By Fitch Solutions
Key View
- On December 14 2022, Vietnam and the International Partners Group agreed on a USD15.5bn partnership for Vietnam to reduce coal power generation, working toward the market’s 2050 carbon net-zero goal.
- We believe that the effects of a complete power mix transition away from fossil fuels will not be experienced this decade as the JETP specifically targets coal, leaving room for expansion for the gas-fired power sector.
- The JETP will also support solar and wind power sectors as bright spots for Vietnam in the long term, on top of increasing policy support as well as investor and developer interests this decade.
On December 14 2022, Vietnam and the International Partners Group agreed on a USD15.5bn partnership for Vietnam to reduce coal power generation, working toward the market’s 2050 carbon net-zero goal. This partnership, also known as a Just Energy Transition Partnership (JETP), involves the EU, the UK, the US, Canada, and Japan. We highlight that this is the second JETP launched this year and the third one this decade, after 2021’s JETP for South Africa, and 2022’s USD20bn JETP launched during the Group of Twenty (G20) Summit in Bali for Indonesia. Similar to the JETP for Indonesia, this partnership’s outlay will involve public and private financing over the next three to five years. In an aim to aid Vietnam to realise its 2050 carbon net-zero goal, this JETP lays out four main guiding targets.
- Bringing forward Vietnam’s peak emission target from 2035 to 2030.
- Reducing the annual power sector peak emissions from 240mtCO2e to 170mtCO2e.
- Restricting Vietnam’s peak coal-fired power capacity from 37.0GW to 30.2GW.
- Reaching 47% power mix contribution from renewables by 2030, up from the current plan of 36%.
We believe that this JETP marks a milestone in Vietnam’s decarbonisation plans as developed markets ramp up efforts to support emerging markets in their drive for energy security amid pursuing low carbon emissions. This also comes before Vietnam has finalised and launched its Power Development Plan VIII (PDP8), which gives the government flexibility to incorporate targets in this JETP into the PDP8, especially since the PDP8 charts plans for power sector development up to 2030.
Conventional Thermal Power Capacity Growth Faces Strong Downside Risks
Vietnam – Net Installed Power Capacity By Type, GW (2021-2031)
We believe that the effects of a complete power mix transition away from fossil fuels will not be experienced this decade as the JETP specifically targets coal, leaving room for expansion of the gas-fired power sector. While the JETP for Vietnam limits the peak coal-fired power capacity from 37.0GW to 30.2GW, we expect this target’s impact to abate conventional thermal power dominance this decade to be marginal. The JETP will contest Vietnam’s draft PDP8 target of having over 36.0GW of coal-fired power capacity by 2030, but could still retain the PDP8’s aim of 30.0GW of coal-fired power capacity by 2025. Furthermore, the International Renewable Energy Agency estimates that Vietnam ended 2021 with a coal-fired power capacity of 24.4GW, meaning that the market has an expansion leeway of close to 6.0GW for coal-fired power plants, excluding the consideration of replacing old plants. Aside from coal, natural gas power capacity will be allowed to grow as it does not fall under the purview of the JETP’s limitations. Furthermore, our Oil & Gas team expects the long-term outlook for Vietnam’s natural gas production to be bullish, supporting the growth of the natural gas power sector in the latter half of the decade as the government can pivot to natural gas at the expense of its coal expansion plans. Putting this into the context of Vietnam’s power mix, we estimate 2022’s conventional thermal power generation to be about 161TWh, corresponding to 62% of the year’s power mix. By 2030, we expect this dominance to persist, and even slightly increase to 64%, which is about 250TWh in power generation.
Coal And Gas-Fired Power Generation Dominates Power Mix
Vietnam – Total Power Generation By Type, TWh (2021-2031)
Regardless of conventional thermal’s dominance, the JETP will support solar photovoltaics (PV) and offshore wind power sectors as bright spots for Vietnam, on top of increasing policy support, and both investor and developer interests this decade. Vietnam’s non-hydropower renewables sector will experience the strongest growth rate of all power types this decade and close to doubling in installed power capacity from 2022 to 2031. We expect it to increase from 21.0GW in end-2022 to 40.5GW in 2031 at an annual average growth rate of 8.1%. Almost all growth will come from the solar PV and offshore wind sectors at 13.3GW and 5.4GW respectively over the same period. We believe that the solar PV sector will be supported by both rooftop solar installations and large-scale projects, the latter of which has a project pipeline of about 7.7GW in our Key Projects Database. Furthermore, with Mainland Chinese, South Korean, and American companies setting up solar manufacturing facilities in Vietnam, we expect developers to capitalise on this growing production base. As for offshore wind, Vietnam has a vast coastline and strong wind speeds above five metres a second, making it favourable for offshore wind power developments. The government has also specified offshore wind as a sector to expand in its draft PDP8 and National Energy Development Strategy, alongside opening the market to international developers. Such a move is well-received as the market experiences strong involvement from European offshore wind companies such as Ørsted, Siemens Gamesa, and Vestas, to provide equipment and expertise. Overall, with the increasing financial support of USD15.5bn from the JETP, we believe that there will be upside risks to the current robust growth that we forecast for Vietnam.
More Than Doubling Of Non-Hydropower Renewables Capacity
Vietnam – Non-Hydropower Renewables Capacity By Type, GW & Growth, % (2021-2031)
This article has been sourced from Fitch Solutions and can be accessed here.
