Is Mitsubishi’s withdrawal from the Vinh Tan coal power plant a signal for Vietnam’s energy transition?

Viet­nam has great poten­tial for renew­able ener­gy projects, but the pow­er sec­tor is still dom­i­nat­ed by fos­sil fuels. © GIZ Ener­gy Sup­port Pro­gramme Vietnam

In late Feb­ru­ary 2021, Japan­ese trad­ing com­pa­ny Mit­subishi Cor­po­ra­tion decid­ed to pull out of the Vinh Tan 3 coal-fired pow­er plant project in Viet­nam after fac­ing con­sid­er­able pres­sure from investors and activists over the company’s fos­sil fuel investments.

This deci­sion fol­lows in the foot­steps of HSBC’s with­draw­al one year pre­vi­ous­ly. Sched­uled to go on-grid in 2024, the 2‑gigawatt plant was expect­ed to fea­ture ultra-super­crit­i­cal tech­nol­o­gy. This is the first time that Mit­subishi has pulled out of a coal devel­op­ment project. Work on Vinh Tan 3 will now con­tin­ue under the aegis of Chi­na South­ern Pow­er Grid, which is also a major investor in the Vinh Tan 1 pow­er plant. How­ev­er, this out­come will not serve the inter­ests of Viet­nam in terms of job cre­ation, air qual­i­ty, and achiev­ing cli­mate targets.

Fos­sil fuels dom­i­nate Viet­nam’s pow­er mix despite coun­try’s high renew­able poten­tial
The Viet­namese pow­er sec­tor is still dom­i­nat­ed by fos­sil fuels, with coal and oil account­ing for 41.90% of the pow­er gen­er­a­tion mix, and gas mak­ing up 18.49% (EVN, 2018). Due to lim­it­ed coal and gas resources, Vietnam’s fos­sil fuel imports are set to increase over the next decades. Except for hydro pow­er, which accounts for 37.72% (2018) of the mix, renew­able ener­gy sources play only a mar­gin­al role. In 2018, wind pow­er, solar and bio­mass account­ed for less than 1% despite recent increas­es in installed capacity.

Figure 1. Power generation mix 2018
Fig­ure 1. Pow­er gen­er­a­tion mix 2018 Source: EVN, 2018

Accord­ing to the 2019 Ener­gy Out­look Report, Viet­nam has great poten­tial for renew­able ener­gy projects, includ­ing hydro, solar, wind, bio­mass, and waste (EREA & DEA, 2019). The tech­ni­cal poten­tial for the devel­op­ment of wind and solar pow­er in Viet­nam has been esti­mat­ed to be over 650 GW aggre­gate, specif­i­cal­ly up to 380 GW for solar, around 217 GW for onshore wind and up to 76 GW for off­shore wind (EREA & DEA, 2019). With hydropow­er poten­tials (medi­um and large scale) now almost ful­ly exploit­ed, wind and solar pow­er have emerged as the renew­able sources with high future poten­tial for devel­op­ment. While only a small amount of solar and wind capac­i­ty was in oper­a­tion pre-2018, strong gains were made in 2019, with 4.50 GW of solar and 0.45 GW of wind over the first six months (see fig­ure 2).

Figure 2. Installed capacity by source
Fig­ure 2. Installed capac­i­ty by source Source: EVN, 2018

How­ev­er, accord­ing to the Pow­er Devel­op­ment Plan VIII (PDP8), which was sub­ject to pub­lic con­sul­ta­tion in Feb­ru­ary and March 2021, the expect­ed share of renew­able ener­gies does not reflect glob­al trends in renew­ables devel­op­ment, nor does it reflect the high poten­tial deploy­ment of those green­er sources. Specif­i­cal­ly, this impor­tant nation­al plan would deliv­er only a slight and grad­ual decrease in coal-fired pow­er plants and a mod­er­ate increase in renew­able ener­gies over this peri­od in terms of gen­er­a­tion capac­i­ty. How­ev­er, in the decade 2020–2030, fos­sil-based pow­er plants con­tin­ue to be pri­or­i­tized, with around 17 GW of new­ly installed coal-fired capac­i­ty. Over the peri­od 2020–2045 this fig­ure is expect­ed to reach 29.4 GW. Coal-fired capac­i­ty will account for 34% of the ener­gy mix in 2025, 27% in 2030, and 23% in 2035; mean­while, wind and solar will account for 28% by 2030, 36% by 2035 and 41% by 2045 (MOIT, 2021).

Vietnam’s Updat­ed Nation­al­ly Deter­mined Con­tri­bu­tion (NDC) 2020, which was sub­mit­ted to the UNFCCC last Sep­tem­ber, revealed a slight increase in its rel­a­tive emis­sions reduc­tion tar­get for 2030 from 8% to 9%; this increase rep­re­sents only a minor improve­ment in absolute terms (Nguyen & Hel­gen­berg­er, 2020). Accord­ing to the NDC, super-crit­i­cal ther­mal pow­er tech­nol­o­gy will remain a pri­or­i­ty, adding 2.4 GW, 10.8 GW, and 27.6 GW by 2020, 2025, and 2030, respec­tive­ly. Accord­ing to the draft Pow­er Devel­op­ment Plan VIII, under the NDC sce­nario coal will account for around 36–37% of the elec­tric­i­ty mix by 2030 and the car­bon emis­sions will remain high post-2030. It is clear that the sce­nario based on the Updat­ed NDC 2020 does not meet the tar­gets defined by the Nation­al Strat­e­gy on Renew­able Ener­gy Devel­op­ment (MOIT, 2021).

Viet­nam’s ener­gy tran­si­tion and car­bon lock-in
The pro­posed Pow­er Devel­op­ment Plan VIII (PDP8) tracks glob­al ener­gy trends to an extent and fore­sees the robust devel­op­ment of renew­able capac­i­ties over the next decades. How­ev­er, main­tain­ing a high share of fos­sil fuel sources in the elec­tric­i­ty mix over the next decades will set Viet­nam apart from its peers. This will not only com­pro­mise glob­al efforts to com­bat glob­al warm­ing; Viet­nam risks los­ing out as invest­ment flows increas­ing­ly tar­get a future-ori­ent­ed domes­tic indus­try base. Under the terms of the Paris Agree­ment, which Viet­nam rat­i­fied in 2016 togeth­er with 190 par­ties to the UNFCCC, coal-fired pow­er plants all over the world must be shut­tered by 2040. The devel­op­ment of coal plants fore­seen in the pro­posed plan would lock-in Vietnam’s pow­er devel­op­ment until 2050 – and 2070 in some cas­es. Recent analy­sis from Cli­mate Ana­lyt­ics shows that Vietnam’s planned mas­sive coal expan­sion is total­ly incon­sis­tent with the Paris Agree­ment and could lock Vietnam’s ener­gy sys­tem into a car­bon inten­sive path for decades, thwart­ing efforts to devel­op a secure and cli­mate-resilient ener­gy sys­tem (Cli­mate Ana­lyt­ics, 2019).

The glob­al ener­gy tran­si­tion is also impact­ing the prospects for coal pow­er by under­min­ing its appeal to inter­na­tion­al finan­cial insti­tu­tions. Mitsubishi’s deci­sion to aban­don Vinh Tan 3 due to pub­lic con­cern about its envi­ron­men­tal and cli­mate impacts reflects this trend. Despite claims that indus­try has turned the page with “clean coal”, coal pow­er remains a key source of air pol­lu­tants; replac­ing coal with solar or wind will cre­ate pos­i­tive impacts on people’s health as well as deliv­er­ing co-ben­e­fits such as job cre­ation, ener­gy access, and ener­gy secu­ri­ty (IASS/UFU/GreenID, 2020). The sig­nif­i­cant increase in emis­sions antic­i­pat­ed under the Pow­er Devel­op­ment Plan would have a seri­ous impact on air qual­i­ty in Viet­nam, which already ranks among the worst in South­east Asia.

A steady flow of inno­va­tions, cou­pled with plum­met­ing costs, mean that renew­ables can often com­pete with even the cheap­est coal. Util­i­ty scale tech­nolo­gies such as solar PV and wind pow­er are out­com­pet­ing fos­sil-based tech­nolo­gies when it comes to costs. Accord­ing to the Inter­na­tion­al Ener­gy Agency’s Ener­gy Out­look Report 2019, solar PV is poised to become the largest com­po­nent of glob­al installed capac­i­ty and the expan­sion of renew­able-based elec­tric­i­ty gen­er­a­tion from wind and solar PV will enable low-car­bon sources to over­take coal in the pow­er gen­er­a­tion mix in the mid-2020s. By 2040, renew­ables are expect­ed to pro­vide more than half of total elec­tric­i­ty gen­er­a­tion with wind and solar PV emerg­ing as the star per­form­ers (IEA, 2019). The IEA’s report also high­light­ed the role of off­shore wind in open­ing up a huge renew­able resource thanks to cost reduc­tions and expe­ri­ence gained in Europe’s North Sea. Notwith­stand­ing, the pro­posed share of renew­able sources in the draft Pow­er Plan is very mod­est and far from being trans­for­ma­tion­al, with just 2 GW of solar pow­er over the com­ing decade and no off­shore wind in the peri­od of 2021 – 2025. If the plan is adopt­ed in its cur­rent form, Viet­nam will miss its oppor­tu­ni­ty to become a region­al pio­neer in renew­ables as its high poten­tial goes large­ly untapped.

Toward a more afford­able, sus­tain­able, and cli­mate-resilient ener­gy future
After Mit­subishi pulled out from the Vinh Tan 3 project, a spokesper­son said that the cor­po­ra­tion was com­mit­ted to reduc­ing its invest­ment in coal pow­er in order to keep in line with inter­na­tion­al cli­mate goals. Mitsubishi’s deci­sion indi­cates that the glob­al dri­ve for decar­boniza­tion already pos­es a chal­lenge for the financ­ing of con­ven­tion­al pow­er projects. Reduc­ing reliance on coal and increas­ing invest­ment in renew­ables would enable Viet­nam to embrace a clean­er, more afford­able, sus­tain­able and cli­mate resilient future. Build­ing a stronger low-car­bon path­way for Vietnam’s ener­gy sys­tem is cru­cial for efforts to pur­sue sound eco­nom­ic growth while achiev­ing the Paris Agree­ment and the Sus­tain­able Devel­op­ment Goals. Increas­ing the share of renew­ables in the country’s pow­er mix under PDP8 will help Viet­nam to real­ize these tar­gets and un-lock the co-ben­e­fits of a low car­bon pow­er sec­tor. Final­ly, enhanc­ing Vietnam’s NDC by set­ting more ambi­tious ener­gy tar­gets would also con­tribute effec­tive­ly to the country’s sus­tain­able ener­gy transition.

Authors: Sebas­t­ian Hel­gen­berg­er, Minh Anh Nguyen