After COP26 pledge, can Vietnam revive flagging wind, solar industries to transition to clean energy?

Until mid-2021, the number of proposed coal-fired power plants in Vietnam and Indonesia was second only to those in China and India. Vietnam was also considering increasing coal power capacity by 2030 in a draft development plan released in September.

Yet at the United Nations Climate Change Conference (COP26) in November, Vietnamese Prime Minister Pham Minh Chinh made a surprise pledge to achieve net-zero carbon emissions by 2050.

All eyes are now on how this pledge to adopt a more extensive use of clean energy will materialise. Five years since Hanoi rolled out incentives for solar and wind energy generation - which led to both sources combined contributing about one-tenth of total electricity generation by the end of last year - the industry is now at a standstill.

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Vietnam largely relies on hydropower, coal and natural gas to generate electricity. It imports some coal and will from this year import liquefied natural gas (LNG). It also imports electricity from Laos and China.

Vietnam's electricity demand is only going to keep rising in the post-pandemic world, according to financial intelligence firm S&P Global's Xizhou Zhou, who is vice-president of its gas, power and climate solutions unit. He estimates that this rise will average 5 per cent per year through 2030.

In 2017, the Vietnamese government introduced a feed-in tariff (FiT) for solar power projects and another for wind in 2018. A FiT is a policy tool to spur investment in renewable energy sources. It usually promises to buy the energy generated by small-scale suppliers at a rate above the market price within a specific period of time.

Within three years, Vietnam added roughly as much solar capacity as Australia did between 2000 and 2020, even though it started from a base of nearly zero. In 2020, it was the world's third-largest solar market in terms of capacity added to the sector (12.7 gigawatts-peak) in that year, behind China (52.1 gigawatts-peak) and the United States (18.7 gigawatts-peak), according to research firm BloombergNEF.

But the sector slowed down last year, "due to the lack of policy frameworks and route to market for projects after the expiry of Vietnam's solar feed-in tariff schemes," said BloombergNEF's Southeast Asia analyst Caroline Chua.

"There were also delays in several discussed frameworks such as the direct power purchase agreement pilot and auctions, which limited opportunities for large-scale solar development in Vietnam."

In January, Vietnam's Ministry of Industry and Trade proposed to temporarily suspend investment approvals for solar and wind power projects that have not yet been implemented.

Solar and wind developers say they have been left in limbo, unclear about the future of the country's electricity procurement schemes and whether they should even stay in business.

A Taipei-based business development manager whose firm invests in renewable energy projects in Asia, Africa, Europe, and the Americas said the lack of predictability had troubled investors.

"The windows for Vietnam's FiTs were short. Between announcements of new policies, there was a policy vacuum that lasted for months or more than one year," said the manager, who declined to be named as he was not authorised to speak on his firm's behalf.

One example, he said, was how FiT rates for large-scale, rooftop, and floating solar projects were only announced in April 2020 - 10 months after the previous rates had expired.

The FiT gave developers just eight months to complete the projects amid supply chain disruptions related to the Covid-19 pandemic. It was unclear what would happen if they missed the deadline. Investors who did so then had to wait for the new tariffs. They were not able to sell power to the state grid in the meantime.

"It feels like everyone has to feel the stones to cross the river and take a gamble," said the manager.

His firm acquired licenses for rooftop solar projects that could produce roughly 7 megawatts of electricity, but did not enter the construction phase because of concerns over the time constraints and the risk associated with unclear policies.

Patrick Architta, Asia-Pacific president at K2 Management, a Denmark-based renewable energy project management and consultancy company, said the lack of policy clarity meant that this year, "entire wind and solar communities are slowing down their activities or just on standby".

This was in stark contrast to last year. Amid a rush to complete wind power projects and supply chain disruptions, some companies had to ship additional cranes from Australia just to use them for three months. The boats, trucks, barges, and other tools necessary to build wind farms were also in short supply.

While solar power stations can be built by general construction firms, the construction of wind farms requires more specialised technology, equipment, and building materials.

Architta's firm trained many local workers in different aspects of wind farm construction but he regretted that his firm was not able to provide all of them with long-term jobs that would allow them to continuously grow and keep up with the latest technologies. The temporary nature of the jobs also inflated the costs of hiring.

"We had to pay higher rates because we could not guarantee a long-term job for all our employees. Many workers had to move on to other construction jobs, and we might not get them back when we have projects again," he said.

Liu Huan, general manager of the Vietnam subsidiary of Sungrow Power Supply, a Shenzhen-listed renewable energy company, said the current situation - with more projects than existing infrastructure could support - was understandable.

The central and provincial governments had approved more proposals than the grid could support because "they could not tell which projects would eventually be constructed", he said.

He believed this would improve as Vietnamese authorities gained more experience in handling renewable energy projects. He pointed to the example of China, which has significantly boosted wind and solar power generation through FiTs since 2009.

"Over the years of renewable energy development, the authorities have become aware of the reliability of each local enterprise, and the market has phased out the smaller, problematic enterprises," he said.

Ha Dang Son, director of the Centre for Energy and Green Growth Research (CEGR), a Hanoi-based non-profit research and consulting organisation, said the Ministry of Industry and Trade was currently working on a new power development plan. Called PDP8 (Power Development Planning VIII), it will map out the government's power development plan until 2030, with an outlook to 2045.

"The [ministry] is introducing state-of-the-art modelling tools to develop [PDP8]," said Son, pointing out that the document would thoroughly analyse the integration of renewable energy sources such as wind and solar into the national grid.He stressed the importance of support from international donors to help Vietnam enhance its national power planning capacity.

"While quite a lot of local power engineering consulting companies can carry out technical analysis on the provincial level, Vietnam does not yet have national laboratories that can conduct such complicated research, like the National Renewable Energy Laboratory (NREL) or the Lawrence Berkeley National Laboratory in the United States," he said.

"For instance, NREL [the National Renewable Energy Laboratory in the United States] has its own supercomputer, and thus it can conduct a simulation of a national power system within a few days. Without such capacity, the Vietnamese government needs a few weeks or months to complete that job. Therefore, Vietnam's power planner needs to temporarily cut off project approvals in order to conduct the base case-scenario analysis."

Chi Mai Vu, head of component for renewable energy and energy efficiency at the German Agency for International Cooperation, said state utility Vietnam Electricity and the government had been proactively solving problems by proposing legal changes to allow private developers to invest in power transmission networks.

Industry insiders said the Vietnamese government would likely be cautious of Chinese investors due to ongoing territorial and historical tensions between the two sides, even if it has never said so publicly.

A manager of a Chinese firm involved in Vietnam's solar and wind energy sector said it was already "troublesome" to push through power projects closer to coastlines or national borders, or even large-scale projects because of bilateral sensitivities. If tensions escalated, these could affect procedures around cross-border cash flows and investments, he said.

CEGR's Son said given the nature of the clean-energy transition, delays could be necessary to make better-informed policy decisions.

"We have to be patient. Energy transition comes with a lot of bottlenecks, especially with the planner's capacity and government coordination," he said.

Reporting for this story was supported by The Sunrise Project.

This article originally appeared on the South China Morning Post (SCMP).

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