Vietnam may back off from commitment to coal as plants get harder to build

Vietnam may scale back a plan to boost coal’s role in its power generation as financial restrictions and local environmental concerns make it more difficult to build plants.

The National Steering Committee for Power Development has recommended eliminating about 15 gigawatts of planned new coal plants by 2025 due to slow progress and the unwillingness of some regions to develop them, according to state-controlled news website VietnamPlus. The central government will have final say on the plan.

The recommendation underscores how coal’s status as the cheapest and easiest option for developing countries to bring power to their people is being challenged on multiple fronts as richer nations shy away from the fuel. Global banks are refusing to lend, making it more difficult and costly to build plants that burn the dirtiest fossil fuel, while costs are tumbling for competing renewable generation.

Under the committee’s proposal, coal would provide about 37 percent of Vietnam’s electricity by 2025 instead of half as previously planned. Renewable power would help fill the gap, increasing to about a quarter of the country’s power from 13 percent in the existing version. The share for natural gas and major hydropower plants, which comprise most of the remaining capacity, would be left little changed.

The Vietnamese government is likely to put a greater focus on renewables in its new power development plan, which it aims to complete by June, said Daine Loh, an analyst at Fitch Solutions. Even then, threats of power shortages and the need to support economic growth mean the government will probably maintain its commitment to coal, she said.

Vietnam is a flash point in the global debate about coal power. About 17 gigawatts of coal power is already under construction, with another 29 gigawatts at various pre-construction phases, Loh said. It has the fourth-largest pipeline of proposed plants, according to BloombergNEF, many of which have drawn financing in past years from lenders in Japan and other countries.

Several banks in Japan, as well as South Korea and Singapore, last year joined lenders from Europe and the U.S. in limiting financing for the fuel because of concerns that climate change would mean the polluting projects would have to be shut before loans could be paid off.

The departure of Asian lenders will likely be an inflection point in keeping new plants in places like Indonesia and Vietnam from being financed, BNEF analyst Allen Tom Abraham said in a report on Tuesday.

Private-sector companies have proposed building about 20.3 gigawatts of coal plants in Vietnam through 2030, according to BNEF. Less than 8 gigawatts of that has reached financial close, and many of the remaining plants will never get financing, Abraham said.

Coal also faces local opposition in light of air-quality problems throughout Asia. In early January, an alliance of social and professional organizations in Hanoi focused on health and environmental rights called for construction to be suspended for 14 coal-fired plant projects with a total capacity of 17.4 gigawatts, according to the Thanh Nien newspaper.

Bloomberg – February 28, 2020