This is the first of a series of discussions, roundtables, and conferences that the United Nations Development Programme (UNDP) in Vietnam intends to hold, in cooperation with the Vietnamese government to clarify policy options available to the government as it seeks to promote financial system deepening and development.
The objective of this roundtable discussion is to raise awareness on the issue of development finance for a just energy transition. It will discuss the wider context of development financing, the role of domestic, and international finance, lessons learnt from international experience and domestic policy innovations that can support a just energy transition.
|Vietnam is in critical need of transitioning to a just energy future |
At the roundtable, United Nations assistant secretary-general and UNDP regional director for Asia and the Pacific Kanni Wignaraja, who will be on a visit to Vietnam, will deliver a keynote speech on Financing Vietnam’s Transition to Renewable Energy: Beyond the Big Numbers.
Policymakers and experts will present policy recommendations that help attract the required finance for energy transition, lessons from Southeast Asia, and the role of green public development banks in accelerating climate action.
The subsequent panel discussion will focus on how policies could support private sector participation in the just energy transition.
At COP26 in November 2021 in Glasgow, the Vietnamese government pledged to achieve net-zero carbon emissions by 2050 with its own resources and international assistance, and halt investments in new coal power generation, scale up the deployment of clean power and phase out coal power in the 2040s.
One of the central challenges facing Vietnam is to meet climate change and energy transition commitments while ensuring that the country maintains its focus on achieving the Sustainable Development Goals, ending poverty, and promoting long-term economic transformation that leaves no one behind.
According to the UNDP, abundant, reliable, and affordable energy supplies are essential for economic development. Meeting the growing demand for energy is a huge challenge, as the country tries to meet the COP26 commitments.
As an emerging manufacturing hub and rapidly urbanising society, Vietnam’s demand for energy will grow rapidly over the coming three decades with transport, industry, agriculture, and construction transitioning from fossil fuels to electricity generated by solar, wind, and other renewable systems.
The UNDP said that increasing the supply of energy at affordable prices is a challenge of immense proportions. Achieving a just energy transition entails meeting this challenge while at the same time ending poverty and mitigating the impact of climate change on the most vulnerable members of society.
If renewable electricity generation is used to decarbonise the energy system as projected, the demand could increase five-fold by 2050.
According to the UNDP, finance is a key constraint to achieving a just energy transition. In this case, profitability and predictability are key factors.
Vietnam will work closely with development partners to access international financing, especially for imports of technology and equipment that cannot yet be produced locally.
However, given the required scale of investment and the government’s commitment to maintaining fiscal balance and macroeconomic stability, it is evident that most of the capital needed will be derived from domestic sources.
Nevertheless, Vietnam’s capital markets are still too small and the number of financial instruments available too limited to finance investment at the necessary scale. Financial development and innovation are therefore important components of a just energy transition.
At the roundtable, key messages will be highlighted, including:
- Finance is not a constraint. This is confirmed by private sector investors.
- Governance of the domestic electricity market is the main constraint on finance.
- Governance issues:
- A more competitive, transparent market would attract investors.
- Direct (bankable) power purchase agreements play an important role in unlocking finance.
- Investment environment: the regulatory environment needs to be transparent.
- Curtailment, transmission, and distribution issues for power producers.
- Once governance accelerators are in place, finance will come in from:
- Public investment: some large-scale investments are required to enable private investment in renewables. Substantial public investment is needed to strengthen interregional and intraregional transmission systems, balance supply and demand regionally and temporally at the lowest cost, store power that can be called upon during periods of peak demand, and determine the most suitable sites for offshore wind and expedite the issuance of permits and a range of other preconditions for private investment. The government will need to finance these through taxation, domestic bond issuance, and low-cost financing from donors.
- International private finance sources: this investment will bring technology and equipment that is not available locally.
- Domestic private sector financing: given the required scale of investment, and the government’s commitment to maintaining fiscal balance and macroeconomic stability, it is evident that most of the capital needed will be derived from domestic sources, and national development banks in other countries can provide long-term domestic finance for complex and slow-gestating projects.