Vietnam’s Shifting Energy Landscape: A Shift Toward Solar and Away From Coal

Expanding Ambitions: Vietnam’s Push for Solar Energy

Vietnam is undergoing a significant transformation in its energy strategy, with a renewed focus on large-scale solar farms and a reduced reliance on coal and natural gas. Once aiming for just 5% of its energy to come from solar power, the country now targets an ambitious 16% by 2030—more than tripling its original goal. This shift reflects Vietnam’s growing economy and its need for sustainable solutions to meet escalating power demands. According to government projections, the nation will require over 211 gigawatts of energy by 2030, a 40% increase from earlier estimates and surpassing Germany’s current total capacity. This hefty target underscores both the rising power needs of its booming economy and the challenges in developing liquefied natural gas (LNG) projects, which are falling behind schedule.

From Offshore Wind to Onshore Solar: A Change in Strategy

A draft of Vietnam’s new energy policy, expected to be finalized soon, signals a significant pivot in its renewable energy approach. The revised plan scraps earlier ambitions to build offshore wind turbines, opting instead to expand onshore wind capacity, rooftop solar installations, and energy storage solutions. This shift is driven by the high costs and complexities associated with offshore wind and new gas projects. In contrast, large solar farms are seen as cheaper and easier to develop, making them a more viable option for meeting the country’s energy demands.

The Rise and Stall of Solar Power in Vietnam

Solar power in Vietnam experienced rapid growth from 2018 to 2020, bolstered by generous government incentives that allowed the country to leapfrog its neighbors and even some wealthier nations like the UK. However, this momentum stalled in 2020 as the limitations of Vietnam’s outdated electricity grid became apparent. The grid struggled to handle the intermittent nature of solar power, which is only available when the sun shines. This bottleneck led to grid overloading, effectively halting the construction of new solar capacity. As Dimitri Pescia of Agora Energiewende noted, "It was like the market almost stopped."

The Persistent Reliance on Coal

Despite its push for solar energy, Vietnam continues to heavily rely on coal, a polluting energy source that contributes to global warming. The country is on track to become one of the world’s top five coal importers, surpassing Taiwan, according to the International Energy Agency. This reliance on coal is driven by a combination of factors, including the need to compensate for lost hydropower capacity due to droughts and the surging demand for electricity as businesses relocate factories from China to Vietnam. Vietnam is already the second-largest coal producer in Southeast Asia after Indonesia, and its coal imports surged by 31% in the first three quarters of 2024, reaching 50 million tons.

Challenges in Transitioning Away from Coal

Phasing out coal in Vietnam is proving to be a slow and difficult process. The country’s coal-fired power plants are relatively modern, and operators have yet to recoup their investments, making it economically challenging to retire these plants early. As Giles Cooper, a partner at Allens, noted, "Phasing out coal in a country like Vietnam will take more time." Additionally, Vietnam’s grid infrastructure remains underdeveloped, struggling to keep up with the rapid growth of clean energy generation. While progress has been made, including improvements in managing intermittent energy sources, the grid remains a bottleneck in the transition to renewable energy.

Balancing Progress and Challenges: The Road Ahead

Vietnam is taking steps to address its energy challenges, including allowing electricity-intensive factories to purchase power directly from energy producers. This initiative aims to reduce pressure on the overstrained grid while helping large manufacturers, such as Samsung Electronics, meet their climate goals. Solar energy is seen as a key player in this direct purchasing model, offering a promising solution to bridge the gap between supply and demand. However, the lack of available land for clean energy projects near industrial zones remains a significant hurdle.

Looking ahead, Vietnam faces a delicate balancing act: expanding its clean energy capacity while continuing to rely on coal to meet surging demand. While the country has made strides in embracing solar power, the transition to a greener energy mix will require time, investment, and continued policy support. Vietnam’s energy landscape is evolving, but the road to a sustainable future remains fraught with challenges.