Made-in-Vietnam energy plan aims for investment

US renewable energy firms are responding to the latest moves from the Vietnamese government in the renewable energy sector. While the capital costs of wind, solar, and other renewable energy technologies continue to fall worldwide, Vietnam has yet to benefit from the lower prices and the necessary private investments called for in the revised Power Development Plan VII (PDP VII) for renewable energy.

These renewable firms have been settling cautiously into Vietnam but looking to the international market for their operations, while keeping an eye on local market movements. US firms in Vietnam with a corporate policy of a zero carbon footprint have difficulty meeting those standards here.

US companies, in co-operation with the governments of both Vietnam and the US, are promoting technology and know-how nevertheless. This is seen by such joint co-operation events as Energy/Smart Cities Ho Chi Minh City at Saigon Hi-Tech Park on April 20, and Meet the USA in the city on June 7, both in co-operation with the American Chamber of Commerce (Amcham). At both events, renewable and energy-efficient technologies will be highlighted, showing what can be done with renewable energy farms and micro-grids for industrial parks, solar, and “smart city” technology.

Last December, the newly-formed US Energy Industry Group in Vietnam and the Ministry of Industry and Trade (MoIT) met in Hanoi to hear and discuss US technology and the Amcham-sponsored Made-in-Vietnam Energy Plan, which supports the greater use of clean technology in Vietnam’s 2016-2030 plans. Some American companies explained the latest technology and how they could benefit Vietnam in the sectors of solar, wind, energy efficiency, and waste-to-energy. US engineering know-how and technology are now active in local renewable and energy-efficient projects under private sector contracts. Capacity-building for Vietnam is taking place in the quality-control engineering of wind turbine construction and erection. So far 16 of 27 turbines have benefited from this in central coast and highlands projects. Over 35 community solar projects using US-engineered design, technology, and capacity-building have taken place in the Mekong Delta. US companies, architects, and engineers have worked together to construct and operate some of the world’s most energy-efficient buildings, some of which have reached the LEED Gold level.

But risks are slowing much-needed private sector investments in renewable energy. The risks of being unable to finance the current power development plan are also high. The Made-in-Vietnam Energy Plan estimates that the PDP VII’s investment requirements average around $6.9 billion annually between 2015 and 2020, and rise to $11.4 billion annually between 2020 and 2030. For comparison, Electricity of Vietnam’s (EVN) annual capacity-building investment, as stated in its annual reports, was $2.3 billion in 2013 and $2.8 billion in 2014.

This financing gap will need to be covered by private sector investment, from domestic and foreign sources. Only small, limited loans are now available from international financial institutions and donors, due to Vietnam’s economic status.

But in Vietnam, the regulatory environment and policy decisions have not attracted growth to renewable energy. Total clean energy investment in 2014 in Vietnam was estimated at just $67 million, and has fallen sharply from $821 million in 2009 with the discouragement of new hydropower projects. Strategies need to be implemented to attract projects that are bankable and reduce the need for government guarantees. The use of renewable energy is also becoming increasingly important for many major multinational corporations. Increasingly, multinational companies are emphasising the importance of their global partners using clean energy to power their facilities and support their investments for this purpose. More and more companies are looking to continually reduce their carbon emissions per unit of output by promoting energy efficiency and renewable energy supplies.

Producing standardised power purchase agreements (PPA) took over a year in wind and waste-to-energy, which is too long, and is part of the reason why Vietnam has not seen investments like the above. Private sector investors also point to the fact that PPAs issued by EVN – which has no credit rating – are considered risky by private banks and investors.

The Vietnamese government is not in a position to give a government guarantee to EVN to offset risk. The private sector points to donor banks to provide such guarantees in a manner used in other countries. The renewable energy sector is new and has few experienced planners, engineers, and contractors – creating a need for expensive foreign inputs until local capacities are established. The proposed feed-in tariff is not enough to offset risks and make commercially-feasible investments. Technical standards for connection between the national power grid and renewable energy projects have yet to be determined.

Last week’s meeting between the Vietnam Business Forum’s Power and Energy Working Group and the World Bank was a step in the right direction. In the meeting, the World Bank announced that it would assist EVN in establishing its credit rating, and provide other support towards a financially viable power sector. The World Bank appointed a liaison to represent the private sector, and both parties agreed to regular meetings.

This is what progress looks like for the renewable sector in Vietnam. To solve these capital issues, the needs of the market must be heard.

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