CHART OF THE WEEK: Vietnam's power mix shift to renewables is unrealistic

Its regulatory environment is still immature.

Vietnam's plan to review new coal-fired power projects and potentially shift its power mix to incorporate greater renewable energy and gas is unrealistic, as the regulatory environment for renewables is underdeveloped, domestic gas production remains in decline, and cheap coal is widely available.

As such, coal is expected to play the dominant role in the power mix by 2025, contributing roughly 45%.

According to BMI Research, Vietnam's power sector is expanding rapidly as the country's bright economic outlook and improving electrification rates drive power demand, and progress in the regulatory environment for the power sector strengthens investor interest in the market.

"We have seen a notable build-up of the project pipeline as companies look to take advantage of the attractive returns on offer; in particular, the pipeline for coal-fired power facilities has swelled significantly. In fact, Vietnam has the largest amount of coal-fired power capacity in various stages of development in the Asia region (excluding the two largest coal power markets in Asia - China and India), according to our Key Projects Database," it said in the report.

Here's more from BMI Research:

This growing dependence on coal-fired power generation aligns with Vietnam's Power Development Programme, which envisages coal's share in the power mix increasing to roughly 60% by 2030 (revised in April 2015). However, the announcement in January 2016 that the government will review the development of all new coal plants contradicts the Power Development Programme and is sending mixed messages regarding Vietnam's future energy agenda.

Furthermore, the government will increase its focus on shifting the power mix towards cleaner sources, notably gas and renewable energy, in a bid to reduce emissions. This rhetoric is undoubtedly catalysed by the global agreement reached at the UN COP21 conference in December 2015.

We believe Vietnam's plan to potentially shift its power mix to lessen coal use and incorporate greater renewable energy and gas is unrealistic. As such, we expect coal to play the dominant role in the power mix by 2025, contributing roughly 45%. 

Vietnam's regulatory environment for renewables remains underdeveloped, which will hinder the expansion of the sector and result in only marginal growth over the coming decade. The renewables project pipeline is limited due to the feed-in tariff structure, which is too low, meaning that project developers can not secure attractive returns on their investment