Can Vietnam's plan to boost energy capacity work amid rolling outages, electricity shortages?

In mid-May, during a period of extreme heat, Diep Nguyen lost power at her house in Ha Long City in northern Vietnam, when a forest fire knocked out a transmission line.

While difficult to deal with, it was not unexpected. "In the news there are daily discussions about power shortages that could occur due to extreme weather," she said.

In response, Diep is reducing her electricity consumption with the help of an app that monitors her home's energy use, while following government recommendations to set her air conditioning no lower than 26 degrees Celsius (79 degrees Fahrenheit).

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"I'm trying to reduce my air-con use since I work from home and set up another workspace with just a fan," she said. "If two or three people are home, we try to use the same room instead of each working in their own room with the A/C on."

The family's situation is far from unique, with tens of millions across the nation - and elsewhere in Southeast Asia - also having trouble dealing with the sweltering heat as global warming intensifies, and at a time when energy supplies are more limited thanks to the knock-on effects of Russia's war in Ukraine.

Vietnamese Prime Minister Pham Minh Chinh recently warned of nationwide power outages for his country's 100 million residents amid record temperatures and an unprecedented demand for electricity.

In early May, Vietnam recorded its highest-ever temperature - 44.1 degrees Celsius (111.38 degrees Fahrenheit) - breaking a previous record set in 2019.

Drought conditions have brought many hydropower reservoirs to critically low levels and delayed coal imports have threatened operations at thermal power plants.

In Ho Chi Minh City officials have advised residents to not wear formal clothing to work, while the government of Da Nang has ordered public decorative and advertising lighting to be turned off at 8pm.

The town of Mong Cai, on the border with China, has been disconnected from the national grid and is instead buying its power from Beijing.

Large-scale blackouts have been avoided thus far, but rolling scheduled outages have occurred from the Mekong Delta in the south all the way up to the capital Hanoi in the north. There, some street lights have been turned off to save electricity as demand for air conditioning soars.

Parks in the city of eight million people are now plunged into total darkness after 11pm, while two-thirds of street lights are also switched off at the same time.

The crisis comes at a particularly momentous time for Vietnam's energy sector.

On May 15, Prime Minister Chinh approved the much-anticipated Power Development Plan 8 (PDP8), which lays out the country's power strategy until 2030 and beyond. It calls for more than doubling Vietnam's energy capacity to 150 gigawatts (GW) from the current 69GW.

PDP8 was delayed by over two years and went through numerous drafts as policymakers wrestled over how to provide energy for continued robust economic growth while also meeting international climate commitments.

Most notably, at COP26 in November 2021, Chinh pledged that Vietnam would achieve net-zero emissions by 2050, an enormous task for a country still heavily reliant on coal-fired energy.

The new plan, meanwhile, calls for a significant increase in Vietnam's already substantial base of renewable energy capacity, along with huge growth in gas-fired power, especially from imported liquefied natural gas (LNG) that would replace much of the current coal-fired capacity.

LNG has become even more important since Russia began reducing its exports of natural gas, forcing countries to find alternative sources of energy.

Many nations are relying on LNG to fill the gap, with suppliers including Australia, the US and Qatar, but so much is being shipped that tankers are queuing up at ports.

"PDP8 marks a radical departure from the way Vietnam had traditionally powered its economy, and in many ways, signals its commitment to fuel a modern, international economy powered by the private sector," said Matthew McGarvey, chief investment officer at Pacific Rim Investment Management.

"What makes this such an ambitious policy is the transformation government ministries will have to undertake to attract the roughly US$300 billion from international partners needed to power its economy and prepare for climate change."

According to the World Bank, Vietnam will need US$368 billion in investment by 2040 to place the country on a net-zero pathway.

Up to US$15.5 billion in financing has been offered by a group of wealthy countries including those in the European Union, the United Kingdom and the United States through a Just Energy Transition Partnership (JETP) signed in December, but this leaves an enormous gap.

Giles Cooper, a partner at international law firm Allens Linklaters, focused on energy investment in Vietnam, believes PDP8 could have been bolder in its outlook.

"The 2030 mix could have been even more aspirational in terms of total renewable energy mix," he said, adding that PDP8 "might have benefited from another few months to fully scope, agree, and integrate the JETP component".

He said the outlined increase in onshore wind is particularly important, as Vietnam now has a proven track record of developing this energy source, unlike offshore wind or LNG.

Solar energy also plays a key role in PDP8, with Vietnam already having the most solar capacity in Southeast Asia. This is largely concentrated in large-scale solar farms, something the plan aims to change.

"The most important takeaway from PDP8 for households and businesses is that the government wants unlimited investment in rooftop solar for self-consumption," said Minh Ha-Duong, a senior scientist at the Vietnam Initiative for Energy Transition Social Enterprise. "It is in the consumers' interest to avoid the risk of power shortages and reduce their electricity bills."

In addition to reducing household energy costs, more rooftop solar panels would help address a critical challenge: Vietnam's grid is not currently capable of moving the huge amounts of solar energy generated in sun-drenched provinces on the south-central coast to energy-hungry major cities and industrial hubs elsewhere.

This has led to a situation in which the country simultaneously has an energy surplus and a shortage.

"It is due to the inability of the grid infrastructure to deliver energy where the demand is," Cooper explained. "This, in turn, is caused by the rapid development of renewable energy, especially solar power, in areas where the relevant resource is abundant but infrastructure is not. In short, too many projects were allowed to be built in areas that couldn't accommodate them."

PDP8 calls for the national grid to be upgraded, but this will largely be carried out by Electricity of Vietnam (EVN), the state-owned energy monopoly that lost US$1.2 billion in 2022 and may double those losses this year due to rising input costs.

"The challenge is mostly economic, as the US$1.5 billion needed to invest in grid infrastructure remains with the public sector," Ha-Duong said. "Electricity prices are fixed, but when EVN imports coal, and soon gas, it pays the international price, which can vary a lot."

While the energy plan's arrival has been celebrated, the government is still working on the precise strategies and regulations needed to make its vision a reality, and many questions remain.

"Implementation is the biggest challenge," said Cooper. "Most significantly, the market needs to know how investors will be selected to implement specific projects, what they will be paid, and what the contractual terms will be. The market has been waiting for PDP8 but without answers to these questions investment decisions can't be made and projects can't be financed and built."

The government, meanwhile, is moving quickly to sign temporary pricing agreements with dozens of completed solar and wind projects that have sat idle while waiting for new regulations.

According to Ha-Duong, this will not be enough to head off further power shortages, especially given the already overloaded grid.

"Demand is increasing so fast that even if these projects help through the summer, the problem will still be there next year," he said.

The challenges, therefore, are clear, and McGarvey believes the leadership knows what must be done.

"PDP8 shows that the national government is acutely aware of what is required to power a modern economy in an increasingly competitive and uncertain world that is also getting hotter," he said.

"The real challenge will be creating bankable pathways for international investors to access projects, as domestic capital markets alone cannot support the level of investment required to finance this next phase in Vietnam's development."

Diep, for her part, will continue to track her electricity use while striving to save money.

"I don't think people are too worried, but they are keeping in mind that they need to be smart about using electricity," she said. "The more electricity you use, the more you pay, especially during peak hours, so monitoring your use is important."

She also worries that record temperatures are a big hint of the future. "It's just so hot here right now."

Additional reporting by Agence France-Presse

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

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