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Vietnam Today

Report: Coal power to continue to decline

Released at: 20:28, 11/06/2019

Report: Coal power to continue to decline

Photo: Carbon Tracker

Carbon Tracker releases "Here comes the sun (and wind)" report on June 11.

by Minh Do

Carbon Tracker has released its latest report entitled “Here comes the sun (and wind)”, containing the findings of a coal power economic analysis for Vietnam to understand the potential for asset stranding and the relative competitiveness of renewable energy.

There are three economic inflections points that will make coal economically obsolete over time: (i) when new renewables outcompete new or under-construction coal projects; (ii) when new renewables outcompete existing coal plants; and (iii) when new firm (or dispatchable) renewables outcompete existing coal plants. Its analysis highlights how coal power is already losing its economic footing in Vietnam, independent of a carbon price or more stringent air pollution regulations.

For the first inflection point, by 2020 it will be cheaper to invest in new solar PV than new coal projects and by 2021 for new onshore wind projects. These changing cost dynamics post a significant stranded asset risk if investors and policymakers decide to go ahead with the 32GW of coal power capacity in the project pipeline. The capital recovery period for new investments in coal power is typically 15-20 years, and Carbon Tracker therefore considers these investments high risk, as burning coal to generate power is unlikely to be a least-cost option before debts are fully amortized. Moreover, these estimates could prove highly conservative, especially if policymakers introduce reverse auctions.

For the second inflection point, it could be cheaper to build new solar PV and onshore wind projects than operate existing coal plants as soon as 2022. Both solar PV and onshore wind deployments in Vietnam have experienced impressive cost reductions over the past four years, declining by around 50 per cent and 30 per cent, respectively.

The report expects these deflationary trends will continue and, in the near future, new investments in renewable energy will likely cost less than running coal plants. Moreover, as with the first inflection point, these estimates could be brought forward sooner with a policy framework to accelerate the learning curve of renewables. In order to minimize stranded asset risk, policymakers should have a coal capacity retirement schedule agreed to and implemented when the second inflection point is reached.

Inflection point three, Carbon Tracker wrote, is clearly outside the scope of its analysis and will likely form part of future research with local experts. The challenge for policymakers at this point is no longer whether renewable energy will be the least-cost option, but rather how to integrate wind and solar PV to maximize system value. For instance, the International Energy Agency (IEA) notes that it is possible to get to 15 per cent penetration of solar PV and wind by simply upgrading some operational practices, such as better grid codes and demand forecasting, which are not capital intensive.

The report offers three recommendations for policymakers. Vietnam should stop investing in new coal projects now and plan to develop a retirement schedule for its existing coal network. If Vietnamese policymakers remain committed to coal power, the country will face a dilemma: continue to subsidize coal generators to maintain their financial viability, or keep tariffs artificially low to shelter consumers from higher costs. Both outcomes could prove unsustainable, as subsidizing coal generation will either anger taxpayers or energy consumers, while artificially low tariffs for consumers will deplete fiscal resources.

The Carbon Tracker Initiative is a team of financial specialists making climate risk real in today’s capital markets. Their research to date on unburnable carbon and stranded assets has started a new debate on how to align the financial system in the transition to a low carbon economy.

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