Energy savings offer food for thought

Vietnam’s food and beverage processors still suffer from uncompetitive practices Photo: Le Toan

Prospect and challenges

Ministry of Industry and Trade (MoIT) forecasts show that Vietnam’s food consumption is expected to grow 5.1 per cent per year until 2016 to reach $29.5 billion. Per capita food consumption this year is estimated at VND5.8 million or $316 per year.

Vietnam’s food and beverage producers make a major contribution to the economy, providing substantial tax contributions to the government. The sector also boasts upbeat returns on equity (ROE) and returns on asset (ROA) rates.

However, skilled workforce shortages and limited capital combined with uneven levels of technology, with few firms capable of buying cutting-edge technologies, are factors that make growth far from a smooth route for the sector.

“Most of Vietnam’s food processing and beverage businesses are mostly small and medium in size. In general, they use inefficient technologies and their production processes are improperly managed, which make them less competitive. The sector can potentially save 15-25 per cent of its energy use,” said Romel Carlos, programme manager, Sustainable Energy Finance at the World Bank Group's International Finance Corporation (IFC) in Vietnam.

“However, energy efficiency practices in the sector are limited. This is due to a lack of internal capacity, limited information on available technology and limited availability of external technical service providers,” said Carlos.

Carlos claimed that cheap energy prices have served as a disincentive for enterprises to invest in improving the efficiency of the energy use despite their awareness that electricity prices would be ratcheted up due to the privatisation of the energy market.

Compared to other countries in the region, Vietnam’s current electricity tariff is only around 8 US cents per kWh compared to Thailand’s 15 US cents or the Philippines’ 25 US cents per kWh.

“Firms lack finances to address energy efficiency investments. With the prevailing economic downturn, enterprises have tended to invest more in short-term measures that will allow them to survive, which makes energy efficiency a low priority to them,” Carlos underscored.

Solutions

According to Energy Saving Research and Development Centre director Le Hoang Viet, businesses could receive support for their energy efficiency investments.

Apart from government-funded programmes, enterprises can obtain loans from local banks with dedicated energy efficiency credit lines or can tap energy service companies (ESCOs) to provide energy performance contracts.

“Energy performance contracts provide firms with the option to either invest by themselves and request the ESCOs guarantee the savings from the energy efficiency improvements or let the ESCOs invest based on a shared savings agreement. These arrangements have been successfully applied in many countries,” said Viet.

Improved energy efficiency can be supported by better awareness on the issue through the media, conferences, workshops and exhibitions, Carlos claimed.

The MoIT’s National Energy Efficiency Campaign was launched in November 2012 with support from the Danish Embassy and IFC, targeting energy intensive enterprises.

Businesses are also encouraged to conduct energy audits to evaluate existing systems and identify improvements that can provide better energy efficiency.

In developing energy management action plans, clear monitoring and reporting systems should be established with results disseminated across the company.

“This will help firms make the correct decisions and prioritise energy efficiency projects that will maximise their benefits,” said Carlos.

The column is written in collaboration with the IFC