By Francesco Guarascio and Khanh Vu
HANOI/HOA BINH, Vietnam (Reuters) – The lights are out and the air conditioning is out at the headquarters of Vietnam’s state energy supplier EVN, as the country’s largest energy company tries to “set a good example” to avoid a repeat of the crippling problems from last year to prevent blackouts, an official tells visitors.
But many businesses around the Vietnamese capital Hanoi appear to be ignoring the call to save energy and leaving decorative but otherwise purposeless neon lights on the outside of tall buildings burning all night.
The difficulties in curbing consumption illustrate the challenges Vietnam faces a year after sudden disruptions caused hundreds of millions of dollars in losses for multinational manufacturers with investments in the Southeast Asian country.
Vietnam is pursuing a patchwork of energy-saving measures, grid upgrades, regulatory reforms and a massive increase in coal power as it tries to avoid electricity shortages, according to government data and interviews with officials and experts.
But EVN communications director Trinh Mai Phuong explains during a media visit that even the largest infrastructure upgrade currently underway, a new $1 billion transmission line connecting the country’s center to the highly industrialized north that was hit hard last year due to power outages, may not do so. to be enough.
“I wouldn’t say it’s a game changer,” he said of the line that could be completed as soon as this month, noting that energy consumption is expected to reach record highs in the coming weeks as the country braces for more heat waves.
Soaring energy demand is making it increasingly difficult for Vietnam to meet climate change obligations while supplying enough energy to satisfy major investors such as Samsung Electronics, Foxconn and Canon.
In the longer term, broader sector-wide reforms are needed, foreign investors and analysts said.
EMERGENCY MEASURES
In the short term, Vietnam relies mainly on coal to provide sufficient reliable electricity. It may be just enough – or not – but either way it could be a blow to the country’s commitments to reduce dependence on fossil fuels.
Coal use has soared in the first five months of 2024, with coal-fired power stations accounting for an average of 59% of electricity production, and on some days even more than 70%, according to EVN data.
That was up from almost 45% in the same period last year and 41% in 2021, when Vietnam began drawing up plans to cut coal, convincing international donors to commit $15.5 billion to the fuel to be phased out gradually.
Thanks to a new coal-fired power plant coming on stream in 2023, coal accounted for 33% of total installed capacity last year, up from 30.8% in 2020, putting Vietnam even further away from its target of reducing that to 20 % in 2030.
Energy saving is another important pillar of the plan. EVN and its local units have encouraged energy-hungry customers, including foreign manufacturers, to save energy with tailor-made measures, especially during peak hours.
But that jeopardizes Vietnam’s reputation as a reliable place for investment and could affect future production expansion plans, said foreign investors who declined to be named because they were not authorized to speak to the media.
The issue should be addressed by solving the generation and distribution problems, and not from the consumption side, two foreign investors said.
Vietnam’s Ministry of Industry did not respond to a request for comment.
CLEANER OPTIONS
Vietnam uses only a fraction of its installed onshore solar and wind energy capacity, largely due to administrative hurdles.
It has not passed regulations to kick-start offshore wind projects and is delaying dog projects to build power plants powered by imported liquefied natural gas, which is cleaner than coal.
According to the government’s plans, the four energy sources together should account for more than 40% of the installed capacity by 2030, although analysts are skeptical.
Hydropower is expected to fall to less than 20% of installed energy generation by the end of the decade, down from more than 30% in 2020.
But some capacity is being added in the north, where needs are greater.
One of Vietnam’s largest hydropower plants, in Hoa Binh, will add two General Electric turbines to the existing eight, increasing its total capacity from less than 2 GW to 2.4 gigawatts by the second half of 2025, Dao Trong says Sang, EVN manager of the expansion project, during a visit to the dam.
The Hoa Binh power plant, combined with the new transmission line that brings electricity from individual plants to the north, could add 8% capacity to the power-hungry north.
REFORMS NEEDED
The power crisis cannot be resolved without long-awaited reforms, experts say, although progress has been slow so far.
In April, the Industry Ministry released an updated methodology for determining electricity prices, a step toward potentially reviving projects that had been stalled for years due to a lack of clarity on tariffs.
However, the methodology could force developers to take excessive risks, complicating their access to financing, said a Vietnam-based official who declined to be named because they were not authorized to speak to the media.
A separate draft decree allowing manufacturers to buy electricity directly from producers is considered close to approval after years of internal debate, according to several analysts.
The use of direct power purchase agreements (DPPAs) could make it easier for multinational companies to avoid higher tariffs on exports and encourage the use of renewable energy sources to help them meet environmental, social and governance requirements.
But the DPPA rules should be combined with other reforms, such as clearer provisions to connect factories directly to power generation projects, the official said.
(Reporting by Francesco Guarascio and Khanh Vu; Editing by Jamie Freed)
