Heatwave and lack of rain add to Vietnam’s electricity woes

Hanoi — Vietnam is battling electricity cuts caused by a heatwave that has exposed structural and bureaucratic problems limiting available power to half of installed capacity and crimping efforts to unlock $15.5bn in global climate funding.

The manufacturing hub hosts large factories run by tech firms Samsung and Foxconn, among companies, but has struggled to upgrade its grid, a key step to satisfy demand and lure companies diversifying from China and elsewhere.

“Many factories have had to suspend production due to severe power cuts, and the cuts are regular,” said Hong Sun, chair of the Korean Chamber of Commerce in Vietnam. “This is a very serious problem for South Korean companies operating in Vietnam.”

European businesses have urged Vietnam’s government to move quickly to tackle the power crisis.

“Addressing power shortages requires more concerted efforts to ensure efficient decision-making process for electricity market reforms,” said Trang Nguyen, head of the Southeast Asia team at Australia’s non-profit Climateworks Centre.

But against that backdrop it is unlikely renewable energy will come to the rescue any time soon.

Despite a recent solar development binge, the Southeast Asian nation home to 100-million people is reliant on coal and hydropower. It has nearly 80GW of maximum installed power capacity, but the heatwave has cut output to less than half that at peak times, data for two-week averages to June 11 from state network operator EVN shows, or not even enough for normal days.

Average peak demand has grown about fourfold since 2006 to 42.5GW in 2021, an EVN presentation showed in February. That left the densely populated and industrialised north short of 4.35GW during the heatwave, the government has said.

Coal-fired plants accounted for about 60% of electricity output last week, EVN data showed, and May imports of coal, at 4.5-million tonnes, were the highest since June 2020, according to Refinitiv data. But even coal was falling short, as about 25% of capacity at such plants had been idled for repairs, the industry ministry said.

A lack of rain has hit output of hydropower, the No 2 source of electricity, with some northern provinces receiving just about a fifth of last year’s figure, weather data show. Water levels at almost all northern hydropower plants are too low for them to run at more than a quarter of designed capacity, the industry ministry has said.

While solar forms a quarter of Vietnam’s installed capacity after a surge in investment in renewable power in the previous decade, little of that 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 19.4GW by the end of 2020, but just 10.5GW was in use on average at peak time in the heatwave, EVN says. Few solar energy producers are hooked up to the grid, with many having waited years for tariff agreements.

Partly as a result, solar’s contribution to Vietnam’s power mix is set to drop to 8.5% of installed capacity by 2030, excluding rooftop panels, as other energy sources gain share under a power plan for this decade approved in June.

Wind power projects, slowed by administrative hurdles and the Covid-19 pandemic, saw about 12.5GW go unused by February, after missing a 2021 deadline for government authorisation to sell electricity at more favourable prices, according to an internal document from a member of the Group of Seven (G7) nations seen by Reuters. Some are still negotiating the tariffs.

Donors from the G7 and others, who pledged $15.5bn in December to help Vietnam cut reliance on coal, have long seen wind, particularly offshore farms, as promising, given the long coastline and shallow waters in windy areas near big cities. But Vietnam has not yet approved regulations for wind farms and plans for installed capacity of just 6GW 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 programme, say diplomats and officials involved in talks with Hanoi. A decision-making body envisaged to have been set up by April has not materialised and foreign officials worry that a first draft plan to use the funds will not be ready by November, as planned.

Vietnam's ministries of industry and environment did not reply to requests for comment.

Administrative hurdles and long-standing government reluctance to accept foreign loans, which form the bulk of the G7 pledges, are among the factors delaying use of international funds for climate policies.

“This is a marathon, not a sprint,” cautioned one diplomat from a G7 nation, who expects long delays on offshore wind farms

Reuters