In a worst-case scenario, this means that any decisions made now could be derailed over the next three years, resulting in high-profile project delays and sub-optimal decisions on critical system development plans. Simply stated, the MoIT’s challenge is that it is virtually impossible for them to know what the cost of PDP8 will actually be or how its policy choices will affect the willingness of funders to back the developers who are able to win approvals. Economists would define this as a price discovery problem. The net effect of these crosscurrents is that Vietnam’s status as the Southeast Asian country on the most positive clean energy trajectory now hangs in the balance as the old economics of LNG are tested against the new economics of renewables. Now, new sustainable finance strategies, such as green bond issuance, are beginning to fill the funding gap for renewables players that have been willing to take more market risks in exchange for long-term growth opportunities. In the past decades, the power infrastructure funding challenge was met by lender-centric project finance strategies that were designed to put all the risks on governments that were compelled to offer guaranteed offtake with ratepayers taking all the market risks.
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This has been evident in the controversy surrounding the Vung Ang 2 coal power plant project in Central Vietnam, and recent new policy announcements by Japan and South Korea that signal the beginning of a serious move away from coal financing. Over the past year, global funding flows have shifted as the pool of low-cost capital requiring guarantees for fossil fuel projects began to shrink as governments and investors shun carbon risks. If enabled, renewables will continue to deliver on the upside with a new focus on rooftop solar and offshore wind. With renewables filling critical supply gaps, new system management challenges should be seen as inevitable in the first stages of the clean energy transition pathway, not as a reason to halt progress. In the first three months of 2021, despite curtailment, renewable power still contributed to 13.1 per cent of the total system output, up from just 5 per cent in 2020. The rapid build-out of rooftop solar capacity in late 2020 has lifted non-hydro renewables penetration to a quarter of Vietnam’s 70GW power system. It is hard to overstate how much Vietnam’s strategic power options have changed as a result. The sector was kick-started by successful feed-in tariff programmes that enhance Vietnam’s energy self-sufficiency by tapping into the country’s attractive solar and wind resources. The high stakes debate about gas is playing out just as the MoIT has begun to reap the benefits of a rapid build-out of renewable power projects over the past two years. The challenge for power sector planners at the Ministry of Industry and Trade (MoIT) is that the pivot to gas is more closely aligned with the interests of high-profile gas sellers than the very real challenges that Vietnam’s power sector will face if generation mix choices are linked to fixed imported gas offtake obligations. There are numerous reasons for this shift, including ongoing setbacks for pipeline coal power projects and rising controversy related to environmental impacts, both at home and abroad. Half of that capacity gap is expected to be filled by additional gas-fired power plants. According to the February draft, the 2030 installed capacity target for the coal power fleet was slashed by 18GW compared to the previous power development plan (PDP7).
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#Unlockbase order timeout drivers
So far, there have been three key drivers of this process: a pivot from coal to gas, the growing importance of renewables, and a sea change in funding patterns.Īs part of the PDP8 planning process, the country’s top leadership has signaled a pivot away from coal to liquefied natural gas (LNG) for large-scale baseload power.
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Vietnam remains Southeast Asia’s most attractive energy growth market, with 68GW of new capacity expected to be added to the system between now and 2030 under a base case scenario. The process hit an unexpected delay in late March, however, as the approval process for finalising PDP8 was extended through June, raising important questions about how policymakers will contend with the rapidly-shifting energy sector landscape.