What issues will be discussed at the upcoming annual meeting between the working group and the government in order to push the private sector’s role?
|John Rockhold, head of the VBF’s Power & Energy Working Group |
Based on the November 2021 draft, meetings, and follow-up requests for comments, we have the Power Development Plan VIII (PDP8) that is addressing Vietnam’s economic, environmental, and social needs in line with international climate agreements.
We can always discuss percentages of different technologies but as we realised in PDP7 actual technologies, financing, and social and environmental circumstances at the time of implementation will drive the actual mix at implementation.
At the end of PDP7, Vietnam installed a renewable power mix of hydro, solar, wind, and biomass at 55.3 per cent or 38,362MW, taking a lead in Asia.
The Vietnamese government must be congratulated on kick-starting renewable energies with subsidised feed-in tariffs and making a power purchase agreement (PPA) backed by Electricity of Vietnam (EVN) bankable with a Moody’s rating. This has allowed Vietnam to attract both foreign direct investment (FDI) and domestic funding, and develop private sector renewable energy planners, operators, and manufacturers.
However, a financially strong EVN for a bankable PPA is a prerequisite for sustainable power development. EVN cannot continue to pay substantial subsidies and take losses in the sale of electricity. International rates for electricity from renewables and gas/liquefied natural gas (LNG) are compatible with Vietnam’s roadmap to electricity pricing and meeting its international climate agreements. In addition, green financing is offering favourable rates to private investors to reduce CO2.
The demand for investment capital for the development of power sources and grids will average $10-11.5 billion per year by 2030. How can foreign-invested enterprises contribute to Vietnam’s transition to sustainable energy?
They welcome the opportunity to provide continued realistic input into the policy dialogue regarding the development of the country’s energy sector, particularly as it relates to achieving appropriate support for ongoing economic development whilst addressing environmental concerns.
The recent draft of the PDP8 in November 2021 has an estimated investment cost of $117.82 billion for power generation/sources and $13.97 billion for power transmission grid for 2021-2030, the vast majority of which must come from the private sector. Hence, any policies put in place must serve the long-term interests of the country as well as FDI and Vietnamese private sector contributors.
If it was not already clear, the COP26 summit made it certain that the world has turned to phase down the use of coal. Governments, multinationals, the Vietnamese private sector, and banks – in short, all major institutions with a stake in energy – have agreed that its negative environmental impacts far outweigh short-term economic gains, and there are sufficient, more sustainable alternatives to pursue.
To attract the funding necessary to move away from coal, Vietnam will need bankable and economically feasible energy projects. However, to maintain grid strength and growth, Vietnam must also secure a baseload sufficient to replace coal.
In addition, we need to work with the government to further progress discussions to consider a bankable legal framework for high-quality energy projects to get funding from the international financing market.
The Vietnamese private sector recognises that offshore wind has a high potential in Vietnam and in contributing as a baseload for the national grid when it is of a large enough scale. FDI around the world is funding large-scale offshore wind projects and now many are being built with power storage capacity in the form of “green hydrogen”.
This would be used to reduce Vietnam’s CO2 as a replacement fuel for LNG/gas fire power plants.
Many foreign investors have been interested in developing large offshore wind farms in Vietnam. However, to develop a large offshore infrastructure project such as offshore wind farms, Vietnam must address the current legal uncertainties. This starts with the inadequate legal framework under the Law on the Sea 2012 and related decrees.
Elsewhere, batteries are playing an important role in the industrial power sector. However, they are currently still expensive for household electricity. There is potential for foreign-invested enterprises to fund indigenous iron/saltwater batteries, and others.
Hydrogen is another important part of the long-term solution. While too expensive for power plant use today, FDI is made in the development, research, and international investments worldwide and this should make prices affordable in the not-too-distant future.
Vietnam should therefore ensure that LNG-to-power and offshore wind projects are having hydrogen in mind.
The Vietnamese private sector also welcomes the government’s commitment in the PDP8 for direct PPAs behind grid renewable energy. It looks forward to the government’s continued engagements in the introduction of a direct PPA using the national grid between power producers and users.
From an economic private sector development perspective, we urge the government to ensure that new power projects are driving Vietnamese private sector capacity. Such action has a huge potential for not only driving the tax base and providing the energy necessary for economic growth, but also training entire generations of Vietnamese companies with the needed technical and managerial leaders.
Therefore, all new power projects should engage Vietnamese companies wherever possible from planning to building and on to operation and assisting in on-the-job and institutional capacity building. This must be a priority for any new power project.
What are the challenges for energy projects in Vietnam and how can the country satisfy both its economic growth ambitions and environmental ambitions?
One of the great challenges with respect to engaging Vietnamese companies in large-scale international projects of this nature is to ensure they can pass international financial due diligence.
International financiers will not support companies that cannot demonstrate bookkeeping and accountability at international standards. Hence, this is a great impediment to international financing options, and the Vietnamese government should ensure that local companies that are leading these projects will be able to meet international standards with adequate support for enhancing bankability where necessary.
This can be done, but it will require projects that include strong consortiums between Vietnamese and international companies; demonstrated operational experience and technical capacity; ready financing and equity provision; ability to pass international due diligence; and scale-to-grid development.
Such characteristics for future power projects would put Vietnam very clearly in a place where the country can satisfy both its economic growth ambitions and its environmental sustainability ambitions, leading to energy and power security and independence.