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  • Richard McClellan

Decarbonization of Vietnam’s Energy Sector

As a rapidly growing country, Vietnam has an urgent need for new energy to sustain its robust economic growth; COVID aside, in recent years growth has been robust, 5-8% per year. Projections suggest electricity demand will go from 39GW in 2020 to 59GW in 2025, 86GW by 2030, and 153GW by 2045. Keeping up with such accelerating needs will require hundreds of billions in investments, significant legislative and policy reform, and levels of international cooperation heretofore unseen.

At the same time, the world around us is becoming much greener. Climate change is hastening the impetus for green technology in all sectors, but particularly for reducing dependence on fossil fuels. Global politics and investment dollars are coalescing around this imperative.

Many countries and international agencies have become dogmatic in their support for the green economy, e.g., channeling development aid into green investments while refusing to support any investments in hydrocarbons. The perverse outcome of such policies, strangely, will be to increase the carbon footprint of many developing countries, as it will be impossible for such countries to transition directly from coal to renewables for reasons pragmatic, political, and commercial.

Such is the case in Vietnam, where the optimal solution for decarbonizing the economy is to rapidly replace coal energy with LNG capacity that can a) provide immediate baseload support and b) transition easily to hydrogen fuel as that market develops. This solution is being entertained, but still is at risk: recent versions of the PDP8 draft saw substantial increases in LNG and eliminated coal entirely, while the latest draft has gone in the opposite direction.

A pivot to LNG is the only reasonable path to decarbonization for a country like Vietnam. Though still a hydrocarbon, LNG emits roughly half the CO2 of coal. Naturally, LNG will be complimented (and eventually replaced) by renewable energy sources like wind and solar, but Vietnam will not replace hydrocarbons with renewables directly. The grid simply cannot integrate these sources and maintain delivery of reliable power, as witnessed last year during the rapid growth of the renewable sector: many new renewable projects are still severely curtailed and even going under financially. Both solar and wind now show very poorly in the country’s future plans.

Furthermore, makers of LNG turbines are already building them capable of transitioning to hydrogen, allowing Vietnam to build 30-year LNG powerplants without committing to hydrocarbons for the full life of the facility. Thus, the LNG strategy serves the necessity of a “transition fuel,” allowing dramatic reductions in carbon emissions to be quickly attained without straining the grid, while building assets that will eventually become carbon neutral.

Successful execution of this strategy would mean BOTH sustained economic growth AND meeting the country’s climate change obligations. But getting there will require real engagement from the international community.

Firstly, Western nations and international agencies must acknowledge the pragmatic realities and necessity of employing LNG as a baseload transition, and provide the requisite financing, feasibility studies, and political support for it. This may put some entities in the uncomfortable position of advocating for more hydrocarbons while trying to eliminate them, but it is a necessary nuance.

Second, we have an important window for the international private sector to play a stronger role in Vietnam. While the country has allowed the private sector to build renewable-scale energy facilities, the prospect of PPAs at the scale of LNG facilities is a new and exciting development, demonstrating an increase in trust and reliance on the private sector. Lining up strong international players with good track records will reinforce the country’s privatization ambitions by ensuring successes in this newly private sector.

Vietnam has shown a sincere interest in greening its economy, but this will continue to be weighed against the imperative of continued economic growth. Absent the active engagement of international governments, agencies, and companies—offering a pragmatic, greener alternative—coal will continue to maintain a meaningful presence in Vietnam for many years. LNG provides a viable path to long-term decarbonization of Vietnam’s power sector, but international interests must act quickly and vociferously to shape the agenda for the best interest of Vietnam and the world more broadly.

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