Policy Outlook and Recommendations A sensitivity analysis has been carried out to assess

the robustness of the least-cost solution described above to price changes of imported fuels. Results show that the solution is robust to price variations across the analysed scenarios, with only minor substitution effects between oil and gas. A major reason for this is that the need to comply with the yearly RE requirement has higher influence on the composition of the energy mix than the fuel prices.

More information can be found in the background Technical Report (EREA & DEA, 2019a).

The expected continuation of the trend in the energy demand growth in Vietnam, coupled with the foreseen full exploitation of domestic fossil, hydro power and biomass resource potentials in the future (especially crude oil and natural gas reserves), can pose a challenge to sustainable supply of energy at the lowest system cost. A continued commitment to the RE targets for the power sector established in the REDS can reduce the reliance on energy imports after 2030, particularly coal, by mobilizing the domestic RE resources to supply the power generation (i.e. mainly with solar but also wind power). Moreover, a stronger

penetration of energy efficient technologies can further reduce the final energy demand, thus increasing the level of energy independence in Vietnam.

Vietnam is today a net energy importer, registering a rate of around 20% import dependency in 2017.

Considering the relevance of securing a reliable and safe energy supply at the lowest cost, a diversification of the energy mix can provide additional hedging against risks of shocks in the market affecting a specific commodity, thus increasing the resilience to price volatility and uncertainty.

Across the analysed scenarios, the general trend sees an increase in the imports of coal for power generation. To avoid coal lock-in effects¹⁴, action in the short term is needed to reduce coal (import) dependence in the long term. In this perspective, a constraint on coal consumption already before 2030, not least stemming from the pressure posed by coal-fired power plants on the environment and

Early actions to reduce the future coal demand are needed.

Figure 14: Net imported fuels and share of net energy imports in TPES across analysed scenarios

0%

C1-RE target C2-No new coal C3-EE C4-Combination C0-Unrestricted

C0-Unrestricted C1-RE target C2-No new coal C3-EE C4-Combination

C0-Unrestricted C1-RE target C2-No new coal C3-EE C4-Combination C0-Unrestricted C1-RE target C2-No new coal C3-EE C4-Combination

12,000

Electricity Oil Products Crude Oil Gas Coal Import share in TPES

In the short term, it is advisable to undertake a market analysis to evaluate the future supply options, including fuel types, suppliers, locations, transportation and transformation costs, development of receiving ports, terminals, storage solutions and required fuel infrastructure.

In addition to costs, the development plan for additional terminals and fuel infrastructure should consider the climate, environmental, social, and other benefits for the different options (i.e. mainly coal and LNG): LNG can offer the advantage of being a cleaner energy source from both a climate and air pollution perspective, as well as it could enhance the operational flexibility of the power system when integrating higher shares of RE.

Although effective in the long term, the implementation of such a transition should take into account the existing lifetime of coal-fired power plants, commissioning and decommissioning plans in the short term, eventual refurbishment projects including the introduction of emission control measures and the projected domestic coal reserves.

Furthermore, when considering LNG as a future option to supply the industry and power sectors in the mid to long term (from 2030 onwards), its impact on the total cost of imported energy, as well as the possible effects on GHG and pollution emissions reduction should be taken into account.

people’s health, and the difficulty in financing new coal-fired power plant projects, would bring the combined benefit of reducing the import of coal and limiting air pollution.

To increase security of supply by lowering the reliance on foreign energy imports and diversifying the fuel mix, additional measures can be considered targeting a regulation on fuel imports:

The transport sector in Vietnam, as for most countries in the world, is currently relying on oil products.

According to the analysis of the reserves’ projections, these will firstly be domestically refined from local crude oil (up to 2030) and mainly imported from abroad afterwards. A combination of measures could both reduce the energy demand and the reliance on foreign resources, primarily through the introduction

of higher fuel efficiency standards, followed by the promotion of fuel switching from the oil products to low-carbon option (e.g. electricity), as well as, on a minor scale, modal shift from private to public modes.

Focus on enhancing energy efficient vehicles by economic incentives and minimum efficiency standards to reduce oil import dependence.

The introduction of fuel efficiency standards would ensure the transformation of the transport fleet to new and efficient vehicles, both in the passenger and in the freight segments. A gradual increase of the efficiency standards can be considered, allowing the introduction of this regulation already in the short term and in alignment with the market landscape. Although not analysed in this report, blending requirements for biofuels might be also investigated, especially for the heavy-duty segments. Importantly, at the same time, the development of the adequate fuel and transport infrastructure (e.g. charging stations, railway expansion) should accompany this transition.

A policy focus on RE and EE offers the opportunity to better utilize domestic resources, reduce the reliance on energy imports and abate GHG emissions.

Untapped domestic energy potentials for power generation include RE sources, in particular, solar, wind (both onshore and offshore), and biomass.

Domestic bioenergy resources can supply the power generation, industry, and residential sectors in Vietnam with a total potential around 1200 PJ. The optimal allocation of the Vietnamese bioenergy potential to the different end-uses analysed in the EOR19 illustrates how future energy needs might be increasingly met through the sustainable mobilization of biomass resources with a shift away from the (rural) residential use towards the industrial sectors. The introduction of favorable tariffs and other market mechanisms for biomass use in the industrial sector could support this shift, as well as promote a fuel switch from coal towards biomass, including for industrial CHP plants.

Mobilizing the domestic biomass potential for energy production can reduce the import of fuel for industry and power sectors.

Energy Resources

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