Vietnam's energy transition: a national strategy around 3 key sectors.

Energy and its infrastructure in Vietnam are at the heart of a vast transition project, where the country, still heavily dependent on fossil fuels, is embarking on a shift towards renewable energies. Vietnam, in full industrial and demographic growth, sees in this energy transition not only a response to its national needs, but also an opportunity to play a key role in the fight against climate change. With ambitious solar and wind energy projects, supported by the Power Development Plan 8 and the National Energy Master Plan, the country is setting up infrastructures and international partnerships to develop its green energy potential.

This article explores the distribution of energy sources, the infrastructure in place and the technical and regulatory challenges that Vietnam must overcome to achieve its energy objectives, while highlighting the growing importance of energy storage solutions to compensate for the intermittency of renewable energies.

1. Distribution of energy sources

Energy production in Vietnam is based on a variety of sources across regions, although the country remains heavily dependent on fossil fuels. In 2022, approximately 43.7% of energy came from coal, oil and gas, compared to 26.4% for renewables and 29% for hydropower. In the North, priority is given to hydropower (43%) and coal (48%). However, electricity demand there increased by 9.3% per year between 2016 and 2020, while production grew by only 4.7%, creating a gap that leads to shortages and power outages. The main challenge is an electricity grid and infrastructure that are struggling to keep up with the region’s economic development.

Regarding renewable energy, the wind and solar potential of the Center and South is particularly promising. The Centre, with its high sunshine and favourable conditions for onshore and offshore wind, is seeing projects emerge, particularly in Quang Tri and Dak Lak provinces. The Huong Linh wind farm, for example, is having a significant impact on Quang Tri’s economy. In Dak Lak, solar also offers considerable development potential, with ambitious targets to reach a capacity of 16,000 MW.

In the South, conventional thermal capacities such as liquefied natural gas (LNG) and coal remain dominant, although wind, solar and biomass are gradually developing. New wind power plants currently under construction are expected to increase the share of renewable energy, offering promising solutions to growing demand and environmental challenges.

These initiatives are in line with the national greener energy agenda, supported by the Power Development Plan 8 and the National Energy Master Plan.

2. Infrastructure for the energy transition

   
   

Solar energy

In 2010, Vietnam ranked 196th in the world in terms of installed solar capacity. By 2021, the Southeast Asian country had reached ninth place globally, surpassing Spain and France. This progress is all the more impressive given that Vietnam’s solar production was virtually non-existent in 2018. However, in 2022, solar energy met 11% of the country’s electricity demand from January to June. This major milestone illustrates Vietnam’s firm commitment to making solar energy its primary energy source by 2050, especially since large-scale solar energy has already become the country’s least expensive source of electricity.

Thanks to an ambitious export policy, Vietnam is now one of the top ten suppliers of solar panels to the United States and contributes 5% of the global PV supply. As a leading panel producer in Southeast Asia, Vietnam has a strong solar potential with daily irradiation levels exceeding 5.4 kWh/m². By covering only 1.5% of its land area with PV panels, the country could generate approximately 842,394 GWh of electricity, nearly six times its total consumption in 2016.

Despite these successes, Vietnam faces challenges, including a significant dependence on China for solar manufacturing equipment. However, this weakness represents an opportunity for foreign partners, such as France, to help strengthen Vietnam’s solar industry while diversifying supply chains. In addition, Vietnam benefits from a competitive labor market and abundant resources, which increase its attractiveness to foreign investors and keep energy costs below the ASEAN average. These elements strengthen Vietnam's position as a key player in the energy transition in Southeast Asia.

Wind energy

With its commitment to achieve carbon neutrality by 2050, made at COP26, Vietnam is moving resolutely towards renewable energy. In 2011, its renewable energy (RE) capacity was only 21 MW; by 2022, it had reached 4,628 MW. The Power Development Plan 8 (PDP8) sets an ambitious target of 6 GW for offshore wind and 21 GW for onshore wind by 2030. With a coastline of 3,260 km and favorable wind conditions, Vietnam has an estimated wind potential of 475 GW, the largest in Southeast Asia.

However, despite these opportunities, investors face considerable challenges: incomplete regulations, technological complexity and high costs, especially for offshore projects, which take on average two years to complete, compared to only six months for a solar project, which is more economical and easy to integrate. Technical and legal obstacles are also significant and hamper the development of offshore wind.

Although Vietnam has offshore wind projects underway, such as La Gan and Thang Long, the target of 6 GW remains ambitious. The fragility of the grid infrastructure is a major challenge: the national grid, currently under-equipped, is ill-prepared to accommodate offshore wind energy. The modernization required to integrate this new capacity represents massive investments, but the Electricity of Vietnam (EVN) company is limited by financial constraints. In addition, legal uncertainties surrounding permits and the lack of a comprehensive regulatory framework are hampering the progress of projects. To overcome these obstacles, Vietnam must accelerate the establishment of a strong legal framework, invest the $15 billion provided by the PDP8 to strengthen grid infrastructure, and introduce attractive incentives, such as feed-in tariffs, to attract more investment. The government has understood the importance of such incentives, but the preferential tariffs ended in 2021.

Nevertheless, there are promising prospects for the offshore wind sector, such as electricity exports and green hydrogen production, which could improve the viability of these projects. To overcome the challenges of this growing sector, Vietnam has also strengthened its international alliances, particularly with German and Danish companies, recognized for their expertise in wind power. Today, 52% of offshore wind projects are financed by European companies, contributing to the realization of Vietnam’s energy ambitions.

Energy storage

Energy storage has become crucial to address the challenges posed by the intermittency of renewable sources, particularly wind and solar. Indeed, wind energy, due to its variability, can affect the stability of electricity grids and the reliability of supply. Energy storage addresses these fluctuations by capturing the excess produced during high winds and sunshine and redistributing it to times when demand is high or when wind and solar production is lower.

Storage technologies play a key role in balancing energy supply and demand, especially with the rise of intermittent renewable sources. In addition, electric vehicles and electric two-wheelers, essential for the transition to decarbonized transport, also require large quantities of batteries. The deployment of energy storage will help stabilize the electricity grid, thus optimizing the use of renewable energies and reducing dependence on fossil fuels. Vietnam also has significant potential to develop a local supply chain, particularly for lithium-ion batteries.

The country’s wind ambitions of 6 GW by 2030 demonstrate its commitment to a sustainable energy future. To achieve this goal, Vietnam will need to skillfully navigate a complex technical, financial, and regulatory environment, while attracting more investment. International partnerships with countries such as China, Canada, and Japan are strengthening this momentum by fostering collaboration to develop energy storage. However, waste management from used batteries remains a major challenge, as the toxic materials they contain (lithium, cobalt) can lead to soil and water contamination.

These challenges and opportunities outline a strategic path for Vietnam on its journey towards clean energy and sustainable development.

In conclusion, we can say that Vietnam is firmly on the path of an ambitious energy transition, seeking to reduce its dependence on fossil fuels in favor of renewable energies. Massive investments in solar and wind, storage infrastructure projects and international partnerships reflect this desire for transformation. However, this transition faces significant challenges, from high costs, technical constraints of offshore projects, to battery waste management. By overcoming these obstacles, Vietnam can not only ensure its energy autonomy, but also contribute significantly to global efforts for greener and more sustainable energy. Pursuing this vision will position the country as a major player in the energy transition in Southeast Asia, and as a model of innovation and sustainability for future generations.