A heat wave in Vietnam in May and June of last year led to major power shortages across the north of the country. Factories owned by some of the world's largest tech firms, including South Korean tech giant Samsung, experienced weeks of blackouts that the Vietnamese government says caused $1.4 billion (€1.29 billion) in economic losses, roughly 0.3% of GDP. But the bigger casualty was Vietnam's reputation.

Vietnam was arguably the biggest winner of the global offshoring of supply chains away from China that began in 2018 with then-US President Donald Trump's trade war with Beijing. This allowed Vietnam to attract some of the world's largest companies — Intel's biggest test and assembly plant is located in Ho Chi Minh City, while Samsung Electronics, Foxconn, and Canon all have set up shop in Vietnam.

Why Vietnam is returning to coal

However, Vietnam now faces stiffer competition from the likes of Thailand and Malaysia for tech investment, meaning Hanoi must prove it can keep energy flowing into factories.

According to World Bank data, Vietnam faces competition to attract higher-end microchip manufacturers as its infrastructure is less developed and its worker productivity rates are weaker than those of some of its Southeast Asian peers.

Hanoi has turned back to coal to prevent more power cuts this year, a prerequisite for attracting advanced semiconductor fabrication, a high-precision industry extremely sensitive to power disruptions.

In March, the Vietnamese government made assurances to multinational companies that there would be no more power cuts this year.

In normal times, coal-fired power plants account for just over a third of the country's total installed power generation capacity. However, according to data from the state utility Electricity of Vietnam, they have generated around 67% of the total electricity output in recent weeks.

Imports of coal, mainly from Indonesia, have increased by 68% in the first four months of this year, according to Vietnamese news reports.

Domestic production has also skyrocketed. Vinacomin, Vietnam's largest coal miner, says its sales between January and April rose by around 14% from a year earlier.

However, all of that may not be enough, especially as Vietnam has been hit by more heat waves since January. Reuters revealed this week that Vietnamese officials have asked Taiwanese tech giant Foxconn, the supplier of Apple products, and other multinationals, to voluntarily reduce power use by 30% at their assembly plants in the north of the country.

Disrupting Vietnam's green transition

Vietnam's uptake of coal this year could dampen relations with the European Union, one of the most active partners in Hanoi's transition to green energy.

In 2022, the EU and G7 partners agreed to a $15 billion Just Energy Transition Partnership (JETP) with Vietnam, a mixture of public and private funding for energy transition projects.

The European Investment Bank, the EU's lending arm, is also heavily committed to financing Vietnam's green agenda.

Additionally, Vietnam is financing renewable projects abroad in order to import energy. The 600-megawatt Monsoon Wind Power Project, the largest in Southeast Asia, will supply energy to Vietnam's national utility for 25 years when it is finished next year. Vietnam has financed at least another 10 wind or solar projects under construction in Laos.

According to Hanoi's Power Development Plan 8, published in mid-2023, Vietnam will reduce coal to around a fifth of the total energy supply, down from 30% in 2020.

However, in terms of overall output, coal-fired power stations will actually increase their production by around half by 2030, the year Vietnam's CO2 emissions will peak, stated a report from the Heinrich Böll Stiftung, a German think tank, in March.

A further problem is that many of Vietnam's renewable energy projects aren't expected to come online for several years.

In the meantime, export-dependent Vietnam will use coal to keep the factory lights on.

Vietnam: 'EU understands' challenges the country's facing 

Le Hong Hiep, a senior fellow at the ISEAS — Yusof Ishak Institute in Singapore, doesn't see this as a major hindrance to Vietnam's relations with the West.

He told DW that it is likely to be "a temporary solution to address a potential power shortage that Vietnam may face during the summer." He added that if blackouts occur again, they could also impact factories owned by EU investors.

"The EU understands the short-term challenge Vietnam is facing and will not be upset by Hanoi's approach to resolving this issue."

However, there have been rumblings of discontent in Europe over Vietnam's commitment to its expressed green promises.

Last December, Vietnam made headlines by announcing a 200-page implementation plan for the JETP scheme at the COP28 event in Dubai.

European Commission President Ursula von der Leyen said Vietnam's Resource Mobilization Plan was a "great milestone" for the green economy.

However, leaked private briefing notes from UK government officials cast doubt on the ability of Vietnam's environment ministry to influence other "skeptical" ministries about the green transition, according to reports by Politico Europe.

According to the leaked briefings from the UK, a partner in Vietnam's JETP scheme, Hanoi's environment ministry is "politically weak," while the energy, finance and planning ministries are engaged in "persistent obstructionism" and "footdragging" over the transition away from coal.

Progressives on the march in Hanoi

On the other hand, those briefings also noted that the green agenda has backing from Vietnamese Prime Minister Pham Minh Chinh, one of the "progressive elements" in Hanoi who understands that Vietnam must attract outside investment for its clean energy sector.

Chinh has now emerged as the favorite to become the next general secretary of the Vietnamese Communist Party after months of political turmoil, which included the resignations of the state president and National Assembly chair and the appointment this month of a reshuffled Politburo.

It is thought that Chinh's main rival for the top job is To Lam, who has just been sworn in as the new president, one of the country's top four in the political system, but analysts often regard them as a powerless, symbolic office. After much deliberation within the Party, Lam was not allowed to also keep his post as public security minister, an indication of his loss of power during the recent reshuffle.

Bill Hayton, associate fellow at Chatham House's Asia-Pacific Programme, reckons To Lam has been "kicked upstairs" to the state presidency and "Chinh is the apparent winner of the power struggle in Vietnam."

If so, that would likely appease Vietnam's green transition partners who are confident in Chinh's commitment to the cause.

Edited by: John Silk