Vietnam is battling power outages caused by a heatwave that has exposed structural and bureaucratic problems that limit available power to half installed capacity and hamper efforts to unlock $15.5 billion in global climate funds.
The manufacturing hub is home to large factories run by tech companies Samsung (005930.KS) and Foxconn (2317.TW), among others, but has struggled to upgrade its network, a key step to meet demand and attract companies that they branch out from China and elsewhere.
“Many factories have had to suspend production due to severe power outages, and outages are regular,” said Hong Sun, president of the Korean Chamber of Commerce in Vietnam.
“This is a very serious problem for South Korean companies operating in Vietnam.”
And European companies urged the government this month to act quickly to tackle the energy crisis.
“Addressing power shortages requires more concerted efforts to ensure an efficient decision-making process for electricity market reforms,” said Trang Nguyen, head of the Southeast Asia team at Australia’s nonprofit Climateworks Centre.
But against that backdrop, renewable energy is unlikely to come to the rescue anytime soon.
Despite a recent binge on solar development, the Southeast Asian nation, home to 100 million people, relies on coal and hydropower.
It has nearly 80 gigawatts (GW) of peak installed power capacity, but the heat wave has cut output by more than half at peak times, two-week average data through June 11 from the utility operator show. EVN state network, or not even enough for normal days
Average peak demand has roughly quadrupled since 2006 to 42.5 GW in 2021, an EVN presentation in February showed. That left the highly populated and industrialized north without 4.35 GW during the heat wave, the government said.
Coal plants accounted for about 60 percent of electricity production last week, EVN data showed, and May coal imports, at 4.5 million tonnes, were the highest since June 2020. , according to Refinitiv data.
But even coal is falling short, with about 25 percent of capacity at such plants having been idled for repairs, the industry ministry said.
The lack of rain has affected the production of hydroelectric power, the second largest source of electricity, with some northern provinces receiving only a fifth of last year’s figure, weather data shows.
Water levels at almost all hydroelectric plants in the north are too low for them to run at more than a quarter of their designed capacity, the industry ministry said.
CLOUDY PICTURE FOR RENEWABLE ENERGY
While solar power makes up a quarter of Vietnam’s installed capacity after a surge in renewable energy investment in the previous decade, little has been tapped due to delays in project approvals, lengthy tariff talks and regulatory uncertainty.
Installed capacity from solar farms and rooftop panels stood at 19.4 GW at the end of 2020, but only 10.5 GW were in use on average at the peak of the heat wave, says EVN.
And few solar power producers are connected to the grid, and many have waited years for tariff agreements.
Partly as a result, the contribution of solar power to Vietnam’s energy mix will fall to 8.5 percent of installed capacity by 2030, excluding rooftop panels, as other power sources gain share in a plan for energy for this decade approved in June.
Wind power projects, delayed by administrative hurdles and the COVID-19 pandemic, saw 12.5 GW sit idle in February, after missing a 2021 deadline for government authorization to sell electricity at more favorable prices, according to an internal document from a member of the Group of Seven (G7) nations seen by Reuters.
Some are still negotiating the rates.
G7 donors and others, who pledged $15.5 billion in December to help Vietnam reduce its reliance on coal, have long seen wind power, particularly offshore farms, as promising, given the long coast and shallow waters in windy areas near large cities.
But Vietnam has yet to pass regulations for such wind farms and plans for an installed capacity of just 6 GW by the end of the decade.
Little progress has been made to unlock the funds as the government struggles to decide which department should be entrusted with the program, say diplomats and officials involved in talks with Hanoi.
A decision-making body expected by April has not materialized and foreign officials fear that a first draft of the plan for using the funds will not be ready by November, as planned.
Vietnam’s industry and environment ministries did not respond to requests for comment.
Administrative hurdles and the government’s longstanding reluctance to accept foreign loans, which make up the bulk of the G7’s pledges, are among the factors holding back the use of international funds for climate policy.
“This is a marathon, not a sprint,” warned a diplomat from a G7 nation, which expects long delays in offshore wind farms.