3. Inflection point three
Inflection point three is clearly outside the scope of this 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 to maximise system value. For instance, the International Energy Agency (IEA) notes that it is possible to get to 15% penetration of solar and wind by simply upgrading some operational practices, such as better grid codes and demand forecasting, which are not capital intensive.
If Vietnamese policymakers remain committed to coal power the nation will face a dilemma: continue to subsidise coal generators to maintain their financial viability, or keep tariffs artificially low to shelter consumers from higher costs. Both outcomes will likely prove unsustainable, as subsidising coal generation will either anger taxpayers or energy consumers, while artificially low tariffs for consumers will impact fiscal resources. In the context of this analysis, Carbon Tracker offers three recommendations for policymakers.
1. Stop investing in new coal capacity immediately.
New investments in coal capacity will unlikely be a least-cost solution over the capital recovery period. This period is typically 15-20 years for new coal capacity and 5-10 years for retrofits relating to performance enhancements or control technology installations. Our analysis highlights how coal power is losing its economic footing, independent of additional climate change and air pollution policies. As such, Vietnam should stop investing in new coal immediately.
2. Develop a cost-optimised retirement schedule for the operating fleet.
Vietnamese policymakers should develop a retirement schedule based on the LRMC of individual coal units. This analysis will allow policymakers to close the higher cost units first and lower cost units last, which should help ensure the end consumer receives the lowest cost electricity possible.
3. Subject the retirement schedule to resource planning analysis to understand system value of units.
Once policymakers have developed a cost-optimised retirement schedule at asset level, they should then undertake systems planning analysis to take into consideration the system value of individual assets. Understanding system value is outside the scope of this analysis. Carbon Tracker intends to conduct this analysis with local partners and make this research publicly available.