.

Based on 2023 data, coal power remained the leading energy generation source in the country at 26.8 gigawatts (GW) and accounting for a 33.2% share of the energy mix. It is followed by renewable sources such as hydropower at 22.9 GW or 28.4%, and wind and solar power at 21.7 GW or 26.9%.

By 2050, the share of renewables is expected to reach 67.7%–71.5%, with wind and solar as main power sources. Biomass and ammonia will also be part of the energy mix, comprising around 4.5%–6.6%.

Investing in renewables

According to the PDP VIII, around $12b will be needed annually as capital for power resources from 2021 to 2030. Around $1.5b will be required to develop the power grid.

Tran said the government is currently discussing grid locations for LNG-to-power projects.

Aside from this, the Vietnamese government is working on upgrading its over 30 years old grid to link regional power systems, committing to establishing 500-kilovolt and 220-kilovolt transmission grids. It is also developing a roadmap for Smart Grid construction.

“They are focusing on direct power purchase agreement or the PPA legal framework to launch it in the near future. That would have to increase the portion of renewable and LNG-to-power,” he said.

Meanwhile, the share of hydropower, despite increasing its capacity to 36 GW by 2050, will decline to between 6.3%–7.3%. It will be overtaken by wind and solar as the leading renewable energy as it will then hold a share ranging between 60.5%–65%.

“This source is expected to remain a crucial part of Vietnam’s electricity mix for the foreseeable future, although its potential growth will be constrained by a lack of additional sites and escalating environmental concerns, amongst the provincial government,” according to the KPMG report.

Renewable energy will support the projected 5.7% average annual growth rate of the energy and utilities sector which will be driven by urbanisation and manufacturing expansion.

Vietnam’s economy is also expected to grow by 7% annually.

LNG use

LNG is also one of the power sectors Vietnam is looking into as it moves towards its net zero goal by 2050, as it is around 40% less polluted compared to coal. Still, questions swirl over its role as bridging fuel.

Vietnam started importing LNG in July and is expected to depend on LNG imports due to the declining domestic resources and rising investor interest in LNG projects. Companies based in the US, Japan, South Korea and Thailand are also looking into developing the country’s LNG industry. 

At present, gas and hydrogen hold a share of 8.9% in the energy mix and will increase to 24.8% by 2030. By 2050, however, their share will be reduced to between 6.7% and 8.4%.

“I believe hydrogen may be another future generation source that would replace the gas-to-fire power plants,” Tran said.

“But for the short term, or next 10 or 20 years, gas-to-power will play an important role in the generation of Vietnam,” he said.