By Duong Tran

A U.S. National Nuclear Security Administration employee checks a Vietnamese highly enriched uranium removal shipment in Dalat, Vietnam. Nuclear power represents a critical option for the future of Vietnam’s energy mix. Source: NNSANews’ flickr photostream, used under a creative commons license.

Vietnam has an urgent need to boost its capacity of electricity generation if it wants to sustain current-level growth rates. The Vietnamese government has laid out an ambitious plan to meet future electricity demands, but making use of multiple energy sources remains a challenge. In this context, the U.S.-Vietnam nuclear cooperation agreement could play a critical role in shaping the country’s electricity production over the next decades.

Vietnam’s booming population and increasingly vibrant economy have put significant pressure on the government’s ability to meet electricity demand. Annual electricity demand growth will reach 15 percent by 2015, yet electricity supply has been lagging behind. For example, the Southern Key Economic Zone, which accounts for more than 70 percent of the country’s export revenue, along with its surrounding densely-populated areas, has been suffering from intermittent blackouts due to soaring consumer usage and a shortage of electricity supply from nearby power plants.

Prime Minister Nguyen Tan Dung in 2011 ratified the National Power Development Plan for the 2011-2020 period, with a vision to 2030, which outlined key strategies to help the government meet ambitious targets of electricity production. According to the plan, Vietnam’s electricity generation capacity will increase to 75,000 megawatts by 2020 and double that amount by 2030. Although Vietnam will continue to depend heavily on traditional sources such as hydropower and thermal power, renewable alternatives and nuclear power plants are expected to play a bigger role in the country’s energy production.

Realizing those targets, however, will require the government to deal with multiple challenges. By 2020, the government plans to have 52 coal-fired thermal plants in operation, making thermal power responsible for more than half of Vietnam’s electricity generation capacity. But the country frequently faces coal shortages due to high demand and inefficient mining. It will have to import a significant amount of coal starting in 2015 in order to meet the demands of new thermal plants.

Gas-fired thermal plants constitute another important component of electricity production for Vietnam, but attracting investment in gas-fired plants has been difficult despite Vietnam’s significant gas reserves due to artificially low, subsidized retail electricity prices. It was the main reason for failed negotiations between the state-owned Vietnam Oil and Gas Group and Chevron Corporation over gas field development in 2013.

Similarly, low prices offered by state-owned Vietnam Electricity for wind power have prompted most investors to think twice about entering Vietnam’s renewable energy market. Low electricity prices also encourage more investment in power-consuming industries and further exacerbate the problem of the electricity shortage. However, raising electricity prices will likely be unpopular and put the Vietnamese government under significant domestic political pressure.

While hydropower has played an important role in Vietnam’s electricity production since the early 1990s, the country is reaching the upper limits in terms of its hydropower potential. In addition, uncertain economic benefits and environmental concerns have recently led the government to reduce the number of small hydropower projects.

Realizing the constraints posed by existing options, Vietnam has come to see nuclear power as a long-term, sustainable solution to its electricity needs. Less than 10 percent of electricity generation capacity will come from the first two nuclear power plants, which are scheduled to be in operation by the mid-2020s. Six others in the pipeline will help increase total capacity to about 30 percent by 2040-2050. Back in 2011, Deputy Prime Minister Hoang Trung Hai confirmed that by 2050 there will not be any energy sources which could be used to replace nuclear power in Vietnam.

The U.S.-Vietnam nuclear cooperation agreement, or the 123 agreement, which allows the United States to license the export of nuclear reactor and research information, material, and equipment to Vietnam, could play a critical role in Vietnam’s long-term quest for energy sustainability. Although Vietnam has already signed similar agreements with seven other countries, including Japan, Russia and South Korea, the United States holds original technologies that are essential for nuclear reactors built by others. For example, the second nuclear power plant in Ninh Thuan province to be built by Japan will need to use AP 1000 Reactor, a technology from U.S.-based Westinghouse Corporation.

Russia and Japan have already committed significant resources and technology to build the first four nuclear power plants in Vietnam. However, the Vietnamese government is also seeking partners to build six other plants in order to reach total nuclear generating capacity of 10,000 megawatts by 2030. Meanwhile, U.S. companies such as Westinghouse and GE Hitachi have consistently expressed interest in providing Vietnam with nuclear systems. These U.S. multinationals are eager to participate in a market that still has tremendous room for competition.

In addition, Vietnam faces a serious shortage of capable personnel working in the field of nuclear technology. Difficulties in training staff have in part caused a delay in the construction of Vietnam’s first nuclear plant. The 123 agreement will facilitate U.S. companies’ commitment to help Vietnam develop human resources necessary for the operation of future nuclear power plants.

If Congress does not enact a joint resolution of disapproval, the 123 agreement will automatically enter into force in the coming weeks. It will greatly facilitate U.S. companies’ involvement in Vietnam’s nuclear power market and provide a timely assurance to the country’s nuclear sector over the next decades.

Mr. Duong Tran is a researcher with the Sumitro Chair for Southeast Asia Studies at CSIS.