Fast-growing economy needs to diversify away from coal, with gas expected to play a bigger role.

As they step up efforts to combat climate change, many countries are pursuing an energy transition to reduce carbon emissions and develop renewable sources. Vietnam is no exception.

And while more renewables may be desirable, there will still be room in Vietnam's energy mix for fossil fuels as long as they are clean, according to Dang Huy Dong, the president of the Planning and Development Institute of Vietnam.

"Gas is by far the cleanest fossil fuel," he said at the Future Energy Asia 2020 forum in Bangkok last month.

Pointing out that the CO2 emissions from gas are half those from coal, Mr Dong said that gas, particularly liquefied natural gas (LNG), is the only meaningful solution for Vietnam to reduce emissions. The potential of hydropower in the country is almost exhausted and solar and wind power are not reliable enough, in his view.

"Only gas could provide Vietnam with a practical energy supply, in particular LNG," said the former deputy minister of planning and investment.

Electricity generated by gas, he added, has become more cost-competitive because of falling fuel prices, improved efficiency and technologies. At the same time, the price of coal-fired power is rising due to supply and financial limitations.

Consequently, Mr Dong believes Vietnam needs to move away from coal to other sources, as China and many other countries are doing.

"In the interests of environmental protection and sustainable development, more and more provinces in Vietnam are demanding a change from coal projects to LNG power projects," he said.

Currently, coal-fired power plants generate about 39% of the electricity consumed in Vietnam. About one-quarter of the coal required must be imported. Hydropower accounts for 35%, gas-fired power 18.5% and renewables 7.2%.

Over the past decade, hydropower generating capacity has recorded the highest growth rate in Vietnam. The country also has 5.5 gigawatts solar capacity, representing 40% of all such capacity in Southeast Asia. This suggests a boom in renewable energy projects in Vietnam, where more attractive feed-in tariff (FIT) policies have been introduced for solar and wind power.

As the second largest power market in Asean, the country of 95 million is facing a critical supply challenge, with a need to triple capacity by 2030, according to Mr Dong.

"Rapid urbanisation and industrialisation have driven up electricity consumption in Vietnam dramatically," he said, adding that southern Vietnam was at risk of being undersupplied.

In addition to expanding capacity, the country's eighth National Power Development Master Plan (2021-30) calls for the promotion of energy efficiency and renewable energy, reduction of CO2 emissions and creation of an energy market.

The government sees an efficient and reliable power supply as critical for socio-economic development. Vietnam in 2016 abandoned plans for nuclear development, citing safety concerns following the 2011 Fukushima disaster in Japan. That has necessitated a shift in long-term planning to include other sources to replace the capacity that a nuclear plant would have delivered.

The government is also interested in greater integration of power development throughout Southeast Asia, deploying cheaper sources as well as optimising system operations. "I think this is somewhat in line with the (goals of) interconnectivity and interconnection within Asean," said Mr Dong.

There is also a need to develop an LNG industry in Vietnam, according to Ian Nguyen, managing director for origination and government relations of Singapore-based Delta Offshore Energy.

"LNG and gas are the future of Vietnam's power development … given the fact that Vietnam is a fast-growing economy in emerging Asia," he said.

"Apart from the environmental concerns, Vietnam also has the opportunity to substitute the import of coal with cleaner alternatives."

Mr Dong said that to make LNG projects viable in Vietnam, build-operate-transfer (BOT) schemes and foreign direct investment are the most feasible approaches. It normally takes seven to 10 years to develop a BOT project for LNG, and only a few have emerged so far.

Vietnam's investment law now provides more flexible and efficient approaches to attract foreign investors in power plant projects, he said.

Mr Nguyen believes that LNG projects in Vietnam should include foreign companies. The government can help them to understand the country, while at the same time monitoring progress to ensure that the public's best interests are served in terms of clean and affordable electricity.

In his view, four factors are involved in expanding the scale of the industry in the country: sustainability to continue generating long-term socioeconomic benefits, a welcoming attitude to foreign investors, execution to constantly monitor the agenda of projects, and innovation.

Doanh Chau, president of Vietnam Gas Group, believes small-scale LNG projects are more suitable for Vietnam at the moment, as they are more efficient and come with lower risks than big ones.

However, dominance of the industry by state-owned companies could be a barrier to LNG development in Vietnam.

"The best way is to let the private sector develop LNG," he said. "The government should make regulations instead of being a monopoly."

He believes a boom in LNG projects could begin as soon as the Hanoi government starts to allow the private sector to get involved at the right price.

Apart from a strategy for Vietnam itself, a regional strategy is also important, Mr Doanh added. "All Asian or Asean countries should work together, coming up with a regional strategy by sharing the resources. Talking about it is easy, but we do need to sit down and talk about it."