The role of renewables in recovery

Nguy Thi Khanh, executive director of the Green Innovation and Development Centre

COVID-19 has had a significant impact on the energy demand and output in Southeast Asia. Lockdown measures have decreased the electricity demand due to production halts in major factory and industrial units. Notably, global coal demand fell 4 per cent and oil demand contracted 8 per cent in 2020, mostly by curtailment in mobility and aviation.

As a result, the global oil price has plunged about 50 per cent to below $26 per barrel, the lowest since 2002. However, in terms of the electricity demand, Southeast Asia is one of the fastest-growing regions in the world and there is some concern that much of the resurgent global oil and coal demand will come from the region.

While the development and deployment of renewable energy (RE) has also been affected by the fall in the electricity demand, it has shown resilience according to data on monthly installations, awarded auctions, financing of new projects, and equity performance.

The world’s RE capacity rose 45 per cent in 2020, mainly due to an unprecedented boom in wind and solar energy. The disruption of COVID-19 to RE was in no small measure due to China’s role as a leading global supplier of the components of solar and wind infrastructure. As production and export were reduced or stopped altogether, many projects in ASEAN were delayed.

Governments across Asia have deployed substantial emergency capital in response to the pandemic, with an initial focus on protecting lives and livelihoods. To ensure long-term economic revitalisation, governments need to prepare long-term recovery and stimulus packages that carefully factor in existing vulnerabilities and inequalities, which are further being exacerbated by pandemic impacts.

Many countries in Asia were already facing the triple threats of climate change, biodiversity loss, and declining ocean health. In many major Asian cities, air pollution and water scarcity are already critical public health problems. Coastal populations, especially in Southeast Asia, are increasingly vulnerable to sea-level rise and increasingly frequent typhoons. With coronavirus spreading so rapidly, the links between health impacts, natural disasters, pandemics, and changes in the climate, oceans, and forests are becoming more evident.

For example, greater human incursion into animal habitats creates a higher risk of zoonotic diseases infecting humans. COVID-19 is not a coincidence but a logical consequence of humans moving into and destroying natural habitats of wildlife.

This trend needs to be stopped and RE can be of great help. Next to curbing emissions and mitigating climate change, investing in the energy transition delivers 3-8 times the return on the original investment.

Similarly, government spending on renewables and energy efficiency creates three times more jobs than spending on fossil fuels.

Energy transition can bolster energy security and make the economy and critical infrastructure more resilient to future shocks. Recognising these co-benefits, various countries including South Korea, China, Indonesia, and the Philippines have made green recovery efforts with various stimulus packages.

The Asian Development Bank (ADB) estimates that Asia’s infrastructure needs from 2016 to 2030 will exceed $26 trillion, including $14.7 trillion in the energy and $8.4 trillion in the transportation sector. As governments experiment with innovative monetary policies to fund big fiscal stimulus programmes, it would seem prudent to invest in projects that reduce carbon emissions and ensure a more sustainable long-term outlook – something akin to a green new deal for the region. Such an approach would use economic stimulus and recovery measures to strengthen the resilience of economies, invest in sustainable solutions, shore up climate adaptation, and engineer a just transition.

RE and climate action

Combining recovery efforts with necessary infrastructure investments can unleash the full transformative power of renewables, keeping long-term sustainability goals firmly in view. To maximise the impact of these investments, it is important to consider Vietnam’s capacity, policy design, regulatory architecture, financing options, and political economy.

Otherwise, there is a risk of misidentifying opportunities and roadblocks. The government noticed the growth in the RE market, the fall in the cost of solar and other benefits from switching to renewables, and has taken steps towards building a greener energy future for Vietnam.

The National Power Development Plan VIII is considering stopping the construction of 13 coal power plants, as well as enhancing the development of renewable energy.

The Resolution of the 13th National Congress stipulated in last February that Vietnam should adapt to climate change; prevent, combat, and mitigate natural disasters and epidemics; and manage, exploit, and use resources rationally.

Elsewhere, the motorcycle and car markets have taken a hit. In response, the Vietnamese government has started promoting e-vehicles. VinFast, for instance, is already the third-largest player in the market, exceeding 100,000 sales in a year. While electrical 2-wheelers have been deployed in many Vietnamese cities since 2014, the e-mobility sector only recently gained more traction, with the announcement of VinFast producing EVs for export to the US and e-buses for domestic pilots in Hanoi, Ho Chi Minh City, and Phu Quoc Island.

The revised Law on Environmental Protection 2020 has legalised Vietnam’s emissions trading scheme. The law took effect in last January.

Recognising that the post-pandemic period is an ideal time to adopt carbon pricing to set the foundations for a green recovery, this policy is expected to strengthen Vietnam’s commitment to greenhouse gas emissions reductions, the Paris Agreement, and its Nationally Determined Contributions.

Recommendations

Globally, there is an effort to anchor pandemic recovery measures to greening economies and building back better. However, recovery plans in Vietnam do not yet show clear commitments to addressing the triple crises the country is facing (health, the environment, and climate).

With the right policies, Vietnam could accelerate the clean energy transition, create jobs, address climate change, and improve public health. To this end, the government should consider the following recommendations:

- Establishing consistent and achievable targets for energy development and environmental stewardship for recovery. Clear targets for RE can offer certainty for investment. Abundant untapped wind and solar resources should be prioritised in energy planning;

- Realising Vietnam’s energy transition by committing to decarbonisation, decentralisation, and digitalisation, while maximising the potential of smaller, dispersed energy generation units;

- Internalising environmental and public health costs in fossil fuel generation, phasing out fossil fuel subsidies and halting fossil fuel plants and imports;

- Improving energy efficiency through technical regulations and providing financial support for the purchases of equipment and retrofits;

- Engaging a wide variety of stakeholders in the energy transition. Policies need to be linked to addressing urgent socioeconomic concerns, such as rising unemployment, economic slowdown, higher electricity costs, and increased health risks;

- Deregulating electricity markets to allow independent power producers and retailers to compete in all segments, including generation, transmission, and retailing;

- Liberalising the power market, increasing transparency, and simplifying procedures to capitalise on private sector interest in RE projects;

- Prioritising the needs of vulnerable populations in planning;

- Channelling the urgency of pandemic response to climate, energy, and environmental policies. Just as they recognised that Vietnam’s healthcare system would collapse under the unchecked spread of COVID-19, policymakers should show equal urgency in dealing with climate change and industrial pollution; and

- Promoting public awareness of the efficacy and potency of RE. Education and awareness-raising among policymakers and the public at large are critical.