Weighing green options in rising energy demand

Viet Nam’s government is trying to attract investment into renewable energy development. Do you think that Viet Nam currently has sufficient advantages, mechanisms, and policies to lure investors into renewable energy projects?

Viet Nam’s economy is growing at over double the rate of most developed markets (WB 6% in forecast in 2017) and growth in electricity demand is forecast to be 10% per year from now until 2030 –making Vietnam an attractive opportunity for energy investors. The Vietnamese government has taken some important steps to increase investment in renewable energy and tap the huge potential that the country has, including using are Feed-in-tariffs (FIT). FITs make a commitment from power companies to purchase electricity from a renewable project at a fixed amount over 15-20 years, providing predictability for both the buyers and sellers of energy. A recent report from GGGI called “Pushing the Envelope on Renewable Energy”, which looked at six countries across Asia (China, India, Philippines, Indonesia, Thailand and Viet Nam), showed that though price of feed-in-tariffs need to be set high initially, these can quickly come down. For example in India, the national auctioning program saw solar tariffs reduce from 16 c/kwh in 2010 to under 4 c/kwh today.

One challenge is FIT levels set in Viet Nam for wind and biomass energy today are too low to attract the levels of investment needed for the country –  despite wind potential of 10 to 12 GW by 2035 we see only 159 MW today[1].

However, due to the country’s strongly growing demand for energy, and because many foreign investors want to invest into coal-fired power projects, which have lower costs than renewable energy projects, Viet Nam’s government still has to develop coal-fired power. Do you think that Vietnam should continue attracting coal-fired power?

Coal is not the cheapest form of electricity for Viet Nam – the cost of solar and wind has decreased dramatically, making it competitive with coal in Viet Nam, many countries, such as India, are scrapping plans for future coal power. Further, Viet Nam will import 19 million tons of coal by 2025[2], with rising costs and exchange rate fluctuations this will have a negative impact on debt – EVN is already responsible for around 37% of government debt[3]. Renewable energy, with the right government policies, can be provided by the private sector, ensuring the government doesn’t have to take on more public debt to build the energy infrastructure.

There is a huge environmental and health impact of coal power, clear in all big Asian cities from Beijing to Seoul – and indeed Hanoi. Air pollution has become the number one environmental problem affecting people’s health, impacting 300 million children worldwide and contributing to the premature death of 600 thousand children every year. Air pollution was worse in China than in Vietnam, but aggressive action by the Chinese government, from closing coal fired power plants all around Beijing, to allowing only electric scooters, and replacing all buses by electric models is addressing the problem. Expanding coal fired power plants in Viet Nam will worsen already poor air quality in Hanoi and is likely to cause a health and environmental emergency just as it has in China, India, Korea and Mongolia.

In addition to low feed-in-tariff, firms are also claiming that unclear power purchasing agreements (PPAs) determined by Electricity of Vietnam is among many hurdles for developing renewables in Vietnam. From international experiences, how can Vietnam develop renewables effectively while ensuring the benefits of the government and investors?

One challenge in the current PPA is constant grid connectivity. If, in the event the grid becomes disconnected, MOIT fulfil their financial commitments to solar producers while working to reconnect the grid, this would reduce risk. With decreased risk comes decreased costs to Viet Nam, benefiting the whole country, including the government and citizens.

Viet Nam is also moving ahead with a mechanism for direct power purchase agreements, where companies, such as factory owners, can buy their renewable energy directly from the producer, this is a welcomed policy intervention by the government of Vietnam and will result in an increase of renewable energy.

The speed and depth of the ongoing energy transformation, to renewable energy and to electric mobility, is certainly surprising many around the world, including Viet Nam. How is it important to the Vietnamese government and investors?

Transformation suggests a gradual process, but we are actually in the middle of an energy and transportation disruption. A disruption is a very rapid technological change, like the car replacing the horse. Renewable energy has already become the cheapest form of energy, rapidly displacing fossil fuels. Falling battery prices will soon make local energy storage economical and will displace centralized electricity grids by decentralized systems with local storage. Electric vehicles, powered by clean energy, will likely displace petrol cars in ten years. Shared autonomous vehicles, say selfdriven Uber taxis, are already on the road and can cut the cost of transportation, reduce the number of vehicles by 3X, and end traffic jams and parking problems. That will enable a re-organization of our cities towards green, smart cities where parks and urban agriculture replace highways.

Some governments will be in the forefront of this new world of renewable energy and electric mobility. They will innovate first, develop the right policies, and invest together with the private sector, creating the new Googles, Amazons, Baidus and Alibabas that will drive green growth with new green jobs.

Other countries and investors will be slower, which risk being left with stranded assets, unproductive investments, as well as more and more serious environmental and health problems.

Viet Nam has shown that it can innovate rapidly, developing new products and markets, as it did to become the world’s number two coffee exporter in a relatively short period of time. Viet Nam’s government and investors have to strive to be at the forefront of this green growth energy and mobility revolution. That is the mission of the Global Green Growth Institute: supporting and partnering with our members to accelerate their transformation to a green growth economic development pathway. We see tremendous opportunities for Viet Nam and are ready to share the experience of other GGGI Member countries. We see a future in which Viet Nam maintains its strong economic growth, but growth that is also environmentally sustainable and socially inclusive – that is green growth.

[1] Vietnam energy outlook, 2017, MOIT and Danish Energy Agency