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Vietnam's PDP8 signals policy confusion about the economics of coal

September 29, 2021
Vietnam's PDP8 signals policy confusion about the economics of coal
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Key Findings

Vietnam's latest draft power power master plan, with an expanded coal-fired power pipeline at the expense of renewable energy, is unrealistic and could put the country's closely watched energy transition at risk.

The forecast coal capacity will face an unusually challenging funding scenario, given the exodus of Japanese, South Korean, and Chinese public finance from new overseas coal power projects.

Instead of opting for a baseload-only strategy dependent on more coal power plants, Vietnam should focus on devising policies that incentivize the market to deliver more cost-competitive renewables.

Executive Summary

A new draft version of Vietnam’s much-delayed Power Development Master Plan 8 (PDP8) began to circulate in September 2021 with revisions that put the country’s closely watched energy transition at risk. In a surprising shift, the planners have raised the installed capacity target for coal-fired power by 3 gigawatts (GW) to 40GW by 2030, with an additional, and final, 10GW to be deployed by 2035. To make room for this pivot back to coal, the planners sacrificed 6GW of wind power that was expected to come online by 2030. Offshore wind was removed entirely from PDP8’s base case scenario.

The development marks an unexpected turn of events for a country that commentators agree is poised to benefit from the investment needed to drive down the cost of industrial-scale renewables. Instead, insiders have reverted to a baseload-heavy coal strategy which may bring new funding and project implementation risks. Between 2016-2020, coal power project sponsors delivered only 52% of the capacity expected in the master plan, undermining the security of the power supply for Vietnam’s fast-growing economy. For Vietnam’s energy planners, the lessons from this mistake are still fresh. This naturally raises questions about how Vietnam’s top decision-makers are reading technology and financing trends that are now shaping power markets, especially after China’s recent announcement that it will no longer finance overseas coal-fired power projects. By opting to push ahead with an expanded coal power pipeline, Vietnam risks shunning globally recognized clean project sponsors who have credibility in delivering cost-competitive projects.

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